Big multinational retailers with equally big technology budgets have for years held the upper hand when it comes to automating transactions with overseas suppliers. Thanks in part to expensive and elaborate trading systems, these retailers have been able to dominate their markets with lower prices and greater product choice than midsize competitors could muster.

That is beginning to change, with a new generation of more capable and more affordable trading hubs. By leveraging the Internet for communications, online trading hubs are helping retailers of all sizes to bring on smaller trading partners with relative ease. Using a hub, retailers can more easily exchange essential company information with suppliers, including inventory levels, sales and production forecasts, shipment destinations, and status.

Online trading hubs work by slashing the cost of message-based communications. According to Bill Swanton, vice president of research at AMR Research Inc., a Boston analyst firm, hubs help companies automate their business processes in a standardized way without having to build up a huge IT department to do so.

Equally important is how hubs enable remote partners to collaborate more efficiently as one enterprise. When information is shared collaboratively among people from multiple companies, good things happen. More people can better manage exceptions, trace problems to their source, and better respond to rapid changes in demand.

According to Swanton, the partner collaboration that hubs make possible represents an advanced stage of business communications that all retailers should strive for. "Information provides the shared performance management of the supply chain," he says.

For retailers entrenched in the status quo, moving to a more collaborative mindset is not always easy. Indeed, many smaller companies still use manual systems like fax and e-mail, and they have yet to move to a vintage document exchange technology called Electronic Document Interchange (EDI). Still, EDI is clearly the medium of choice for the exchange of transactional information regarding orders, settlement, and advanced shipping notices. EDI is alive and well, and its use is growing across many verticals—including retail.

However, automating transactions using traditional EDI is time-consuming and expensive. But it is still worthwhile for a large retailer doing a high volume of transactions with a large manufacturer, according to Swanton. The problem comes for midsize retailers that have a fair number of transactions to conduct with many suppliers. For these companies, Swanton says an online trading hub is an economical, scalable way to add new partners and take collaboration to the next level.

Even large manufacturers that work directly with retailers increasingly realize the shortcomings of EDI. "Visibility at any point is absolutely critical," says Robert Meshew, application architect for entertainment devices, supply chain, and operations for the Microsoft Xbox video game system. "A lot of people thought EDI would get you visibility. It does get you visibility into transactional things that are happening." But Meshew says there are "tons of unstructured things that are happening at any moment" for which EDI has no answer.

Meshew agrees that trading hubs are a useful way to help smaller trading partners overcome these obstacles. Most retailers "have lots of partners that may not have a robust EDI [system] or infrastructure," says Meshew. "You do not want to have them fax stuff to you. The trading hubs bring down transactional costs and bring the level of support and robustness of an enterprise to smaller partners."

House of Fraser, a midsize United Kingdom–based retailer of designer clothing, used Microsoft integration technology along with a trading hub to cut the cost of supplier collaboration. The retailer had worked previously with proprietary technologies to exchange data electronically with its suppliers. That effort was costly and time-consuming to manage. Just adding a single new supplier to the system typically took up to five days to accomplish.

"In the past, we successfully collaborated with business partners using EDI, but the complex, costly software we had in place to support it was becoming untenable," says Andrew Bond, the development services manager at House of Fraser.

Using an online hub for integration, the company cut the cost for electronic supplier interaction by half. In addition, House of Fraser can now set up new suppliers in just one hour using simple drag-and-drop prompts. The solution will scale to greater traffic volumes and hundreds of suppliers with only incremental effort.

More importantly, House of Fraser’s employees have a single, centralized location for viewing sales and stock information. This greater visibility into the supply chain helps to sharpen business communications both internally and externally with suppliers.

An electronic trading hub offers the compelling benefits of increased speed and productivity. Most importantly, it opens the door to bringing smaller suppliers on board, most of which have not yet invested in EDI and would otherwise remain entrenched in less efficient, more manual systems.

"Manufacturers and retailers tend to have lots of small transactions with each other," AMR’s Swanton says. An electronic trading hub "will let them manage by exception instead of trying to track everything manually. This is important any time companies are doing a lot of relatively small transactions with each other."

Retailers that can set up trading partners with cost-effective, collaborative tools like trading hubs benefit the supply chain as a whole. Says Microsoft’s Meshew, "Empowerment is about providing people with information that is better, faster, and cheaper."

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