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United States Small Business Administration
Office of Advocacy
RS 159
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Purpose

Electronic data interchange (EDI) is an emerging technology that has important implications for small firms. EDI can be broadly defined as the computer-to-computer exchange of routine information, from one organization to another. Small firms' ability to compete will be affected by their use of EDI. The Office of Advocacy initiated this research to identify: (1) the benefits and any adverse effects of EDI on small firms; (2) measures that may be taken to implement a uniform EDI technical standard; (3) measures that may be taken to prevent EDI from having an adverse effect on small firms in the federal procurement process; (4) measures that may be taken to prevent EDI from becoming a competitive barrier for small firms; and (5) technical and financial assistance the U.S. Small Business Administration and other federal agencies can offer to small firms that seek to use EDI.

Scope and Methodology

A thorough search of books, reports, articles, and conference materials published by business and trade press, companies, technical standards bodies, and government agencies was conducted. In addition, interviews were conducted with small and large firm users of EDI, industry trade groups, EDI software and service vendors including Value Added Networks (a third-party service that can furnish users with services such as message storage and forwarding, transmission tracking, data translation, additional security, etc.), and other key players. The research also included a series of case studies of EDI in the retail sector, in health care networks, among firms in international trade, and in one Department of Defense installation.

Highlights

• Small firms often do not fully understand the concept of EDI and its ability to facilitate electronic commerce. Small firms are at times intimidated by the technology, are frequently concerned about the ability of outsiders to tap into the workings of a small firm via computers, and often lack time or resources to develop an understanding of how EDI can help.
• Firms that have an "EDI leader" -- a person who pushes the technology from within and understands the ramifications of the technology on the firm -- are more successful in implementing EDI. In addition, firms that have related technologies in use for internal applications are more likely to benefit from EDI and implement it sooner than their competitors.
• The adoption of EDI within a given industry is most often triggered by large entities, whether they be large firms (for example, retail hubs) or the government (for example, customs, defense procurement, and mortgage brokerage). As a result, it is more difficult for small firms to realize early benefits from EDI and greater pressure is placed on them to follow with implementation. Small firms especially tend to adopt EDI as a reaction to external stimuli such as competitive pressure or consumer demand.
• Many small firms implement EDI to satisfy trading partner mandates.
• User groups and trade associations play an important role in assisting firms with questions about implementing EDI or in identifying various trading partners who may be using EDI already.
• The use of EDI has matured in the retail trade sector: in 1993, 95 percent of the trading partners of the 15 largest retailers were using EDI. Firm size does not seem to be significant in determining which firms most successfully use EDI.
• EDI hardware, software, and network services have become affordable to most small firms in the distribution chain (that is, firms that participate in bringing finished goods to consumer markets). In general, EDI costs have decreased significantly in the last decade.
• The U.S. Customs Service initially became involved with EDI in the mid- to late 1970s when EDI represented an opportunity to process import paperwork more accurately and more quickly. Most small brokers view EDI as a technology that helps level the playing field by allowing them to process transactions as efficiently as their larger competitors while providing the same degree of service.
• The Department of Defense's Government Acquisition Through Electronic Commerce (GATEC) program was implemented at Wright Patterson Air Force Base (Dayton, Ohio) in October 1992. GATEC enables Wright Patterson to use EDI for requests for quotations that are less than or equal to $25,000. Since GATEC's implementation, the number of procurement contracts awarded to small businesses by Wright Patterson has increased from just over 60 percent to 97 percent, an indication that EDI has a positive effect on small firms' ability to compete.

Summary

EDI is a rapidly spreading technology that is quickly changing the face of marketing goods and services across many industries. Because their financial and managerial resources are usually more limited than those of large firms, small firms are typically not the first to implement new process technologies that are greatly affected by economies of scale. Small businesses' lack of information and resources to become active EDI users may present a special handicap to their ability to compete. Providing information, matching resources, setting standards, providing access and ensuring a smooth transition for small firms to this new information-based market environment should be a priority for public and private small business organizations.

Ordering Information

The complete report is available from:
National Technical Information Service
U.S. Department of Commerce
5285 Port Royal Road
Springfield VA 22161
(703) 487-4650
(703) 487-4639 (TDD)

Order number: PB95-271102

Cost: A09 (paper); A02 (microfiche)

*Last Modified 6-11-01