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BUSINESS WEEK ONLINE
Transcript of Nov. 16, 1995, conference

EDI: LINKING SMALL COMPANIES FOR BIG JOBS

The guests on Nov. 16 were Robert E. Steele of POSItech International and
Alan L. Kendrix of the Flexible Manufacturing Networks Center at Central
Connecticut State University, with Otis Port of Business Week.

OnlineHost:    Copyright 1995 America Online, Inc.

OnlineHost:    Material entered into AOL by persons other than those identified
as Business Week's employees or authorized representatives, acting on behalf
of Business Week, is material for which Business Week assumes no
responsibility.

OnlineHost:    Good evening and welcome to Business Week Online. Tonight we look
at a way for small companies to team up on big jobs -- and do them well,
thanks to electronic data interchange (EDI). How these networks work was a
story leading the special Enterprise section, especially for small business,
in the Nov. 20 issue of Business Week.

Our speakers are Otis Port, senior writer for Business Week and author of the
story, and two executives with expertise in applying EDI: Robert E. Steele,
chief operating officer of POSItech Manufacturing Group, an alliance of nine
job shops in West Virginia, and Alan L. Kendrix, director of the Flexible
Manufacturing Networks Center (FMNC) at Central Connecticut State University.

Bob Steele heads the Aviation Div. for POSItech International, leader of a
flexible manufacturing network. The history of the POSItech group is the
basis of a forthcoming how-to guide on flexible manufacturing networks from
the West Virginia High Technology Consortium. Bob's screen name is Posi Int.

Alan Kendrix will be flipping the switch this month on the Connecticut
Electronic Commerce Center at the FMNC, to provide cut-rate EDI service for
the state's 5,000 small manufacturers -- in particular, the companies in five
existing manufacturing networks and seven others now being formed. Alan's
screen name is KendrixA.

Otis Port (OtisBW) joined Business Week in 1977. He helped launch the
Information Processing section and, more recently, the Developments to Watch
column. Today, he watches developments at the cutting edge of high tech. The
moderator is Jack Dierdorff (JackBW), consulting editor of Business Week
Online and former managing editor of the magazine. And now on to our
discussion.

JackBW:    Good evening to all of you on AOL. Welcome, Bob Steele and Alan
Kendrix. Hi, Otis. Otis, you have the honor of asking the first question.

KendrixA:    Hi, and thank you.

OtisBW:    Small manufacturers have been under the gun due to supply-chain
consolidation and defense downsizing. Some have responsded by forming groups
of companies -- virtual corporations -- that make them seem bigger than they
are. But, hey, this number is very small. Are there signs this is going to
change?  Bob? Alan?

JackBW:    Who wants to go first?

OtisBW:    Bob Steele.

Posi Int:    Yes. I feel that virtual corporations for manufacturing networks
are the wave of the future. If small business is to compete in a global
market, they must have the means and strength of a group. Working together,
we can be every bit as effective as a large corporation with many
departments.

JackBW:    Alan, your take on this?

KendrixA:    For me, in the state of Connecticut, most of 5,000 small
manufacturers are defense-dependent largely. Even if they're not, many of
their large customers are requiring or will require them to be EDI-compliant.
The focus of our Electronic Commerce Center is to help those small companies,
whether they are networked or working independently, to be EDI-compliant in
the quickest, most economical and efficient manner.

JackBW:    Otis has another question.

OtisBW:    Even the members of the oldest flexible manufacturing nets seem to be
dragging their heels on EDI. This is clearly something that OEMs [original
equipment manufacturers] are demanding. So what's the hangup?

Posi Int:    I believe that most small companies are still resisting the use of
computers in their business, and that is why our group has elected to have a
central facility downloading for the entire group.

KendrixA: Most of the 5,000 manufacturers in Connecticut have fewer than 50
employees, and strong entrepreneurs run these companies [and] work longer
hours around their core competencies. This is a new and stressful demand for
OEMs. Not only from the cost of hardware that many of these companies don't
have, but also from the knowledge that they need in order to become
compliant. And that is where we are going to help.

OtisBW:    Alan, Connecticut's electronic commerce initiative seems to be
unique. Tell us what it took to launch it -- and are there any signs that
other states will copy your model?

KendrixA:    Connecticut is part of a national network called US Net, which is a
network of 15 states that have networking programs like Connecticut's. And
just as it is valuable for companies to network, it is valuable for the
members of this network to learn from one another. So, unique programs get
transferred easily.

JackBW:    Here's a question maybe Bob Steele can tackle first.
Question:    Can one of you give us a specific example of how EDI would work on
a typical job for one of your virtual corporations?

Posi Int:    We would begin by downloading government buying bids via EDI that
are sorted by the capabilities of our member companies. We would then
transfer portions of the bidding process to those companies in our group that
perform that portion of the work and request bids for their work on the
project. We would then compile a total bid and transmit it via EDI to the
government agency requesting the bid.

In most cases,  the bid would be awarded via EDI to our group headquarters,
and the work would be networked between our companies under the central
guidance of our quality assurance manager.

JackBW:    Alan Kendrix has something to add.

KendrixA:    In Connecticut, companies like Pratt & Whitney have already
required their first-tier suppliers to be EDI-compliant, and the Electronic
Commerce Center will be working to move the EDI capability down to second-
and third-tier suppliers. Additionally, large companies like Pratt are
beginning to select first-tier suppliers to become "systems integrators,"
which simply means the first-tier supplier has subrelationships with subtier
suppliers and     the large company simply works with the "systems integrator."
So the process that Bob has just described will need to be replicated
throughout the aerospace industry.

JackBW:    WalkerPG in the AOL audience sends us this question.
Question:    I have previously read that many people were dragging their heels
on EDI for several reasons, one of which is verification of electronic
signatures. Considering a format has not been settled on, how are you
handling this?

Posi Int:    From the government-contracting side, checks and balances have been
put in place, along with central registration that allows our signature to be
transmitted electronically and discretely«MDNM». The online bid becomes a
legal contract, just like a paper one, and signatures are guaranteed via
discrete codes.

KendrixA:    I'd like to talk about the network of service providers at the
Electronic Commerce Center, which includes a small company with EDI
capabilities called C&C Partners, value-added networks [VANs] from both GE
Information Systems and AT&T,«MDNM» Digital Equipment, and a software company
called APL. Both of the VANs and APL are government-approved companies, and
this combination of companies will help with all of the issues just mentioned
for our small companies who have no idea about any of this.

JackBW:    Mr Fitness in Dover, N.H., has this question for our experts.
Question:    How do we educate smaller companies to become proactive rather than
reactive to EDI?

KendrixA:    With the network of service providers just described, we will
actively recruit small companies and let them know that there is an easy way
to become EDI-compliant. So we will be going to them directly.

Posi Int:    In West Virginia, we have procurement technical assistance centers
that circulate the state, teaching EDI to our companies.

OtisBW:    Alan, will it help to have solid case histories of successes?

KendrixA:    Absolutely. In fact, in forming interfirm collaboratives [IFCs],
solid examples and case histories are extremely helpful. And for this
Electronic Commerce Center, solid examples will be very important.

JackBW:    Nicky500 asks about the effect of all this on costs.
Question:    Is consolidation of small business really a long-term solution to
cost control?

JackBW:    Bob Steele will answer.

Posi Int:    In a group such as we have put together in West Virginia, there is
no additional cost to our members for the privilege of belonging to the
group. EDI expenses are borne by percentage added to bids to cover center
expenses. This is a win-win situation for our member companies. This is, in
fact, private enterprise helping private enterprise without outside
interference.

KendrixA:    The private members of the service provision network, namely the
two VANs (GE Information Systems and AT&T), have accorded the Electronic
Commerce Center agency pricing, which simply means that a company could join
this network at a reduced rate for the actual transmission of documents and
software. So by joining the Electronic Commerce Center, a company can get
steep discounts on hardware, software, and transmission prices.

Posi Int:    In the POSITech Manufacturing Group we also interface with a VAN.
However, we do the entire interfacing with our members through the group
office.

JackBW:    Isn't this also about the impact of EDI on corporate costs overall?

OtisBW:    Among the companies engaging in EDI, the savings have been extremely
large. Computers talk to computers and automatically deal with lots of
routine chores, like processing purchase orders.

JackBW:    Here's another audience question.
Question:    What moves toward EDI have you seen on the government side? I know
it has been directed to happen, but at what speed are you actually seeing it
happen?

JackBW: Bob Steele volunteers.

Posi Int:    We have been attending government-sponsored EDI seminars throughout
a multistate region. The government has mandated many of their operations to
be EDI-compliant within the next two years.

JackBW:    Alan is adding.

KendrixA:    At the Institute for Industrial & Engineering Technology, where I
work, there is a procurement technical assistance center. And we are together
promoting training programs for small companies because there is a very, very
big, fast-moving push from the feds.

JackBW:    Here's a question from Blueiis1 on which BW Online should be able to
help.
Question:    I am having trouble locating a company in South Carolina that can
provide access to EDI. Is it necessary to go through a VAN? I have contacted
a company called Gain, but have not had much luck getting any help.

KendrixA:    You should contact me and either you can join our Electronic
Commerce Center, or we will help you find a way to become EDI-compliant.

OtisBW:    There are VANs like GEIS (GE Information Systems) that are national.

JackBW:    Otis, you gave BW Online some info on state and local contacts for
EDI. You can find that in our Small Business Center (under What's New on the
BW Online opening screen).

OtisBW:    The BW Online sources should be of help.

JackBW:    RIFSTER has a question next.
Question:    What happens if your EDI program lacks a closed loop -- no EFT
[electronic funds transfer]?

JackBW:    Alan is going to answer.

KendrixA:    The Electronic Commerce Center views electronic funds transfer as
the quid pro quo for the large customer. Some of them don't want to do it,
but we are working hard to make sure that EFT is part of the deal.

JackBW:    AliceinAOL has a somewhat related question.
Question:    The payment systems in the financial services industry have
implemented another standard, ISO8583. What efforts have your companies taken
to integrate ISO8583 and EDI?

Posi Int:    In regard to ISO standards, our group is dealing mainly with
government contracts that are restricted to qualifying military standards. We
have not found it necessary to involve ourself with ISO standards. The
quality assurance military standards take precedence in dealing with the
federal government.

JackBW:      Now, Bob Steele wants to add something to an earlier answer.

Posi Int: Backing up to EDI in small companies, we think it is important that
small companies not back away from using computer EDI in their day-to-day
business.

OtisBW:    What's the one crucial key to getting more small companies to buy
into EDI?

Posi Int:    There is no doubt that if they want to deal with the federal
government as well as with big business, they will have to be EDI-compliant
at some time in the near future. I don't believe that it is possible for
someone or some agency to entirely relieve small business from becoming
involved in EDI. Whether they do it as an individual or as a group, they will
have to face it at some time.

KendrixA:    We must remember that there is a small push by the large companies
in America that will force their suppliers to be EDI-compliant, or else they
will go to other suppliers. We are using that impetus to gain members in     the
Electronic Commerce Center.

Posi Int:    EDI is not going away!

JackBW:    That's it for tonight. Thanks to all of you.

KendrixA:    Goodnight, and thanks to Jack and Otis.

OnlineHost:    Thanks to Bob Steele of POSItech International, Alan Kendrix of
the Flexible Manufacturing Networks Center, Otis Port of Business Week, and
all the BW Online team for this conference on small companies teaming up via
EDI. And thanks to all of you on AOL, with apologies to any of you whose
questions we didn't have time for.

If you'd like to continue the discussion, we invite you to move to the BW
Online Chat Room. Or you can post comments and questions on the BW Online
Message Boards. Transcripts of this and all other BW Online conferences are
available soon after the event (under Talk, Special Events, or Search BW, or
for this one also in the Small Business Center and BW Online's Computer Room,
under What's New).

Remember to join us in the Globe every Sunday at 9 pm ET for our weekly
conference, usually featuring the Cover Story in the current issue of BW.
Thanks again and goodnight!

Copyright 1995 by The McGraw-Hill Companies, Inc. All rights reserved.