It's no secret: The process of replacing standard paper-based business transactions with electronic transmissions will continue to grow and broaden over time throughout the apparel industry. The key to capitalizing on this change is to reap the benefits of this remarkable transition while minimizing any attending costs and risks.

Both manufacturers and retailers have invested a great deal of time and money in technology to streamline everything from placing purchase orders and exchanging invoice information to confirming shipment delivery and capturing payment information. As can be expected, the largest manufacturers and retailers have made the largest investments. But small and mid-size players are following quickly behind.

As small and medium sized businesses increasingly use the Internet to communicate - moving to standards such as XML documents, rather than EDI - electronic data transmission will penetrate the industry at an even greater pace.

A Need For Standardization

Meanwhile, most of the large retailers will continue to promote and use their own, well-established EDI standards, requiring their suppliers to adapt to and comply with their special and proprietary requirements. As a result, there will continue to be different formats and different vehicles for delivering information in the foreseeable future.

This lack of standardization puts a tremendous burden on vendors that - in order to do business with specific retailers - are required to comply with different ways to implement what is basically the same function. In the future, some kind of standardization will enable retailers and vendors to use and exchange information without all the customization currently required, and without all the financial and technological support that goes along with it. Unfortunately, that point in time appears to be far away.

The good news is that even though electronic transmission is not yet standardized, it still reduces the time, labor and paperwork required to execute basic business transactions, contributing significantly to lower cycle times and costs. And that's an outstanding benefit for both sides of the trading partner relationship.

Cost and Speed

While there's a lot to gain by exchanging information electronically, there's even more to gain by truly integrating along the supplier-retailer chain. Once information is standardized and integrated, vendors will be able to fully comply with the rules their retail customers have established, but also they will have comprehensive, accurate and timely information which will help streamline the entire supply chain.

A related benefit, of course, is speed. The former college and professional football coach Jimmy Johnson once said that speed kills. In the apparel industry, speed doesn't kill, but it certainly propels every day business. In today's economy, exchanging information quickly and accurately leads to business decisions regarding buying, warehousing, shipping, pricing and getting products to market under increasingly tight time frames.

Sharing sales information and more

Now we're starting to see a more comprehensive exchange of information between large retailers and some of the major suppliers, including up-to-the-minute sales information by SKU. As a result, vendors can directly track the retailers' inventory, and therefore be in a stronger position to ship "just-in-time" replenishments. This depth and specificity of sales information enables suppliers to anticipate their customer's needs and respond to those needs faster than ever before.

While this deep level of information sharing between major retailers and vendors may be geared primarily for large programs, it will certainly evolve into the next tier of trading relationships over time. There's even a movement afoot to conduct different kinds of sourcing over the Internet. Whether people will buy product without seeing and touching it is still an open question. But it's clearly a process that will evolve and grow.

The increasing use of the Internet will also level the playing field because large and expensive hardware and software systems are not necessarily required. Some companies that have grown up in the Internet world, in fact, are handling the conversion of files through the Web for a fraction of the cost that is incurred by large and expensive value-added networks.

The Internet is even playing a growing role in the liquidation of overstock. Instead of selling to liquidators, manufacturers are starting to offer their excess merchandise on their own Web sites, where they can often get a better price than they could in the liquidation market.

Overcoming challenges

Clearly, the benefits of electronic information are many, but so are the challenges.

Security is a big concern. No one should be involved with the electronic transmission of data and information without making sure that security software and firewalls are in place to authenticate any transaction. And if you are outsourcing this capability, it's critical to know whom you're doing business with. Security depends on having a good set of controls in place.

Another important management challenge is to avoid incurring the costs of new technologies that quickly become obsolete. It's important not to customize too much, to stick with mainstream technological standards, and to make refinements regularly. The technical decisions made only one or two years ago must continually be revisited and updated.

In the scheme of things, however, the benefits of electronic data transmission are enormous and growing. Manufacturers have reached a point where electronic data transmission is not just an accepted norm of doing business, but a critical tool that can improve and streamline every aspect of the supply chain.