I’ll buy that for a dollar!

If you’re old enough (or have an extensive enough Sci-Fi DVD/movie collection), you may remember the film RoboCop from 1987.  It was directed by Paul Verhoeven, who later became famous for that fantastic piece of cinematic achievement – Showgirls!  But he also gave us the Arnold “The Governator” Schwarzenegger classic “TOTAL RECALL”, and another classic of camp cinematic achievement “Basic Instinct”.

RoboCop was a futuristic view of life in the US – specifically in Detroit, MI – where violent crime is the norm – much like today?  Throughout the movie, there are glimpsed scenes of a sitcom TV show (later identified as “It’s Not My Problem”) where a major character uses the catch phrase “I’ll buy that for a dollar!

This wonderful ditty of a catch-phrase came to Me over the past few days when I was reading a post on the EDI-L Yahoo! group about “What is a decent price/cost per EDI message?” and everybody started weighing in with replies – some giving us examples of how much it costs per message at their company (about 50 cents per message) and others going down the “I pay 20 cents per KC” and others talking about the varied costs of the VANs per KC charges.  The poster suggested something about “32 cents per message” – a flat fee.

But here’s where the logic of the question – and the answers – falls apart.

Think about the documents – the messages – which you work with everyday in your EDI system…  Some are POs, some are ASNs, and some are Invoices.  You may be also sending or receiving catalog data, revised POs, acknowledgements, and more.  And now think about the SIZE of those messages.  The 997 Functional Acknowledgement (FA) can be a very short document or message – maybe just a hundred characters long.  It takes 10 of those to make a single KC…  Well, it takes 10 and nearly a quarter to make that KC – there are 1024 characters in a KC.

And then look at a BIG record – the 832 Price/Sales Catalog – and how many KCs are included.  It’s probably a few hundred KCs long – at least.

Or just think about a simple set of transactions:

     ·         A PO for a single line item
     ·        
The FA
     ·        
An ASN
     ·        
Another FA (for the ASN)
     ·        
An Invoice
     ·         Another FA

So we’ve got 6 documents.  But now let’s say that the PO is for 15,000 units of the single item.  It, too, will be a small document – we’ll say its 1 KC of data.  Above, I show an FA at about 1/10th of a KC.  The Invoice will also probably be a short document – as it’s for just the single item – so another single KC of data flow.  In just 5 documents, we’ve got less than 3 KCs of data.

But that ASN; now there’s a big document to trade…  Let’s say that the vendor packages those items being ordered – My famous WIDGETS! – at 10 units per carton.  With 15,000 units, that’s 1500 Cartons!  And if your ASN is a carton level detail, that’s 1500 line items – actually 3000 lines (2 for each carton) – plus the data for the Shipment level and the Order level loops.  Now we’re talking SIZE.  Of course, we may still only be talking about – maybe – 10,000 characters – 10 KC.

But the concept of paying per message – now that’s not really quite fair is it…?  You’re paying 32 cents for that ASN, but you’re also paying 32 cents for the FA.  Big price difference…! 

For that 10 KC document, you’re spending 3.2 cents per KC.  But for that FA at 100 CHARACTERS, you’re spending – what – $3.20 per KC…?  Or is it $32.00….?  And if it’s just that 1 KC PO or Invoice, it’s .32 cents per KC.

Let’s take that comparison out of the EDI world for a second; let’s think about houses.  Assume that a new program comes down the pike where EVERY house will cost the same.  Size, location, amenities, all the rest – doesn’t matter.  It’s all about a unit – the house.  And each house will sell for $250,000.  The problem is that you can have small shacks of 500 square feet selling for the same price as one of the big, 5000 square foot mansions in Beverly Hills or a Malibu Beach house.  A 400 square foot studio “condo” in “the ghetto” selling for the same price as a huge 8000 sf penthouse apartment on Fifth Avenue in New York.

Can you see the problem with this logic?  Using the same concepts I used above on the KC scale, let’s go to the unit of measurement for buildings – the square foot.  In that 500 sf shack, you’re spending $500 per square foot!  But that mansion?  You’re only spending about 50 bucks a square foot.  It’s 10 times the cost for the smaller space, once broken down to the square foot level.  The studio is $625 per foot and the penthouse is just $31.25 per square foot.

Which place would YOU rather have…?  Where’s the bargain…?  Would you buy that concept for a dollar?

It’s the same problem in “per message” pricing vs. “per KC” pricing.  You’ve got these tiny little messages costing as much as the huge monster messages.  And your figures are skewed.  Now, since it costs as much to send the FA as it does to send the Catalog, you might get trading partners that balk at sending the FA for the traded documents.  Then you’ll get trading partners using charge-backs to enforce that FA compliance.

Suddenly, the “low cost per message” now starts to have a lot of other costs involved.  Charge-backs and the human hours required to track down messages – if they’ve been received by your trading partner – and more.  All to save – what, a few cents?

And that’s really one of the problems I’ve often talked about – especially on those groups – in that you can’t just look at the basic cost – the per KC charge – and base your decision off of that fee.  If you do, you’ll likely end up costing yourself a LOT more money in the long run.  Suddenly, that cheap 2 cents per KC rate you worked so hard to get is really costing you an extra 5 cents per KC in other features and benefits that maybe were included in the 6 cent per KC quote you got from that other VAN or SaaS provider you also heard from.  That cut rate deal maybe isn’t such a deal anymore.

There is another catch-phrase that comes to mind – Caveat Emptor; Latin for “BUYER BEWARE”.  It basically means you should look into what you’re buying – and all the aspects of it – and not just buy something without thinking.  Another “Look before you leap” comes to mind.

I’ve said it before – maybe in a blog, maybe in our forums, maybe on EDI-L or some other EDI related group.  But I’ve mentioned how – every once in a while – I’ll get a call or an e-mail or … something … from a VAN or network provider promising Me that they can save Me “50% of your VAN costs!” – expecting that I’m just going to JUMP right onto their wagon and sign up to save a few pennies.  But then again, what about the possible down time?  Or the archival storage?  Or any of the other features I get from My current VAN provider that aren’t included in that “50% off” cost…?

You get what you pay for – there ain’t no such thing as a free lunch – and everything has strings attached and other aspects of the deal to consider.

Yep, I’ll buy that for a dollar, indeed!

Author: Craig Dunham – EDI Coordinator
Read more about Craig here: http://editalk.com/contributors/

penny wise, pound foolish…

The old saying used as a title for this blog relates back to an earlier and simpler time – before EDI, that’s for sure – and relates to British currency.  They have the Pound and the Penny and even a Half-Penny, too.  But this was all brought about by topic in the Inovis Trusted Link group (over on Yahoo!) that got Me to thinking about AS2 and costs and related things – again.  Not that I think about AS2 a lot, but…

But what being “penny wise and pound foolish” means (basically) is that your so concerned with the pennies and how they’re being spent, you kind of lose sight of how you’re spending your pounds.  Or dollars and cents…  It’s all pretty much the same.  But it’s all about being so concerned with the small stuff – the petty details – that you lose sight of the BIG picture – the final outcome.

Anyway, the original poster over there was wondering on where he could receive some “AS2 training” – and everybody then kind of went off into the “oh, we use ______ for our AS2 connection and love it!” kind of comments – but very few seemed to offer an answer to the poster about his question – AS2 TRAINING.

Like there is such a thing!

“But, wait!” You say.  “What does this have to do with being ‘Penny wise and pound foolish’?”  I’m getting there, I’m getting there.

Seriously, though, let’s take a look at what AS2 really IS.  It’s a method of communications.  It’s a way to connect.  In a nutshell, AS2 is (from Wikipedia):

“Applicability Statement 2 (AS2) is a specification about how to transport data securely and reliably over the Internet. Security is achieved by using digital certificates and encryption.”

I kind of liken AS2 to DSL/broadband connectivity for surfing the net vs. the “old” dial up that is BSC.  It’s connecting to our trading partners via the same protocol that governs the Internet – the place we surf, download and blog – Hyper Text Transfer Protocol (HTTP).

And did you really need any kind of “training” when you started using your DSL – or your wireless broadband or your cable modem or your ____ connection to the internet…?  Nope.  There’s not really a whole heckuva lot to learn.  Other than a “how to hook up your new AS2″, there’s not a much there.

Data goes in, data goes out…  Just like the Itsy Bitsy Spider…  Or the waves, crashing to shore…

But back to AS2 and what it’s all about.  AS2 is just a way for us to send data over the internet connection (HTTP) from one system to another.  No muss, no fuss, no bother.  And in some cases – or as many would lead you to believe – at no cost.

But, wait a minute!  Hold on there!  There ARE some costs involved in AS2 communications…!

When it comes to communications – sending our EDI information back and forth – so many people seem to focus solely on the concepts of the “per KC charge” or fee structure for trading data.  Inovis, GEIS, AT&T, Sterling, ICC, and all the rest, charge us (generally) a flat fee for each KC we send or receive.  Depending on how you’ve set up your contract, you may get a flat fee – say, $4000.00 a month – for a flat amount – say 50,000 KCs – of data you send or receive.  Then, after that, they charge you an “over-limit” fee of 5 cents a KC – or more or less – depending upon your contract.

With AS2, those KC charges all go far, far away…  But, what so many seem to forget – or if they’re selling – want you to forget – are the OTHER charges that can be and are associated with AS2.  Depending on what system(s) you may use to translate and transmit your data, there could be some licensing fees associated with setting up AS2.  Maybe, just maybe, your software provider allows one AS2 connection for “free” but charges a license fee for each and every AS2 connection over and above that “freebie”.  Some may not even have AS2 built into their system and you need to “add” programs or modules to your EDI application to get AS2 connectivity.

Then you get to think about the wondrous wonder of the Internet and connectivity – BANDWIDTH.  If you have a narrow “band” for your Internet connection, then this additional data may clog that tunnel.  Just think of the scenes from “Independence Day” and how Will Smith’s girlfriend (fiancé?) was caught in the tunnel as Los Angeles was being blown to bits by the invading alien horde and her and her kid and the dog were trapped in the tunnel as the fireball of alien laser energy was blowing LA apart.

Now, while your bandwidth may not be as limiting as a 2 lane tunnel in LA, it can still have some limits.  And congestion in your tunnel may not be as dire and deadly as it was in “Independence Day” – lives may not be wiped out in seconds.  But it can cause you problems with your ISP if they only give you a limited bandwidth per month.  Now you’re over and you’re getting charged for that overage.

Then there’s the concept of labor…  And right after Labor Day, too.  But there is the cost of the man-hours (or woman-hours!) it takes to set up those connections and maintain those connections.  It may only take a few minutes to set up those AS2 connections and maybe a few more to test that connection, but there are still some costs involved.  And then what if Jane AS2 Master quits and you hire Joe EDI Master who knows NOTHING of AS2 and has to learn by the seat of his pants, on the fly, as he goes along?

Plus, here’s another wrinkle in the smooth fabric of cost – wrong, bad, or error data…  Let’s say that ABC Company’s newest shipping clerk created a shipment (and, therefore, generated the ASN) for a shipment, but missed an entire pick-sheet of cartons in the truck or container.  Once he’s hit send (or whatever) and that shipment notification is generated, he can’t go and fix it – without RESENDING that ASN – corrected, of course.  So now you’ve got 2 documents – one is missing information that the other document contains.  Sure, if the EDI system at ABC Company is set up correctly, that new ASN is sent out as a replacement, but how does YOUR system handle it…?  Does it just delete the old record and rewrite the new record?  Or do you have 2 records in your system…?

So many people and companies seem to focus on the pennies of the situation those darn “per KC charges” and then lose track of the big bucks of the EDI process and programs and all of the other systems that EDI touches.  They’re so focused on the small things and the smallest cost, and they lose track of the overall costs of the project or system.  They’re so concerned with the “per KC charge” that they forget (or lose track of, anyway) the other associated costs with what they’re doing.

Don’t get Me wrong – the small stuff matters, too.  Like those “per KC charges”…  But if you’re so focused on that small figure, what happens to your bottom line costs when you take into consideration the other costs (as suggested above)…?

Penny wise and pound foolish.

It’s the same when you get that sales call from some network or VAN claiming they can save you up to half of your VAN costs!  WOW!  Sign Me up!  But, wait a minute!  What about those other costs…?  Beyond those pesky KC charges?  Don’t they matter, too?

The sales folks at those other VANs and providers aren’t thinking about your total dollars – they’re just hitting you with the easiest cost to argue – the KC charge.  They know it’s a high-profile cost of EDI.  It’s one that you have to justify every time the contract comes up or the bill needs approval.  But what of those other costs…?  The costs of downtime – what happens when the network is down…?  What about the time you’ll have to spend on trading partner notifications?  What about the time you may have to spend on reconfiguring your communications systems – or even worse – the translation set up.

So, basically, the concepts of just saving a few cents here or there on KCs are very Penny Wise, Pound Foolish.

Author: Craig Dunham – EDI Coordinator
Read more about Craig here: http://editalk.com/contributors/