So Say The Bigs

19 July 2003

McKinsey’s consulting practice is not focused on businesses much below a Global 5000 standing, meaning only the 5000 or so largest businesses in the world fit McKinsey’s target market segment.

Consequently, when a report like this comes out singing the praises of EDI (electronic data interchange), there’s an important piece that is missing. That’s the voice of the small or medium company that has been dictated to by one of the ”bigs.”

Though the examples are legion, I’ll cite two EDI projects and their consequences from the viewpoint of the company being told what to do.

Example One: Chrysler tells an electronics company that does warranty and non-warranty repairs of instrument clusters and stereos how things are going to be. Chrysler specified a date by which several EDI transactions would be the only acceptable means of transferring information between the two businesses.

This small company doesn’t have an I.T. department. They don’t have a value-added network (VAN). They don’t own EDI software. Add those costs together coupled with some advisory time from an I.T. consultant and that business probably lost money on the next twelve months of transactions with Chrysler.

You see – prior to this EDI mandate – Chrysler had already hammered the margins of the smaller supplier to miniscule levels. Why doesn’t the small supplier simply ”drop” Chrysler? They can’t. Their investment over time in doing business with one of the largest automotive firms in the world can’t be redeployed for another customer. The trap had been set.

Example Two: IBM tells it’s authorized resellers that it wants to send and receive transactions via EDI. Change the word Chrysler to IBM in the rest of the sentences of Example One and you have Example Two.

Now contrast all of this with the small business’s ability to use it’s own off-the-shelf accounting software to simply ”print a transaction or report to an XML file.” Yes, such software exists.

Free of micromanagement by the bigs, an invoice, purchase order, sales acknowledgement or other business transaction can be written to an XML file. Using this sort of technology, the small business returns to a level playing field with the BigCo in the area of how business transactions will be exchanged.

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