Ken Jeanos, director of inside sales and operations with Panasonic Industrial, once believed the Internet would make his company more efficient. The company, a multibillion-dollar division of Matsushita Electric Industrial, distributes electronic components, storage devices and semiconductors, among other products, to original equipment manufacturers and electromechanical subcontractors. Panasonic Industrial had used electronic data interchange—a standard means of exchanging purchasing information—for more than 15 years, and it worked well for the company. Nevertheless, the Internet promised to streamline some business processes that weren’t EDI-enabled and to generally help the company meet customer needs more quickly, at a lower cost.

However, in 2001, just as Jeanos’ expectations for the Internet were rising, a handful of Panasonic’s customers asked him to stop using EDI altogether and to use their extranets exclusively to exchange purchase orders, invoices and forecasts. Jeanos understood why. According to industry analysts and CIOs, shifting to extranets can allow a company to shut off its EDI networks, and save as much as several hundred thousand dollars a year on fees for value-added networks (VANs), the private network providers that lease communication lines for EDI, map data between trading partners and test systems.

But the move to extranets from EDI is not nearly as advantageous for Panasonic Industrial. In fact, extranets are eroding efficiencies Panasonic gained from EDI, because extranets create more manual work for Panasonic employees. "I have people spending all day on one customer, going to their website to confirm purchase orders and post advanced shipment notifications and invoices," Jeanos says, adding that if Panasonic’s customers continue to force him to use extranets, he will have to increase his headcount up to 10 percent in the area of customer service.

For example, if a customer requests a forecast from Panasonic, one of Jeanos’ demand planners has to go to the customer’s extranet to find the information the customer wants in the forecast. The demand planner then has to type that information into Panasonic’s ERP system. Once the ERP system creates the forecast, the demand planner has to manually enter the forecast into the customer’s extranet. With EDI, that entire process had been automated. Jeanos says integrating Panasonic’s ERP system with each of its customers’ extranets isn’t an option either, due to the expense. Even if integration were financially feasible, some of Panasonic’s customers wouldn’t allow it because of security concerns.

Like Panasonic Industrial, many manufacturing suppliers feel increasing pressure to abandon EDI, and they’re experiencing plenty of pain as a result. The trend has affected the electronics and high-tech industries most acutely, although it has emerged in other industries as well. According to David Sommer, vice president of e-commerce with CompTIA, an electronics industry association, OEMs want to ditch the mixed transaction environments in which they currently operate (where they use some combination of EDI or B2B portals and multiple data formats, including XML and Excel files) and to standardize on one electronic transaction method to save money. Portals have become their system of choice because they are Web-based, and therefore the OEMs think they can cajole all their trading partners into using them. Portals also give OEMs "a cheap way to collect data," according to Sommer, because the portal puts the onus for data entry on suppliers. A CompTIA survey on B2B e-commerce last fall found portals are becoming more widely used: 31 percent of respondents said they had done more trading using portals in the previous year than ever before.