Holiday EDInomics Part 4

Of all the presents exchanged this holiday season, what gift do you think was received by more people than anything else?

• Video Game Consoles
• Navigation Devices
• DVDs
• Clothing 

If you read the title of the blog you probably have already guessed that none of the answers above are the one I am looking for.  The answer is gift cards.  Gift cards have enjoyed phenomenal sales this holiday season.  An NPD Group poll found that 61% of consumers are giving gift cards this year.  I doubt you would find any other product category so frequently purchased as a holiday gift.

Although Christmas is over, the shopping has just begun for many.  Gift cards have contributed to a third big wave of holiday shopping (following 1) the Thanksgiving weekend and 2) the few days preceding Christmas).  A CNNMoney story posted earlier this week suggests that American consumers will spend $60B on retail purchases during the week between Christmas and New Years.  In 2007, December 26^th will ranks 6^th amongst the highest grossing retail shopping days of the year.   Of course, the post-holiday rush is not driven by gift cards alone.  Retailers often host aggressive merchandise promotions in their end-of-year sales.   Aftermarket accessories are another driver for post-holiday sales.  Consider all those electronic devices your family received on Christmas.  How many people will take to the stores in search of accessories, batteries or media to support these new gizmos?    But back to gift cards - the sales uplift received by retailers doesn’t stop at year end.  Gift card redemptions will carry forward into January providing a boost to first quarter sales for many retailers.

I have been fascinated by the growing gift card phenomenon in the US for the past several years, but it wasn’t until this holiday season that I put my finger on what really intrigues me.  It started with a visit to Safeway earlier this month.  While I accompanying my wife on a weekly grocery shopping trip, I turned the corner of an aisle and was amazed to see an entire rack of gift cards located on one of the end-caps.  This end-cap was prime real estate in the grocer’s floor plan, occupying space near the check out registers that would otherwise be reserved for a high-turnover promotion item.   But the plan-o-gram strategy was not what caught my attention.  What was fascinating to me was that most of the cards were not for redemption at Safeway.  The cards featured brands of third parties.  For example, there were a variety of cards from other retailers including DIY stores such as Lowes and Home Depot; department stores such as Kohl’s and Sears; and food service establishments such as Red Lobster and Outback Steakhouse.

Safeway is not the only retailer selling other retail brand cards.  General merchandisers such as Wal-Mart and Target; convenience store operators such as 7-Eleven and WaWa; and grocery stores such as Kroger and Albertsons are all selling gift cards.  Cards are available for telecommunications services such as long distance and wireless calling as well as for entertainment venues such as theme parks and sporting events.  And there are general purpose cards available from leading payment brands such as MasterCard, Visa and American Express.  Most interesting to me is the growing willingness of retailers to promote gift cards from other retailers.  The cards carried are never from direct competitors, but instead from popular food service, electronics, DIY and specialty store brands.   Well, at least, not traditional competitors.  I did find it intriguing that a grocery store would promote gift cards for food service chains.  One of the biggest challenges grocers face with increasing sales is the continuing trend of Americans to eat out at food service establishments.   In many respects, food service is a competitor to the grocery segment.  So the prominence of food service gift cards is either a gross oversight on the part of merchandising department or an ingenious strategy to capture sales from a non-core segment - the food service market.  I’ll assume the latter.

The New Retail-to-Retail Channel 

Typically retailers have limited their merchandise assortment to products they purchased from suppliers national brands, private label items they designed themselves and occasionally services from third party contractors.  Rarely, if ever, have we seen retailers selling products or services from another retailer.  The gift card has introduced a new horizontal, retailer-to-retailer channel into the market.

What are the implications for EDInomics?  We will explore this topic in a future post later this week. 

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Holiday EDInomics Part 3

It’s December 24^th.  For many gift buyers panic is beginning to strike (if it hasn’t already).  There are only a few hours before the stores will close for Christmas and the window of opportunity for 2007 holiday shopping will have closed.   The panic is especially high for shoppers who may not have received all of the gifts they purchased on-line.  There are only a few hours of parcel delivery remaining for those critical packages to arrive.  Some of these on-line gift buyers may find themselves disappointed.  What to do if you are one of these panic-stricken shoppers still missing a few essential gifts?

·         Some will stand by the window with nervous anticipation, hoping to hear the familiar roar of a parcel carrier’s truck engine as it travels down their street.

·         Others will frantically head to the stores, hoping to purchase a back-up gift just in case the shipments bought on-line don’t arrive.

But most will probably start by logging onto the Internet hoping to get an up-to-date status on their anticipated deliveries.  Unfortunately, many will fail to find satisfaction on-line. 

Lost Packages 

The largest, most experienced retailers provide consumers with visibility to the status of their Internet orders on-line.  A popular technique is to provide the consumer with a shipment tracking number.  The tracking identifier can be used on a third party site such as FedEx, UPS or DHL to identify the last known location of package.  However, many second and third tier on-line merchants still lack such an order tracking capability.  Status information is typically limited to “order received” or “expected due date.”  Those retailers without on-line order tracking sometimes provide a toll-free phone number for consumers to call.  However, customer service representatives in retail call centers rarely have more information about the location of the package than can be obtained on a web site.  Not only do these retailers not know when the package will arrive, but many do not even know when the package shipped. 

How is that possible you might ask? 

You place the order with the on-line retailer and then someone in the warehouse puts a packing label on the box and sends it to you. 

How hard could it be to track this process? 

Right? 

Wrong! 

Drop Shipped 

Unfortunately, it is not that simple.  Many retailers use a process called “drop ship” for on-line orders.  With drop ship, the retailer forwards the consumer’s order directly to the manufacturer for fulfillment.  The manufacturer ships the package directly to the consumer straight from their warehouse.  Some retailers even provide the manufacturer with custom-branded packaging materials to create the appearance that the package shipped directly from the retailer.  99% of the time this drop ship process is a strong positive for consumers.  By shipping direct from the manufacturer’s warehouse the package arrives faster and the price is lower.  If the shipment were routed through the retailer’s distribution center first and then forwarded onto the consumer, several additional days would be required.  Furthermore the shipping costs would be higher due to the use of multiple carriers and the need to involve more warehouse personnel.  The drop ship process is efficient for the retailer as well.  Using drop ship, the retailer does not have to hold as much inventory in their distribution center.  Drop ship is especially effective for:

·         Infrequently ordered products which would not be cost-effective for a retailer to stock

·         Expensive products which may be costly to stock in any significant volume

·         High turnover products which may be challenging to keep in stock

·         Time sensitive products which need to be transported as quickly as possible

The challenge with the drop ship process is visibility.  The retailer lacks visibility into when the product shipped and where it is located.  This is not an issue until something goes wrong.  And usually nothing does go wrong.  However, in the peak of the December holiday shipping period, some packages will inevitably be improperly labeled, incorrectly routed or accidentally lost.

So what is the answer?  Don’t wait until the last minute to buy gifts online?

Well…that is one option, but probably not realistic for many of the procrastinators who make the last minute on-line purchases.  A better option is for on-line retailers using “drop ship” models to ask their suppliers to send an “Advanced Shipment Notice” or ASN.  The ASN, often referred to as “the 856”, which refers to its ANSI X12 document number,  is an EDI document used to communicate key information about the consumer’s shipment to the retailer.  Common data within an ASN includes the transportation carrier, point of origin, expected arrival date, package dimensions, content weight and the shipment tracking identifier.  Once received from a supplier, the ASN data can be stored in the retailer’s system along with the consumer’s order.  The shipment information can be exposed on the retailer’s web site or be available to customer service personnel in the call center.  Either way, the consumer’s questions about when the package was shipped and where it is located can be answered quickly.

Lost Customers and Dropped Relationships 

So why don’t more tier 2 and 3 retailers use ASNs?  As with any IT initiative, key reasons businesses do not deploy technology are:

1) Lack of experience

2) Costs to implement and support

3) Inability to justify

The full cost of an ASN including creation by supplier, delivery over a network and receipt by the retailer is less than a first class postage stamp.  So it adds negligible cost to both the manufacturer and retailer.  In fact, many manufacturers are already providing ASNs to their retail customers for traditional orders delivered to the physical store.   Expanding an ASN program to include drop ship orders is a natural extension of their existing program. 

As for justification - it is much more cost effective for retailers to warehouse the ASN data (rather than the physical product).   But more importantly, the risk of losing consumer loyalty is too high to not provide this type of customer service.  For Internet shopping, the competition is only a click away.  Being empty-handed on Christmas is a memory one doesn’t easily forget.  The odds of a consumer making a repeat purchase at a retailer who failed to deliver last Christmas are remote at best.

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Earlier this week we were fortunate to have Ken Vollmer of Forrester Research visit GXS headquarters.  The purpose of the meeting was to give Ken an update on our plans for 2008, but also to hear Forrester’s perspectives on the market.  One of the new concepts Forrester has introduced is the idea of “B2B Detachment” which Ken defines in his recently released report B2B Integration Trends: B2B Modernization as:

“The situation that exists when enterprises and their business partners rely on a sub-optimal solution for their electronic information exchanges.” 

In a nutshell, Forrester is describing the consequences that many large multi-national corporations are experiencing as a result of under-investing in their B2B programs over the past decade.  

 In the B2B Modernization report, Forrester identifies seven “Symptoms of B2B Detachment” 

1.       Inability to rapidly on-board new partners

2.       Inability to quickly roll out new/modify existing transactions

3.       Lack of support for ad hoc/unstructured B2B exchanges

4.       Difficulty in retaining qualified B2B support staff

5.       Difficulty in maintaining electronic links to large number of internal entities

6.       Inability to easily include B2B activity in process improvement efforts

7.       Inability of current system to take advantage of SOA 

I thought I would add my perspective on B2B Detachment as I found the Forrester list to be highly consistent with the challenges we see many of our customers experiencing.  And it explains the surge in the number of RFPs we have seen from large multi-national corporations seeking B2B outsourcing solutions over the past 36 months.  Value chains continue to evolve putting greater pressure on B2B organizations: 

·         Customer Demands - Consolidation through mergers and acquisitions continues to concentrate buying power into larger channel masters.  These large hubs are demanding highly customized, complex integration from suppliers to their ERP systems.   The common customer viewpoint is “Use B2B standards, but implement them my way.”

·         Supplier Visibility - Manufacturing, logistics, design and field service activities continue to be outsourced to third parties.  Brand owners are starting to build what Cap Gemini refers to as “Control Towers” to gain better visibility to their supply chain activities being executed by third parties.  Success requires tight B2B integration with these outsourcing partners.

·         Enterprise IT – CIOs continue to push aggressive enterprise resource planning projects.  Many enterprises are adding new supply chain modules to cope with the customer demands and supplier visibility issues outlined above.  Others are simply rationalizing and consolidating disparate ERP systems.  Both types of projects simply exacerbate B2B integration challenges as they require updating the maps which link ERP to external business partners.

A stagnant B2B integration platform will not withstand the mounting pressures of today’s highly globalized, largely outsourced value chains.  Challenged by skills shortages, capacity constraints and inflexible platforms, more large enterprises will be seeking relief from B2B integration by outsourcing to third party specialists.

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Part 1 

Last week GXS announced that it was selected by BB&T to power the financial institution’s new “Integrated Supply Chain Finance” solution.  And since then our phone has been ringing off the hook with calls from other banks, analysts and partners interested in learning more about this topic of Supply Chain Finance.  This is a fascinating area and one that I have been studying for about 24 months now, so I thought I would offer my perspective on the topic.

Supply Chain Finance is part of a broader trend in the market, which involves the convergence of the physical and financial supply chains.  There is much more to be shared on this topic than I can offer in just one post so let’s start with the topic of supply chain finance as it relates to international trade.  

History 

Historically, many of the international trade transactions between large buyers (based in the US or Europe) and small suppliers in emerging markets (China, India, Southeast Asia, Latin America) have been conducted using a letter of credit.  When a dispute arises in trade between two parties located in different countries with different legal systems, resolution can be timely, complex and expensive.

This is where a letter of credit can provide significant value by simplifying international trade terms and providing risk mitigation against default by the buyer.  The letter of credit offers a guarantee to the supplier that they will be paid for goods delivered to a buyer if they meet all of the terms and conditions outlined in the purchasing agreement.  The guarantee is made from the buyer’s bank to the supplier’s bank, both of whom facilitate the transaction on behalf of the buyer and supplier.  The commitment in a letter of credit is very strong.  In fact, with most letters of credit the buyer’s bank will make payment even if the buyer goes bankrupt or is for some other reason unable (or unwilling) to pay. 

While letters of credit provide strong risk mitigation for the seller, they are viewed by many buyers as costly, slow and inefficient.  As a result, many large US and European buyers are moving their international sourcing relationships away from letter of credit towards “open account” terms.  With open account there are no bank guarantees.  Payment terms are negotiated directly between buyer and supplier.  Critical to such an arrangement is the assumption of trust between both parties. 

Cash Rules! 

In addition to changing to open account, buyers are also extending their payment terms with international suppliers.  Buyers want to hold onto cash as long as possible.  As a result, they would prefer to defer payment to suppliers for 60 to 90 days so they can put their cash to use in other ways.  Other uses of cash might include 1) short term investments to generate interest income or 2) cash outlays for capital projects requiring immediate funding.  On the other hand, suppliers want to be paid as quickly as possible for the goods and services they provide to their customers. 

Suppliers must purchase raw materials and to pay their labor force to manufacture the products.  In international trade, the time between when a purchase order is first issued and payment is received may be 120-150 days.  Extended payment cycles with customers force suppliers to seek out financing from third parties to keep their business operating.  These competing priorities of buyers and suppliers are a growing source of tension in the supply chain.

Source of the Tension 

Some of you may be wondering, why is this tension around payment terms a new phenomenon?  International trade scenarios such as the example above have been common for decades.  This is true.  But, the migration towards open account and the extension of payment terms have combined to exacerbate the working capital challenges of exporting suppliers.  Why?  Because, historically, exporters in emerging markets had the security of a letter of credit, which could be used as the basis for a working capital loan to fund their manufacturing activities.  A letter of credit backed by a major financial institution (and buyer) in the US or Western Europe was viewed very favorably (less risky) by banks in emerging markets.  As a result, exporters in these countries could receive a cash advance against the value of the purchase order from their local bank.  The cash could be applied to purchasing, payroll or other operational activity until the payment from the buyer was received.

In an open account world, the supplier in the emerging market only has a purchase order.  A PO is relatively easy to counterfeit.  And even legitimate POs lack any firm payment guarantee from the buyer.  As a result, open account transactions are viewed as having a higher risk by banks in the exporter’s home country.  Financing is therefore more difficult to obtain.  When financing is available to a supplier, it is often for substantially less than the full purchase order value.  Even more problematic is that financing is offered with relatively high, credit card level interest rates.

A Lose-Lose Situation 

Few buyers have considered the full implications of the new terms of trade they are negotiating with suppliers.  Extending Days Payable Outstanding (DPO) and reducing banking fees may seem like a winning proposition to the buyer.  However, the overall cost and risk introduced into the supply chain may offset the other benefits.  By having to borrow money at a higher interest rate to fund manufacturing operations, the supplier’s cost structure has now effectively increased.  These higher costs will undoubtedly be passed onto the buyer in the form of higher prices.  Furthermore, suppliers who are not able to obtain timely financing, may be at risk of financial insolvency.  Others may be forced to cut costs resulting in unexpected manufacturing delays or lower quality products. 

Dr. Hau Lee of Stanford University has recently introduced a new theory that I think is very insightful articulation of today’s international supply chains.  He stated:  “Instead of company to company competition, we are now in an era of supply chain to supply chain competition.”  If companies are going to compete on the strength of their supply chains, buyers must find a more supplier-friendly approach to international trade. 

So what is the solution? 

An innovative new concept called Supply Chain Finance, which is a topic I will explain further in an upcoming post.

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

There is an increasing trend in B2B towards business partners sharing higher volumes of data.  Not only are they sharing new and different types of data, but the information is being packaged into much larger files.  Historically, the e most commonly exchanged transactions have been invoices and purchase orders, which are only a few kilobytes in size.  However, over the past 24 months, there has been a substantial increase in the exchange of larger files – on the order of are megabytes and gigabytes in size.   The phenomenon is occurring in nearly every industry sector. 

Examples include:

·         Check image files in banking

·         Call detail records in telecommunications

·         Satellite images in logistics

·         CAD diagrams in manufacturing

·         Point-of-sale, market basket and loyalty card data in retail

Large File Transfer in C2C 

The trend towards larger file transmission really should not be very surprising given the growth in file sizes that we have seen in the consumer segment.   For over five years now consumers have been downloading and sharing large audio and video files for home entertainment.  With the dramatic decreases in the cost of storage and networking, it is only logical that this trend would extend to business communications as well.  In fact, demand for large file transfer in the workplace has increased steadily in recent years.  Do you give a second thought to sending a 5MB e-mail attachment to a colleague at one of your business partners? 

Technology for Large File Transfer 

So which Internet protocols do B2B practitioners use for large file transfer?  The obvious choice would be AS3 or one of the secure variants of FTP.  While these protocols can facilitate the exchange of very large files they lack critical features such as checkpoint/restart.    Depending upon the size of the file, a transmission could take 15 minutes, 30 minutes or several hours.  What happens if a router hiccups or the server on either end loses connectivity half way through the transmission?  Without a feature like checkpoint/restart, the entire file transfer process may need to be restarted.  The problem is not limited to AS3 and FTP.  Other HTTP, SMTP and open standards protocols lack these large file handling features. 

Managed File Transfer Products 

So what do companies that need to transmit large files do?  Historically, they have been forced into buying a license from a vendor with proprietary “Managed File Transfer” (MFT) software.   Some of the MFT packages are based upon Internet standards, but with customizations designed to support larger file sizes.  Sounds good, but here is the catch. The technology only works if the trading partner you are sending the information to uses the same proprietary software product.  This is a great model for the vendor as it creates a viral effect that leads to high “stickiness” with a community of end-users.   However, it is bad for the customer who is now locked into a vendor’s proprietary software product. Owners of these proprietary software products have little negotiating leverage with the vendor.  If you talk to companies with MFT software they will tell you that their annual maintenance fees are about as painful as an adjustable rate mortgage.  

2008 Predictions 

What will happen with large file transfer in 2008?  I think we will see a continuing surge in large file transfer throughout 2008, which will put pressure on vendors and standards organizations to find better technology solutions.   It is too early to predict exactly what the outcome will be.  But one thing is for sure, with customer demand rising quickly, large file transfer is becoming a mainstream B2B function need rather than a niche technology. 

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Holiday EDInomics Part 2

There is a great article in the current issue of Business Week on the supply chain challenges Nintendo is experiencing with availability of its Wii console this holiday season.  This is an intriguing subject to me because it seems like every year there is one hot product that everyone wants, but no one can find.  Back in the 1980s we had “must have” gifts like the ColecoVision and Cabbage Patch Kids.  A few years ago the Sony Playstation 2 was the killer gift and then Apple’s iPod Nano. 

A few interesting insights on Nintendo’s Wii from the Business Week article:·        

• “Over Thanksgiving weekend, online retailer Amazon.com reported that its British site sold out its entire stock of Wii consoles in just 10 minutes.”·          
• “A search of eBay’s U.S. site pulls up thousands of listings for new Wii consoles, with bidding well above the suggested retail price.”  “Some…are going for triple the suggested retail price online.”

I’ve always wondered whether the hardware OEMs who manufacture these products intentionally short supply during the holiday season just to create a buzz.  Certainly, the hype around these “hard to find” products is successful in creating even greater demand.  One could argue that the hardware manufacturer enjoys higher margins from such an approach as they can sell the product at full list price.  Additionally, the OEM stabilizes sales across a broader time horizon throughout the year, rather than peaking around the holidays and experiencing lower sales in the subsequent quarter.  And with under-supply, there is no risk of excess inventory to manage.  All of these factors make an argument for intentionally limiting supply.  Or could it be that OEMs struggle to accurately forecast sales for these items, or for that matter, to manufacture in sufficient quantities to meet consumer demand.

The video game sector presents an interesting case study to examine this issue of supply and demand.  The industry economics are such that the video game consoles are typically positioned as loss leader products.  Higher margins are generated from sales of the actual games to the captive install base of owners.  Royalties from the game sales are shared by the publisher with the console manufacturer.  From a supply chain perspective, if the consoles are not in stock then game sales will suffer as the install base will be smaller.  Given this, it seems unlikely that any OEM would deliberately short supply.  Furthermore, with the fierce competition that exists between Nintendo, Microsoft and Sony, it seems unlikely that any OEM would risk losing market share during the key selling period by limiting supply.

So how does EDInomics fit into all of this?  B2B integration technologies are the key enabler that allows manufacturers to obtain demand data from their downstream channel partners, the retailers.  But that begs a larger question - What types of data can high tech OEMs use to better forecast demand for holiday season sales of hot products such as HDTVs, video game consoles and digital music players?  To build an accurate forecast will necessitate gauging consumer demand months in advance.  Demand signals such point-of-sale, loyalty or market basket data would probably less useful in this scenario.  It’s unlikely that console purchases in September or October would provide meaningful insights into demand in November and December.  In fact, an inverse correlation may exist as those in the market for a game console will probably defer their purchase until the holiday season.  More accurate sources of demand data might be the frequency of page clicks on popular on-line retail sites such as bestbuy.com;  links to the product on personalized “Wish Lists” such as amazon.com; or the number of bids on auction sites such as eBay.  Or if one could somehow eavesdrop on the holiday wishes children are telling Santa at local malls…  There are obvious privacy challenges with all of the above, but there are perhaps ways that data could be aggregated to prevent identification of individual consumers.

Once demand data is aggregated, a critical factor in supply chain success will be the ability of the OEM to propagate this demand data to multiple tiers of the value chain.  Regular updates of forecasts and inventory need to be shared with the contract manufacturers who produce the consoles; their suppliers who fabricate the semiconductors and components; and, of course, game publishers who distribute the software.  Access to electronic information whether it is via direct integration of ERP systems or using web portals will be a necessity to respond quickly to new demand signals.

With regard to Nintendo, I think the real story is not so much the supply chain challenges it has experienced in the past month, but rather the phenomenal sales success the Wii product continues to enjoy.  One year after the product introduction, Nintendo’s Wii is still experiencing amazing success in the marketplace.  Sales growth continues even with the recent introduction of Sony’s Playstation 3.  Nintendo’s quarterly earnings reflect the results.  On October 26^th the Wall Street Journal reported “Nintendo’s group net profit rose to 132.42 billion yen ($1.16 billion) for the half ended Sept. 30 from 54.35 billion yen a year earlier. Sales for the Kyoto-based company more than doubled, to 694.8 billion yen from 298.82 billion yen.”  Wii can only be envious of such strong results…Here are the links to the Business Week and Wall Street articles I referenced above: Business Week - A Long, Long Wait for a Wii, -http://www.businessweek.com/magazine/content/07_51/b4063030297026.htm?chan=magazine+channel_newsWall Street Journal – Nintendo Plays it a Wii Bit Cautious http://online.wsj.com/article/SB119697501146616201.html

Steve Keifer 

© Copyright 2007 GXS, Inc.  All Rights Reserved.

Tomorrow is the release of Season Six of Fox’s 24. And next Tuesday on December 11^th we will see the release of ABC’s LOST Season 3. These are, in my opinion, the two best programs on television today. And I, along with millions of consumers, will be rushing to stores in during the holiday season to buy these new DVDs along with other releases such as Harry Potter and the Order of the Phoenix; Pirates of the Caribbean at World’s End; or Shrek the Third.

Amongst the topics on the minds of me and my fellow DVD shopper’s minds are:

· New Seasons - Will the Screen Writers Guild strike affect the new seasons of 24 and LOST starting after the New Year? Or will we spend this upcoming spring watching the DVDs of last year’s seasons rather than new programs?

· LOST - Will the distress call Jack placed to the nearby ship be answered by friend or foe?

· 24 - Will a city other than Los Angeles actually be the target of attack? Will Kim Bauer finally be written out of the plot?

Covers of the new DVD releases:

But I doubt many, if any, of the shoppers stop to consider:

· Product Availability - How does my retailer know how many of each DVD to have in stock so that when I come into the store I will be able to find the title I want?

Herein lays an interesting challenge unknown to the average consumer. Home entertainment products such as DVDs as well as their peers in the CD and video game categories have some of the more complex supply chains in the retail sector. One of the biggest supply chain challenges is in the area of new product introductions. For DVDs, up to 80% of the sales of a product typically occur in the first few weeks after the product launch. As a result, ensuring that products are always available on retail shelves is critical for both home entertainment brands and the retailers who sell them. Out-of-stock scenarios for DVDs can often result in a lost sale. Each lost sale can represent between $3 and $6 potential profit. Eliminating out-of-stocks is more challenging than one might expect. Each DVD title has its own unique demand characteristics. Retailers and brand owners are challenged to estimate launch time sales as they have no historical demand pattern to build forecast models. The supply chain challenge grows more complex when one considers that for each title, there may be multiple SKUs. Each DVD launch typically includes a widescreen and standard format version as well as HD-DVD or Blu-Ray formats.

So how do retailers replenish their stores with DVDs? The process works as follows. Each night the retailer aggregates point-of-sale data from its stores and transfers the information to the brand owner. The sales consumption data along with last-known store-level inventory positions are utilized to assess stock positions at each individual store. The data is then fed into a replenishment application which can calculate SKU-level stocking needs for each location. The calculated replenishment quantities are used by companies called video duplicators to manufacture the actual physical DVDs. The shrink-wrapped product is then routed by the duplicator or a third party logistics company directly to the retail stores. As a result, consumers can expect to find the title of their choice at their local retailer.

Of course, the key to this whole process is the ability for retailers, brand owners, video duplicators and third party logistics companies to share point-of-sale, inventory and logistics data amongst one another in a timely manner. Sometimes the entire replenishment cycle can be as short as 24 hours, but this is necesary to ensure sales are not lost to out-of-stocks. This is an excellent illustration of how the B2B technology is used to power complex, demand driven supply chains. And those retailers and DVD manufacturers who can master these B2B processes will gain a competitive advantage over their peers by suffering fewer out-of-stocks and maximizing sales of new product introductions. All of this is yet another example of EDInomics at work…

Steve Keifer

© Copyright 2007 GXS, Inc. All Rights Reserved.

In my first blog entry, I introduced the concept of EDInomics, which is a newly invented term I created as the title for this blog.  In this entry, I would like to formally define the term: 

EDInomics - E •D •I •nom •ics [e-di-nom-iks] -       Noun

1.       A study of how Electronic Data Interchange (EDI) and related Business-to-Business (B2B) e-commerce technologies can be used to improve business performance by reducing administrative costs and accelerating revenue growth.

2.       A study of the market dynamics of vendors, technologies and regulations in the business-to-business electronic commerce market

3.       A study of the passenger and commercial aircraft traffic patterns at Scotland’s Edinburgh Airport.

While this particular term, “EDInomics,” is new, the concept of studying the economics of a particular social, cultural, political or technology phenomenon is not.  In 2005, University of Chicago economist Steven Levitt and New York Times journalist Stephen J. Dubner published a fascinating book called Freakonomics.  This was followed in 2006 by authors Don Tapscott and Anthony Williams who published a book called Wikinomics.  In Freakonomics, Levitt and Dubner unveiled a series of amazing theories about topics such as the potential relationships between legalizing abortion and the increase in crime in America and the selection of first names at birth and the associated impacts on long-term career success.  In Wikinomics, Tapscott illustrated how the Internet and web 2.0 technologies are enabling new levels of collaboration never before possible for projects ranging from sequencing the human genome to designing software programs.   In EDInomics, I hope to unveil insights on the impacts B2B technologies have on the integration of the global economy, financial performance of individual corporations and the experience of  everyday consumers.  You may be surprised to realize the unlikely impacts that technologies such as EDI have on your life.   Poor implementations of B2B e-commerce can be pinpointed as the root cause of many everyday phenomenon, including:

·         Why your plane is unnecessarily delayed on your next business trip

·         Why you were disappointed with your Christmas presents

·         Why your health care expenses are rising so much every year

I will only focus on the first two elements of EDInomics in the definition above.   We will leave number three for the British Airport Authorities.  After all, only Google and Yahoo! seems to be confused about the difference between the B2B technologies called “EDI” and the Scottish airport with the same three letter designation.

Steve Keifer

© Copyright 2007 GXS, Inc.  All Rights Reserved.

I first learned about ISO 20022 some 18 months ago.  I remember first thinking about the name.  I said to myself this new payment standard must be intended to replace the 20021 different formats the global financial community uses today for payments.  Unfortunately, while perhaps very fitting, that is not the origin of the name.  However, that is the intention.  While there probably are not 20,000+ standards yet, it is not an understatement to say that there are hundreds if not over a thousand in use today.

Why are there so many payment standards? 

Banking, like most service sector segments, has historically been a business that focused on local markets.  It is only within the past 20 years, that regulations changed so that banks could easily operate within more than one US state or that banks could economically operate in multiple countries within the EU.  As a result, when electronic funds transfer and payment technologies were introduced in the 1980s, each country created their own technology standards in isolation.   Message formats were standardized based upon the central clearing and settlement systems operated by each country’s central banks.  For example, in the US, Federal Reserve’s ACH and FedWire; in the UK, BACS and CHAPS; in France, SIT and so on.  Today, not only do we have different payment message structures for each country, but each country also has different file formats for each payment type (e.g. check, automated clearinghouse (ACH) and wire transfer).  And it doesn’t stop there.  It is not only the message structure that differs between payment files, but the content as well.  For example, a payment in one country may require a complete street address, city name and postal code, the same type of payment in another country may only require the postal code.   To complicate matters even further, the non-bank corporations tend to utilize a different set of standards (e.g. ANSI X.12 , EDIFACT, OAGi) to exchange payment information with their banking partners. 

Numerous organizations including OAGi, RosettaNet and TWIST have each made an attempt to standardize payment message formats at varying levels.  ISO 20022 is the most promising effort yet towards a common payment information standard. 

What is ISO 20022? 

ISO 20022 is also known as UNIFI (UNIversal Financial Industry message scheme).  The official definition from www.iso20022.org is “UNIFI provides the financial industry with a common platform for the development of messages in a standardized XML syntax, using:·         A  modelling methodology (based on UML) to capture in a syntax-independent way financial business areas, business transactions and associated message flows;·         A set of XML design rules to convert the messages described in UML into XML schemas.”  Although, the discussion above describes ISO 20022 in the context of payments, the standard has ambitions which extend far beyond that domain.  The scope of ISO 20022 is all financial messages including Payments, Foreign Exchange, Trade Finance and Securities.  And the standard is beginning to gain widespread adoption as organizations such as TWIST, OAGi, RosettaNet and SWIFT have begun to embrace it.Who is using ISO 20022? ·         SWIFT – SWIFT is embracing ISO 20022 as the preferred XML format for messages exchanged on the SWIFTNet service used by over 8,000 financial institutions in over 200 countries to exchange financial transactions.·         SEPA - ISO 20022 is one of the key unifying standards that will harmonize payment technologies and standards throughout the European Union with the Single European Payments Area (SEPA).  For example, ISO 20022 will be a foundational standard for TARGET 2 (Trans-European Automated Real-time Gross Settlement Express Transfer System), the next generation, real time settlement system for Pan-European payments.