The history of electronic ordering is complex, and incremental changes in the way orders are processed have exploited technologies as they have become available. The happy result is the overall lowering of costs per transaction.
Leading transaction hub GXS, which handles millions of EDI transactions, has made it known that it intends to change its policies around integrating with trading partners; a move that will add costs and likely result in higher prices for the goods we buy nearly everywhere.
Electronic Data Interchange (EDI) is the backbone of electronic order processing around the world. The EDI ANSI X12 standard defines a long list of documents including purchase orders, shipping notifications, price schedules, and many others that companies use to order and deliver products every day.
The documents move among these trading partners in a variety of ways, but the most common is through companies designated as Value Added Networks (VANs) that maintain digital mailboxes for each trading partner. The EDI documents are placed in and retrieved from these mailboxes and routed to the appropriate trading partner. All seems simple enough until the VAN decides to change the rules it's operated under for years in an attempt to extract a few more dollars from each trading partner.
Because transacting EDI is not always simple, an industry has grown up to provide a variety of services to companies that need to process orders using EDI. These EDI service providers act as funnels by connecting to many (in some cases thousands) of manufacturers, then making a single connection to a VAN that will then route the transactions to and from the other trading partner, usually a retailer like Wal-Mart.
This aggregation of transactions provides a streamlined and efficient way to transfer documents. The EDI service providers charge customers for the provided service and pay the VAN for the use of a single mailbox. The ability to use one mailbox means customers do not need to pay for their own mailboxes, a significant cost.
GXS is a VAN that has grown since the beginning of EDI and has provided gateway services as a matter of course. However the company has recently said that it will no longer allow EDI service providers to “daisy chain” (as it calls the practice). Instead, it will require each company that sends EDI transactions to any of GXS's customers to subscribe to a GXS mailbox.
The pricing for mailboxes can get complex and expensive, eliminating a primary advantage EDI service providers offer to its customers. Worse, this expense may erode the solution provider's competitiveness with potential customers. When these customers are faced with paying for their own mailboxes, they may decide it is more cost effective to bypass the service provider and deal directly with GXS, a reality that GXS has likely calculated into its strategy.
Loren Data, an EDI service provider, has had a long running dispute with GXS and has presented to the US Supreme Court to rule on its contention that GXS holds monopoly status in the industry. To date, the court has not determined whether to take the case. Regardless how the Supreme Court acts, increases in costs are likely to go into effect for some period of time.