EDI-fying Japanese Industry

by Noriko Takezaki

EDI or DIE!" For Japanese companies that are facing increasingly tough competition in the domestic and global marketplaces, this slogan may not be an exaggeration. The rapid and effective implementation of Electronic Data Interchange (EDI) - computer-based data transactions between companies, such as for order placement and scheduling between manufacturers and vendors - is becoming a significant issue for businesses in Japan.

Not a new concept
The concept of EDI is not new to Japanese industries. A kind of EDI - an online data transaction system - was in use as early as the 1970s, particularly in major corporations and among keiretsu group companies. In general, though, such EDI systems were proprietary or customized solutions developed internally by spending much money and time to construct a system suitable to specific corporate needs. These early EDI systems, therefore, were not designed for use on an open network.

"Japan does not lag behind the US in computer networking, as is often claimed. But it does lag behind in the use of open computer networks," says Jiro Kokuryo, an associate professor in the graduate school of business administration at Keio University. "There have long been large closed networks existing in Japanese industries. These networks worked, and they were tailored to the specific trade practices of each particular industry, so Japanese corporations felt no need to change them."

Things have changed since the collapse of Japan's "bubble economy" in the early '90s, however. "Japanese companies have now found [their older networks] are less competitive in the global market," says Kokuryo. "They have become aware of the necessity of having a more open structure to enhance their competitiveness."

Because Japanese companies previously considered only their own internal needs and benefits in constructing their EDI systems, the result for Japanese industries was a fragmented infrastructure. A wide variety of terminals or computer products were required for these incompatible EDI systems, and much effort was needed for data conversion if information had to be transferred between systems.

MITI decided that rather than "force" Japanese companies to adopt a foreign-made EDI standard, it would support the creation of a national Japanese standard.

There were at the time - and still are - two major EDI standards in the world: EDIFACT (Electronic Data Interchange for Administration, Commerce, and Transport), developed through the United Nations, and the ANSI ASC (American National Standards Institute, Accredited Standards Committee) X12 standard, used in the United States. EDIFACT was created with the intent of defining a world standard but, failing to achieve that aim, has been used only in Europe and some Asian countries. ASC X12, the American standard, is little used outside the US.

Characteristically, MITI decided that rather than "force" Japanese companies to adopt a foreign-made EDI standard, it would support the creation of a national Japanese standard. "The foreign-made EDI systems have some problems if applied to Japanese business applications directly," explains Yasuhiro Matsuyama, deputy director of MITI's electronics policy division. "For example, the data segments and standard messages in EDIFACT are not necessarily compatible with the actual conditions of transactions in Japan. In this sense, EDIFACT is not suitable for domestic applications in Japan. For EDI, the important thing is to make it fit the actual business scenarios in accordance with the trade practices here."

In line with MITI's guidance, the CII and EIAJ initiated joint development of a new EDI format - in particular, new syntax rules that were deemed suitable for the common applications utilized in Japan. These new rules were based on the format configuration used by EDIFACT and ASC X12. As a first step, in 1989 the EIAJ announced the EIAJ Syntax Rule, designed specifically for applications used in the electronics industry. Then in 1991, responding to requests from other industries, the CII/JIPDEC announced a full set of the syntax rules, called the CII Syntax Rule. The EIAJ Syntax Rule became a subset of the CII Syntax Rule.

Since then, MITI has been promoting the CII Syntax Rule to industries. So far - according to CII/JIPDEC, which serves as the secretariat for the Japan Electronic Data Interchange Council (JEDIC), a group of nonprofit trade organizations founded jointly by MITI, the Ministry of Finance, Ministry of Transport, and Ministry of Construction - more than 2,500 companies have adopted the CII standard.

The elusive goal of unity
Even within Japan's domestic CII-based EDI, however, there are still problems in data exchange. This occurs because some companies have insisted on maintaining their own data format for their intra-company network rather than following the CII rules 100%. This forces them to perform conversions between the data for their intra-company network and the data to be transmitted through an inter-company network.

For example, company A may use a 9-digit parts identification code in its internal ordering system, while company B uses a 20-digit parts ID code. If company A wants to send a message to company B over an EDI system, it has to convert that internal data format into the CII data format for transmission, then company B has to reconvert the received data into its own internal data format. For this data conversion, each company will need EDI translator software, at least, and (depending on how "unique" a company's own data format is) some manual modifications may be required.

Furthermore, in accordance with the variety of the data format and data attributes to be transmitted, the companies' communication procedures may also differ. Among the procedures currently in use are the JCA procedure (widely used in the chain-store industry), the Zengin procedure (which is used for transactions among banks; it was prescribed by the Federation of Bankers Associations of Japan [Zenginkyo]), the H procedure (for the distribution industry), and the F procedure (commonly used for file transfers).

The lack of unity among Japanese industry segments with regard to EDI is apparent. There are many things that could be done to make Japan's EDI system more efficient, but since the issue involves deep-rooted trade practices within each industry as well as traditional business operation procedures at individual companies, the unification of EDI domestic methods remains an elusive goal.

"EDI cannot be realized just by installation of computer systems. It needs face-to-face pre-arrangement by human beings for the transfer of data to be transacted," says Kenshi Sasaoka, planning department manager at Sony's procurement center. "Without this human arrangement, EDI won't work properly. But once the arrangement is made, we can enjoy the benefits of EDI."

"In our case," continues Sasaoka, "we have succeeded in reducing the lead time in component procurement to one-third of the conventional time. And EDI has helped us reduce the amount of component storage in our warehouse. To those vendors who don't want to join our EDI system, we are explaining that EDI can improve their competitiveness as a whole in the long term, and that it is not just for the convenience of Sony." The procurement center's EDI system currently connects just 208 companies out of Sony's 3,000 vendors in total.

Why companies remain reluctant
Many companies, particularly small and midsize businesses, have refused to join the EDI network. According to a recent survey conducted by JEDIC, the main concern of companies hesitant to adopt EDI is their insufficient hardware and software preparation. In addition, many believe that their in-house network alone is enough, in part because they don't clearly understand the potential benefits of EDI and because they feel that installing an EDI system costs too much.

Regarding cost, the implementation of EDI need not be expensive. If a company already has a computer network, basic EDI software, including the communications software, data translator, and database, costs about JPY 1 million to JPY 2 million. For a company that does not already have a computer network, however, the procurement, installation, and training cost can be a significant deterrent. This is the biggest reason that EDI has been slow to permeate into small and midsize Japanese companies.

"For nationwide dissemination of EDI in Japan, it is necessary to find persuasive ways of involving more of the small and medium-sized companies," says Eiji Hamanaka, a manager in the general coordination and promotion division of CII/JIPDEC. "For this purpose, we expect much of the potential of Internet technologies for EDI, because use of the Internet can offer a low-cost, easy solution for network construction and operation." Hamanaka adds that, although the Internet presents some security issues, "we think the use of the Internet can be adopted in certain fields of EDI, such as applications that don't need high-class security."

CommerceNet Japan, the Japanese subgroup of US-based CommerceNet, has also been promoting Internet-based EDI in Japan. In April, CommerceNet Japan held a workshop in Tokyo that focused on this topic. The workshop featured speeches by some promoters of EDI over the Internet in the US, such as a consultant with CommerceNet's EDI task force and the vice president of Premenos (a software company that produces EDI software for the Internet). Some of the participants of the workshop, however, expressed their skepticism about using the Internet for EDI applications.

"Japanese companies tend to seek perfection in their businesses, and this tendency is appearing in their attitude toward EDI," says Hiroshi Uchinuma, a spokesperson for CommerceNet Japan and a senior manager at NTT's multimedia communication promotion department. "But we think people should become more flexible. We are not proposing the use of the Internet for all EDI applications; but considering the cost-benefit of using the Internet, we can start applying Internet technology in some limited applications."

"EDI has helped us reduce the amount of component storage in our warehouse."

CommerceNet Japan says that the organization is now a neutral entity - or rather, a business-oriented organization. (The US government's subsidy provision to CommerceNet USA ended last year.) However, for those with MITI affiliations, CommerceNet Japan is still seen as an MPT ally, and therefore a rival rather than a partner.

If these two organizations would shake hands and work together, the healthy promotion of EDI in Japan could be accelerated without wasting resources. This, however, seems unlikely to happen any time soon.

Japanese companies, meanwhile, should not just sit back and watch. Only by utilizing the resources available for and realizing the potential of the Internet for EDI can Japanese industry advance. Japanese companies must realize that electronic data interchange is a vital tool for their survival in the era of global competition, and - like it or not - something they will have to deal with sooner or later.

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