March 29, 2005

IDEA’s Mission: Promote E-Commerce In The Electrical Industry

In the early days of ecltronic commerce, the electrical industry came up with the idea of a digital warehouse where manufacturers and distributors could exchange product and pricing data. That idea led to IDEA, the Inudstry Data Exchange Asociation, which developed the Industry Data Warehouse as a central data reposotiry and teh Industry Data Exchange as a conduit for electronic transactions.

In the five years since IDW and IDZ were launched, IDEA has been busy refining and improving hte products. In April 2002, IDEA rolled out IDX2, an Internet-based document exchange that performs the same function as traditional electronic data exchange (EDI) value-added networks, or VANs, but with additional features and sevices, lower rates, and an unmatched reliability record.

Now IDEA is in the process of implementing the second incarnation of IDW, called IDW2.

"The Industry Data Warehouse has been completely redesigned," said Mike Rioux, president of IDEA. "We’re migrating customers onto IDW2 in the first quarter fo 2005."

A major feature in IDW2 is the inclusion of the Data Audit and Certification process that IDEA developed to verify that manufacturer data is error-free. The DAC program gew out of IDEA studies in 2002 and 2003 that found significant data errors in the marketplace. IDEA launched the DAX program in November 2004 to address that error rate, but it was a hard sell to manufacturers at first.

"At first it wasn’t openly embraced." Rioux said. "Many manufacturers though their data was perfect. We had a tough time training and educating manufacturers that they really needed to take a hard look at the quality of their data. In the early part of the program, we had just a few manufacturers participating. But by the end of 2004, we had 120 manufacturers participating and 68 whose data had been certified by IDEA. When a adistributor pulls that information into its system, there;s a much better chance that the subsequen purchase order process will go through error-free."

That’s important, because data errors cost a lot of money. A study commissioned by IDEA determined that for each $10 million in annual sales, data errors cost distributors $73,000 in profits and cost manufacturers $97,000. For the entire industry, the loss was estimated at some $1.2 billion per year. That represents the labor cost involved in resolving errors when transactions are kicked out of the systen.

The DAC has been a seperate process external to IDW, but it will be embedded in IDW2.

"Everytime amanufacturer sends information to the IDW2, it will go through the data validation and certifcation process," Rioux said. "Messages will automatically be created adn sent to the manufactruer and its trading partners telling them the quality of that information. Then a distributor can make a better assessment of whether to use that data or not, and the manufacturer will know exactly what corrections to make to the data."

Rioux anticipates that approximately 80 to 90 percent of the data will go through with no problems. The rest wont pass for a variety of reasons, some of which may not matter to a ddistributor, Rioiux said. Data that doesn’t pass will go into a suspense file. The manufcaturer can then pull it out, correct it, and resubmit it for certification. IDW2 tools will be available for the manufacturer to make the corrections online.

Each customer will have a profile that will include a data map ensuring that the information is being delivered in accordance with criteria set by the end-user customer.

"Each end-user company has different software programs, back-end systems, and format requirements," Rioux said. "IDW2 will deliver the infromation in the format tha is best for the end user. THat flexibility did not exist in IDW."

Rioux said the new system is much more responsive to the customer’s needs at both the front and back ends. It’s much more powerful in messaging and reporting; there are more tools; and IDW2 will be able to deliver the informaiton to any channell, whether it’s retail, wholesale, OEMs, other suppliers, or reps.

"We spent a good chunk of 2004 building this out, andwe are very condifent it’s going to be what the industry really wanted at the very beginnning," Rioux said.

The beginning of an IDEA

IDEA, based in Arlington, VA., was created by the National Association of Electrical Distributors and National Electrical Manufacturers Association as a joint venture. It was incorporated in 2000 as a privately owned for profit electronic commerce service provider for the electrical industry.

"The mission from the beginning was to have all the information in one place, so companies can eliminate the costly processing involved in mapping information via a single hub based on industry standards-open and public, versus proprietary standards and formats that a commercial enterprise may have."

IDEA developed a retail version of IDW in 2004. The Industry Retail Database, or IRD, was designed to provide a cost effective wayt for manufacturers to comply with data synchronization mandates from big box retail chains such as Wal-Mart and Home Depot.

With IDW2, IDEA will offer distributors a choice of four database products, called Core, Extended, Enriched, and Catalog. Pricing for IDW2 is based on which product is chosen.

The Core product targets teh small distributor that needs only basic information to buy products, Rioux said. It has approximately 22 fields of information-including catalog number, UPC number, short description, unit of measure, and pricing. The Extended product has about 125 fields of informatino. Enriched is more descriptive, and Catalog is a comibination of Core or Extended plus Enriched.

The Enriched product allows an end user to do parametric or keyword searches in the database. "You can use it in an electronic or print catalog, or on a website," Rioux said. "You get thumbnails and high-resolution color images, technical specifications, engineering drawings, and material safety data sheets."

IDEA expects to have the Enriched product available by April, Rioux said.

The communications hub, IDX2, was an outgrowth of the development of IDW. It enables partner-to-partner electronic business communication over an Internet-0based network using EDI, XML, flat file, or Web Form transaction sets.

One-stop shopping, discount prices

The delivery of informaiton between manufacturers and distributors through IDX2 typically saves IDEA customers between 25 and 90 percent over their previous communications service provider, Rioux said.

"For example, Eaton Electric used to spend $25,000 a month to pay for the delivery of EDI business documents. With IDX2, their monthly EDI expenditures dropped to $4,000 a month," Rioux said.

IDEA is able to offer lower rtates then its competitors because its business model is unique. Since IDEA is owned by the electrical industry through NAED nad NEMA, stockholder dividends are not an issue. " As long as we stay positive in cash flow, we can invest money into improving the product, and if we make substantial revenue, we can lower our rates and charges or use hte money as directed by our industry board," Rioux said.

IDEA also is able to overhead costs low by having a small staff and outsourcing services such as electronic commincations, database hosting, data audit and certification and data content support. IDEA has contracts with Activant Solutions, Sterling Commerce, Integrated Software Solutions, Comergent Solutions, Byte Managers, and i2 Trade Service to provide those services.

Rioux said IDX2 offers unmatched reliability. "In four years of operation, IDX2 has experienced only 45 hours of outage time," Rioux said. "Our competition may experience that much in a month, and they’re much more expensive."

Fees are based on a customer’s traffic volume through the communications hub, with no hidden charges such as interconnect fees or translation fees, Rioux said. "You can pull data, you can add data, you can talk to wholesalers, you can communicate with the retail side, and you get your data certified-all through one service."

To use IDX2 or IDW2, customers pay a one-time fee to join IDEA, based on the company’s annual gross sales. Customers pay 5,6, or 7 cents per kilo character for sending documents over IDX2, depending on their monthly traffic volume. There is no charge for manufacturers to upload data to IDW2. The monthly IDW2 fee for distributors will vary depending on what product they choose.

Overcoming resistance

The electrical distrbution industry still has a long way to go when it comes to data synchronization between trading partners, Rioux said.

"There are approximately 3,000 distributors in the marketplace that could benefit from an IDW2 or IDX2 product or that of our competition, but at this point, fewer than 1,000 of them are using a data service," Rioux said.

"That means more than 2,000 distributors out there are getting their business data some other way, and its costing them a lot of time and employee hours to process disks that they get from manufacturers, pull the data off websites, or re-key it in from hard copy files," Rioux said. "The Industry Data Warehouse enables manufacturers to put all their information in one place and enables distributors to go to one place to get all that information."

However, there is a tendency in this industry and other similar vertical markets to treat information technology and electronic commerce as services like the telephone, Rioux said. People are reluctant implement a major change if what they already have in place is functioning, regardless of the potential cost saving. Rioux’s mission, when he talks to distributor executives, is to change that mindset.

"What we would urge them to do is take a look at their business strategy, and look at how they implement information technology as a tool to help lower their supply chain costs," Rioux said. "Once they have that strategy in place, they should examine the alternatives to see how they can save money-and drive value between themselves and their trading partners."

He’s confident that the strategy will lead them to IDEA.