Malcolm Wheatley reports on the development of an open-source EDI connector that aims to extend electronic business-to-business connectivity to the smaller and medium-size suppliers in Europe’s automotive industry.
Based just outside of Barcelona, aluminium diecasting manufacturer Ruffini counts among its customers carmakers as diverse as Ford, Volkswagen, Nissan, Honda, Skoda and Suzuki.
In a few years, the company has gone from serving solely the Spanish automotive market—principally Seat and its tier one suppliers—to a customer base that became firstly pan-European, and then increasingly global.
Yet Ruffini is far from being the size of business usually associated with being a supplier to global carmakers. Although current production levels amount to 10,000 tonnes of aluminium die-cast products a year, Ruffini is no multinational behemoth. Its factory, for instance, encompasses just 22,000 square metres, and the business has a total workforce of 250.
Alfah, based in Cologne, is even smaller. A regional spare parts distributor with just 12 employees, its business consists of sourcing parts from major automotive wholesalers, then selling them to around 15,000 customers, evenly split between car dealers and automotive repair shops.
As such, explains general manager Tilman Veltjens, the business doesn’t carry inventory, but acts as a broker, receiving a parts request from a customer and sourcing it at the best available price and delivery from its panel of 40-50 suppliers.
But the process is slow, complex and time-consuming. For each requested part, the company has to check the availability and price by calling its supplier base, with alternative equivalent parts needing to be confirmed with customers before ordering. In all, each order might involve multiple calls and a wait of minutes or hours before a customer would know the price and delivery options for the part in question.
At the other end of the spectrum from Ruffini and Alfah lie giants such as BMW and fellow German supplier Hella, a family-owned global lighting and electronics manufacturer with operations in 70 locations across more than 30 countries, and is among the world’s top 50 automotive suppliers.
Yet linking all four businesses is one of EDI’s most intractable challenges: extending automated business-tobusiness transactional connectivity to the small and mediumsized businesses in the automotive supply chain. Many of these companies lack the IT expertise, budgets, systems and infrastructure to exchange electronic documents with their trading partners–either as customers, or suppliers.
“Europe’s vehicle and larger component manufacturers have enjoyed EDI for decades, but there are many small and medium-sized businesses that rely on manual or semi-manual processes,” observes Philippe Paban, Renault’s VP of supply chain and manufacturing information systems.
At Ruffini, for instance, “integrating a new customer onto our EDI system is costly and difficult,” relates international account manager Martin Lutjen. “Around 90% of our automotive customers use EDI, but different customers use different EDI standards, such as Edifact and VDA, and we can’t possibly maintain and translate between multiple EDI systems ourselves.”
Besides the technical challenges involved, resource shortages pose a significant problem. “In Spain, the number of IT graduates is down by 40% since 2003, and experienced business application IT people are the most difficult to find in the market,” Lutjen notes. “What’s more, there’s a growing recognition that some IT functions are non-core to the business. In terms of office productivity tools, for instance, many Spanish companies are moving to Google—and EDI is another obvious example of a non-core activity.”
At companies the size of Hella or BMW, the problem is the precise inverse to Ruffini’s—they exchange electronic documents with countless small suppliers, each probably of a similar size to Ruffini itself, and lacking the skills, capacity and budget to move to conventional EDI.
More than half of Hella’s one thousand-plus production suppliers still communicate with the company via fax and paper, for instance, as do the vast majority of the company’s 3,000 non-production suppliers. At BMW, meanwhile, over 70% of its invoices arrive as paper or faxes, with just 10% arriving through a direct EDI connection.
It is for these reasons that all four businesses—and many others—have shown active interest in a free, opensource EDI ‘connector’, developed with funding from the European Commission (EC), which is designed to extend electronic business-to-business connectivity to the smaller and medium-size businesses in Europe’s automotive industry.
By acting as a standard, predefined interface, the connector enables small companies such as Ruffini to achieve businessto- business EDI integration at minimal cost and training, and in a timescale measured in days, rather than weeks or months.
The evidence that is emerging from early adopters is encouraging. In conjunction with its ERP vendor ABAS and third-party business-to-business EDI service provider Indra, Ruffini decided to test the connector, choosing to do so with a single, regularly received EDI message—the delivery schedule it received from Volkswagen.
“It works just as well as our existing EDI system, and we can see Volkswagen’s order lines in ‘real time’, which helps us run lean operations,” enthuses Lutjen. “What’s more, the connector delivers a time saving on the order of 30% when compared to the company’s current EDI processes.”
Evelyne Braun, information systems manager at cable, wire and fastener manufacturer Anixter concurs, pointing to Anixter’s use of the connector as a way of extending EDI to trading partners—suppliers and customers—with whom the firm doesn’t already have an EDI link.
“We see it as a way of reducing the complexity of bringing suppliers and customers into an e-business relationship,” she says. “We feel we can save a lot of time and money with it.”
At Alfah, general manager Veltjens is yet another convert. Today, he notes, just 20% of Alfah’s availability queries are done by phone, with the balance done electronically via the connector.
Overall, he reckons, there has been a time saving of 60-70% compared with the previous manual enquiry process, with the EDI approach also credited with reducing errors and increasing the reliability of pricing and quantity nformation.
Better still, his employees can provide customers with price and availability information immediately, without needing to call them back— an improvement in service that also reduces the likelihood of them going to one of Alfah’s competitors.
“Our customers no longer think about calling our competitors while I check the availability of a part,” he says. “I’ve got an answer before they have the chance to go elsewhere.”
Numerous other small and medium-size businesses are also reporting encouraging experiences with the connector. The use cases that are involved have embraced businesses of differing sizes and trading relationships within the automotive supply chain: SME-to-customer, SME-to-supplier, and supplier-to-SME-to-customer.
Dubbed ‘auto-gration’, the open-source connector is not just another EDI standard, insist those close it. They argue that it’s a set of specifications on how business information can be formatted, sent and ‘translated’ between different IT systems— making it possible for messages from mutually incompatible systems to be transformed so that trading partners can seamlessly and automatically communicate with each other.
Adoption is simple. All that is required is a broadband internet connection, enabling even the smallest business running a computer in the corner of a workshop to benefit.
Delivered under a contract from the EC by a consortium led by automotive communications standards body Odette, the 27-month auto-gration initiative brought together major industry representative bodies, IT services and software companies, and individual automotive companies.
The connector is, as the jargon has it, ‘non-disruptive’ and is complementary to existing IT products and services. IT service and software providers have been happy to work with SMEs and large enterprises in its on-going adaption.
The connector was publicly released to the automotive industry at a conference in Stuttgart this past spring, where no fewer than 25 such IT software and service providers signed a Memorandum of Understanding endorsing the initiative and promising to help in its promulgation.
Another MoU, jointly signed by the heads of Odette, supplier organisation Clepa and aftermarket organisation Figiefa, committed the parties to maintaining the connector.
“Clepa is recommending auto-gration to all its members,” said Clepa’s former chief Lars Holmqvist (who retired this past June). “It is the simplest and easiest way especially for small and medium-size businesses to connect with the EDI systems of all Europe’s major carmakers, and also to connect with suppliers large and small.”
Ruffini has plans to do just that, observes international account manager Lutjen. Noting that the business currently transacts with its 20 or so primary suppliers mainly using paper, he sees the auto-gration connector to be as attractive to Ruffini as it would be to the company’s suppliers.
“We can see the benefits of digital integration across the supply chain,” he says. “If we could also automate our own ordering processes, we could become so much more efficient in our administration. Our suppliers would profit from it too. I don’t think it will be too hard to persuade them.”
While small and medium-size businesses have been among the beneficiaries of the initiative, Europe’s larger OEMs have also seen the benefits it can offer. At BMW, autogration is seen as a way of moving thousands of small and medium-size suppliers onto e-invoicing, explains Manuela Molnar, accounts payable specialist for e-invoicing at the luxury carmaker—and doing so without e-mailed PDFs and associated scanning.
“As a member of the VDA Invoicing committee, BMW Group is actively concerned with the integration of new developments for invoicing and self-billing processes—not only for production materials, but also for raw materials, consumables and other supplies,” she says. “Therefore, the integration of small and medium-size enterprises plays an increasing role. Only by considering the requirements of all groups of enterprises can the whole potential of electronic invoicing be realised for mutual benefit.”
Hella, too, sees positive benefits, declaring that auto-gration would be a step forward in improving its order-to-delivery process.
“Auto-gration will not be replacing traditional EDI at Hella,” according to Udo Thienelt, manager for cross-application integration in the information management competence centre at Hella. “But the auto-gration connector is now seen as the preferred alternative, if the supplier is not capable of interacting through traditional EDI.”
The auto-gration project has achieved more than ever seemed likely when Odette responded to an EC ‘request-for-proposals’ back in the summer of 2009.
“Where we are today is where we were dreaming of being back in the days of business-to-business departments and web-based EDI,” recalls Odette managing director John Canvin. “And now we have improved connectivity, at minimal cost. It’s gaining momentum in France, Germany and Spain, with the rest of Europe following. The potential is enormous.”
That potential had been laid out in a conference keynote speech by Daniel Calleja Crespo, the EC’s director general of the Directorate General for Enterprise and Industry—the body which funded the 27-month project. The auto-gration connector, he told delegates, met a clear and pressing need.
“Over 75% of the value-added created by the internet economy is in traditional industries such as the automotive sector,” he said. “And 85% of all new jobs created in the European Union come from smalland medium-size businesses. Yet the competitiveness of smaller players depends increasingly on their capacity to connect better to larger enterprises, and become part of global value chains.”
Consequently, he relates, the Directorate launched an EU-wide initiative to promote the use of IT to integrate small and medium-size businesses in global industrial value chains, including for automotive, one of the five industries that the EC targeted.
“When we began working on the proposal submission, we were frankly quite nervous, having never participated in anything like that before,” concedes Odette’s Canvin. “We had to get endorsement from our own governing board, and also reach out to partners such as Clepa and Figiefa, who in turn had to get endorsement from their own boards. But each of us knew that it was better for the industry to develop its own solution, than see one developed externally.”
Successful in its bid, Odette and consortium partners began work in January 2010, putting into practice the plans that had been submitted in its response to the request-for-proposal.
The conference—envisaged in that proposal as the endpoint of the project—instead turned into launch pad for the next stage of the auto-gration initiative.
Hella’s Thienelt, for instance, reports that a project is underway to try to use auto-gration to provide B2B connectivity between its Norwegian sales company and a number of small suppliers.
“They didn’t want to use traditional EDI, or WebEDI,” he reports. “There are costs to be borne by companies who connect via specialist EDI service providers but now, for the first time, we have an initiative with low cost, or even no cost.”
Among B2B integration service providers, GXS—one of the world’s largest supply chain integration businesses, with a range of automotive customers—will be adding auto-gration connector capability to its product range, says Mark Morley, director of automotive industry marketing.
“We’ve been watching the project very carefully, and there’s obviously a lot of interest,” he says. “It’s clear that many of our customers in the automotive industry will be requesting autogration support.”
Volkswagen, which has followed the project with interest, sent Dieter Rohde, head of accounts receivable and system administration for accounts payable, to the conference in an observer capacity. After attending, he went away convinced that the auto-gration connector could be the platform on which the company could move to universal e-invoicing, provided that it met VW’s IT security standards.
“We want electronic invoices and we want our smaller and medium-size suppliers to send them to us in a structured format, and not as a PDF in an e-mail,” he says.
Implementation will take place as soon as VW’s IT security specialists are satisfied that auto-gration is secure, with a target date of early 2013, says Rohde. But he is already happy at the prospective return on investment.
“If we did not expect a benefit from the introduction of auto-gration, we would not do it,” he stresses. “I cannot calculate the exact benefit for Volkswagen from the introduction of the auto-gration format. I just can tell you that it improves our processes and that therefore it will pay off in a relatively short period.”
