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NPS ARCHIVE 
1997 Jb 



HAGEN, P. ■ 

NAVAL POSTGRADUATE SCHOOL 
MONTEREY, CALIFORNIA 




THESIS 



ANALYSIS OF SMALL BUSINESSES' 


PERSPECTIVE ON THE ELECTRONIC DATA 


INTERCHANGE ACQUISITION REFORM 


by 


Paul W. Hagen 


June 1997 


Thesis Advisor: Mark W. Stone 



Thesis 
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Master's Thesis 



TITLE AND SUBTITLE ANALYSIS OF SMALL BUSINESSES' PERSPECTIVE ON 
THE ELECTRONIC DATA INTERCHANGE ACQUISITION REFORM 



6. AUTHOR(S) Hagen, Paul W. 



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7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) 
Naval Postgraduate School 
Monterey CA 93943-5000 



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1 1 . SUPPLEMENTARY NOTES: The views expressed in this thesis are those of the author and do not reflect the 
official policy or position of the Department of Defense or the U.S. Government. 



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1 3 . ABSTRACT (maximum 200 words) 

This thesis examines small business' perception of utilizing Electronic Data Interchange (EDI) as 
a means to conduct business. The general concept and history of EDI is discussed along with a synopsis 
of current Government EDI systems in use. The results of two surveys are analyzed to provide an 
insight on the effect the Federal Acquisition Streamlining Act is having on small business' opportunity 
to obtain Government Contracts. Additionally, interviews were conducted with several Government 
personnel to get their opinions on the progress of EDI in the workplace. 

The major conclusion drawn is that the majority of small businesses are willing to utilize EDI as 
a means to conduct business. But in its current form (i.e. FACNET) small businesses find it difficult to 
use and too expensive. The need to use a simpler and more cost-effective means is necessary to ensure 
that all small businesses have the opportunity to compete for Government contracts without cutting into 
their profit margins. 



14. SUBJECT TERMS EDI; Electronic Data Interchange; Electronic Commerce; 
Acquisition Reform; Small Business 



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PAGES 98 



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Approved for public release; distribution is unlimited. 

ANALYSIS OF SMALL BUSINESSES 7 PERSPECTIVE 

ON THE ELECTRONIC DATA INTERCHANGE 

ACQUISITION REFORM 



Paul W. $agen 

Lieutenant Commander, Supply Corp, United States Navy 

B.S., University of Wisconsin-Superior, 1985 



Submitted in partial fulfillment 
of the requirements for the degree of 



MASTER OF SCIENCE IN MANAGEMENT 

from the 

NAVAL POSTGRADUATE SCHOOL 
June 1997 



(VJP5 Pi£OUv/£ 




DUDLEY KNOX LIBRARY 

NAVAL POSTGRADUATE SCHOOL 

MONTEREY CA 93&43~5iQ1 



ABSTRACT 

This thesis examines small business' perception of 
utilizing Electronic Data Interchange (EDI) as a means to 
conduct business. The general concept and history of EDI is 
discussed along with a synopsis of current Government EDI 
systems in use. The results of two surveys are analyzed to 
provide an insight on the effect the Federal Acquisition 
Streamlining Act is having on small business' opportunity to 
obtain Government Contracts. Additionally, interviews were 
conducted with several Government personnel to get their 
opinions on the progress of EDI in the workplace. 

The major conclusion drawn is that the majority of 
small businesses are willing to utilize EDI as a means to 
conduct business. But in its current form (i.e. FACNET) 
small businesses find it difficult to use and too expensive. 
The need to use a simpler and more cost-effective means is 
necessary to ensure that all small businesses have the 
opportunity to compete for Government contracts without 
cutting into their profit margins. 



VI 



TABLE OF CONTENTS 

I. INTRODUCTION 1 

A. BACKGROUND 1 

B. OBJECTIVES 3 

C. RESEARCH QUESTIONS 4 

D. SCOPE, LIMITATIONS, AND ASSUMPTIONS 4 

E. METHODOLOGY 5 

F. DEFINITIONS AND ABBREVIATIONS 6 

G. ORGANIZATION OF STUDY 6 

II. BACKGROUND 7 

A. WHAT IS ELECTONIC DATA INTERCHANGE? 7 

B. HISTORY OF EDI AND THE GOVERNMENT 8 

C. BENEFITS OBTAINED BY USING EDI 14 

D. CONTRACTOR HARDWARE /SOFTWARE REQUIREMENTS. . . .20 

E. CONTRACTOR IMPLEMENTATION 27 

F. CHAPTER SUMMARY 2 8 

III. GOVERNMENT EDI SYSTEMS 31 

A. INTRODUCTION 31 

B. FEDERAL ACQUISITION COMPUTER NETWORK 31 

C. AUTOMATED COMPUTING SYSTEMS 35 

D. CHAPTER SUMMARY 4 

IV. SURVEY PRESENTATION/ANALYSIS 43 

A. SURVEY METHODOLOGY 43 

B. GENERAL CHARACTERISTICS OF THE 

SMALL BUSINESSES .44 

C. EDI ACTIVITY 4 6 



Vll 



D. EDI AND SMALL BUSINESS 53 

E. CHAPTER SUMMARY 55 

V. CONCLUSION AND RECOMMENDATIONS 57 

A. CONCLUSION 57 

B. RECOMMENDATIONS 61 

C. ANSWERS TO RESEARCH QUESTIONS 62 

D. AREAS OF FURTHER RESEARCH 66 

APPENDIX A: LIST OF ACRONYMS 69 

APPENDIX B: ELECTRONIC DATA INTERCHANGE SURVEYS 71 

A. COVER LETTER FOR SURVEY #1 72 

B. SURVEY #1 73 

C. COVER LETTER FOR SURVEY #2 7 6 

D. SURVEY #2 77 

LIST OF REFERENCES 83 

INITIAL DISTRIBUTION LIST 87 



Vlll 



ACKNOWLEDGMENT 

I would like to thank my wife, Joni, for her support, 
understanding, and encouragement that she provided me during 
this thesis project. 



IX 



I . INTRODUCTION 

A. BACKGROUND 

The Department of Defense (DOD) is undergoing 
significant change driven by world events, shrinking 
budgets, and pressure to reduce the cost of its 
acquisition, logistics and financial processes. 
Information technologies are particularly important to 
DOD streamlining its business functions without 
degrading military capability. [Ref. 1, pg. 1-1] 

One way to accomplish this task is the use of 
Electronic Data Interchange (EDI) . As EDI becomes more and 
more popular and the standard way of conducting business in 
both the private and public sectors, one needs to ask what 
does this mean for the Department of Defense and its 
customers . 

By utilizing EDI in the acquisition process, the user 
will convert a repetitive manual process into one that is 
paperless. This paperless system offers the user the 
ability to transfer documents faster, more accurately, and 
at a lower cost than a manual system. 

The Government is strongly pushing the use of EDI 
because it sees the use of EDI as the best method to force 
the implementation of acquisition reform. The Federal 
Acquisition Streamlining Act of 1994 (FASA) provides strong 
incentives for adopting EDI via the Government's Federal 



Acquisition Computer Network (FACNET) or in some other 

form. 

A major change that FASA made in the contracting 

environment was raising the simplified acquisition 

threshold from 25,000 dollars to 100,000 dollars. The 

simplified acquisition threshold enables procurement 

activities to streamline and reduce their paperwork 

requirements for many of their procurements that are 

between $2,500 and $100,000. The simplified acquisition 

threshold has another important function as stated in the 

Federal Acquisition Regulations (FAR) ; 

Each acquisition (non-FACNET and FACNET) of 
supplies or services that has an anticipated dollar 
value exceeding $2,500 and not exceeding $100,000, is 
reserved exclusively for small business concerns and 
shall be set aside in accordance with Subpart 19.5. 
[Ref 2] 

A small business is an organization that is typically 
"independently owned and operated and is not dominant in 
its field of operations.'' [Ref 3, pg. 3] Additionally, it 
needs to meet the numerical size standard established by 
the standard industrial classification (SIC) code that is 
assigned to the contracting opportunity. 

Looking at the volume of contracting actions that are 
conducted by Government agencies, "transactions of $25,000 
and less are the majority (98 percent) of DoD' s actions." 



[Ref 4, pg. 1] With such a high percent of DOD' s contracts 
falling within the simplified acquisition threshold, the 
use of EDI on these transaction offers an excellent 
opportunity for the streamlining. Additionally, as stated 
earlier these transactions are reserved for small 
businesses . 

As EDI becomes the more prevalent means of conducting 
business, are the small business concerns keeping up with 
the changes or are they being left behind (or out) in the 
old way of conducting business with the Government? 

B. OBJECTIVES 

The primary thrust of this study is to discuss, 
analyze, and evaluate the use of Electronic Data 
Interchange (EDI) for procurements of less than $100,000. 
This simplified acquisition threshold will allow 
procurement activities to streamline and reduce their 
paperwork requirements, but will it provide small 
businesses a more favorable atmosphere in which to compete? 
An analysis of this procurement practice is provided to 
determine if small businesses are being hindered or 
receiving benefits from this change. 



C. RESEARCH QUESTIONS 

To achieve the objective of this thesis, the following 

is the primary research question: 

Are the changes from the Federal Acquisition 
Streamlining Act requiring the use of EDI for 
simplified acquisitions enabling small businesses a 
better opportunity to obtain Government contracts? 

Subsidiary questions to answer the primary research 

question include: 

What is EDI? 

What are the advantages and disadvantages of using 
EDI? 

What is the current guidance for Government agencies 
on the use of EDI? 

What are the viewpoints of small businesses toward the 
use of EDI? 

What type of standards exist to facilitate this 
process? 

What resources are required by a small business to 
enable them to utilize EDI? 

D. SCOPE, LIMITATIONS, AND ASSUMPTIONS 
1 . Scope 

The scope of this thesis is limited to studying the 
affect of EDI acquisition reform. The focus is on small 
businesses' ability to compete effectively for contract 
awards from the Department of Defense. 



2. Limitations 

This study evaluates the effect the changes from the 
use of EDI for procurement actions of less than $100,000 is 
having on small businesses. The researcher does not 
discuss the numerous technical issues that are involved 
with how EDI works . 

3 . Assumptions 

The researcher assumes that the reader has some 
familiarity with the acquisition and contracting field. If 
the reader is unfamiliar with the acquisition process, they 
may need to refer to the Federal Acquisition Regulations 
(FAR) or other regulations that are appropriate. Chapters 
I and II contain a discussion on EDI to provide a basic 
understanding for those who are not familiar with its 
background and uses. 

E . METHODOLOGY 

The methodology of this thesis consisted of a thorough 
literature search and review, plus personal interviews with 
DOD and civilian personnel. Additionally, two surveys were 
conducted to obtain the small business perspective on what 
they are experiencing by the Government's use of EDI and 
possible recommendations. 



F. DEFINITIONS AND ABBREVIATIONS 

A List of acronyms used in this thesis is provided in 
Appendix A. The definition of terms and concepts is 
provided within the text as necessary. 

G. ORGANIZATION OF STUDY 

This research effort is organized into five chapters. 
The first chapter is the overview of the research being 
accomplished. Chapter II provides the reader with an 
overview of EDI. This includes what it is, its history, 
benefits, hardware/software requirements, and a basic 
description of its implementation and use. 

Chapter III discusses current EDI systems in use and 
what these systems have to offer. Chapter IV presents the 
researcher's findings from conducting surveys and 
interviews. Chapter V provides the reader with a summary 
and the researcher's conclusion. 






II. BACKGROUND 
A. WHAT IS ELECTRONIC DATA INTERCHANGE? 

EDI is an integral part of electronic commerce (EC) , 
as is electronic mail (e-mail), bulletin boards, faxes, and 
electronic funds transfer (EFT) systems. "EDI is the 
computer-to-computer exchange of business documents in a 
standard electronic format."' [Ref. 5, pg. 4-1] These 
electronic formats are transaction sets that have been 
developed and used by the private sector over the past 30 
years. 

By using electronic commerce techniques, businesses 
and Government agencies can exchange information 
electronically much faster, at a less expensive cost, and 
more accurately than a paper-based system. These 
advantages are discussed later in more detail. 

EDI is different from sending information/messages via 
a network, bulletin board, or similar means. The use of 
networks requires that the sender and receiver agree upon a 
standard format prior to transferring information. 
Additionally, they need to have similar application 
software (i.e., word processors, spreadsheets, etc.). This 
standard format is necessary to ensure that both parties 
are able to read and interpret the data once it is 
received. 

When using EDI, it is not necessary to have identical 
document processing systems. When information is 



transferred, the EDI translation software converts the 
proprietary format of the sending organization into an 
agreed upon standard. Then when the information is 
received, EDI translation software will automatically 
change the standard format into a proprietary format 
compatible with the document processing system of the 
receiver. 

B. HISTORY OF EDI AND THE GOVERNMENT 

EDI was first used in the automobile industry and has 
since been incorporated by more than 50,000 private sector 
businesses in manufacturing, shipping, warehousing, 
utilities, pharmaceuticals, construction, petroleum, 
metals, food processing, insurance, retailing, health care, 
and textiles industries, to name a few. 

Other uses of EDI include universities exchanging 
transcripts more rapidly, automobile manufacturers 
transmitting large, complex engineering designs created on 
specialized computers, and large multinational firms 
communicating between locations. 

In 1968, a group of companies joined together and 
developed the first set of industry standards that were 
published in 1975. This group was called the 
Transportation Data Coordinating Committee (TDCC) and has 
been instrumental in promoting EDI since. "Many of these 
standards supported only intra-industry trading; but others 



such as bills of lading and freight invoices, were 
applicable across industries." [Ref. 6, pg. 7] 

"Eventually the idea of national standards for use 
across industries received substantial support from a 
number of different industries." [Ref. 6, pg. 7] The 
American National Standards Institute (ANSI) is the 
coordinating body and clearinghouse for national standards 
in the United States. ANSI does not generate new 
standards, but charters committees to develop them for 
approval by ANSI. One of these committees was labeled the 
Accredited Standards Committee (ASC) X12. ASC X12 was 
established to develop uniform standards for cross industry 
electronic communications. 

The ASC X12 committee was made up of representatives 
from industrial and commercial organizations, and vendors 
of services designed to facilitate the use of Electronic 
Business Data Interchange Standards. ASC X12's function 
was to develop standards to facilitate electronic 
interchange of data relating to order placement and 
processing, shipping and receiving information, invoicing, 
and payment . 

In 1983 ANSI published the first five American 
National Standards for EDI. In 1989, Release 4 
contained 32 standards. The 1991 publication (Version 
3, Release 2) will contain over 100 Draft Standards 
for Trial Use, including most of the transportation 
and retail industries' standards, and there are over 
150 additional standards and guidelines now in 
development. [Ref. 6, pg. 7] 



The Federal Government has endorsed the standards 
developed and maintained by this committee because they 
have been used in the private sector and were developed in 
compliance with ANSI rules. By using these standards, the 
Government has built on the success of private industry. 

ANSI ASC X12 is the most important set of EDI 
standards in North America. Another standard that is used 
in EDI is the United Nations sponsored EDI standard, 
Electronic Data Interchange for Administrative, Commerce, 
and Transport (EDIFACT) . The objective of the 
establishment of UN/EDIFACT was to create an EDI standard 
that will be valid for use across international boundaries 
and similar to ANSI ASC X12. UN/EDIFACT is primarily used 
in Europe and Asia, but has worldwide applications. In 
order to benefit from a single global standard, ANSI ASC 
X12 and UN/EDIFACT will begin a gradual alignment in 1997. 

The Government entered the realm of modern EDI in 
1988, when the Deputy Secretary of Defense issued a 
memorandum to the Department of Defense (DOD) calling for 
maximum use of EDI. This course of action was based on ten 
years of investigation and experiments concerning DOD EDI 
usage. 

In the memorandum, it was stated that EDI initiatives 
moving toward a paperless environment were consistent with 
DOD' s commitment to improved productivity. It also 
stressed the timely, effective, and consistent 

10 



implementation of EDI between DOD and industry, and 
designated the use of ASC X12 EDI standards to provide a 
common approach to implementation and a single coordinated 
DOD position to industry. [Ref. 7, pg. 1] 

In 1990, the Defense Management Review Decision (DMRD) 
941 accelerated the use of EDI within DOD. "The strategic 
goal of DOD' s current efforts is to provide the department 
with the capability to initiate, conduct, and maintain its 
external business related transactions and internal 
logistics, contracting, and financial activities without 
requiring the use of hard copy media." [Ref. 8, pg. 1] 

In addition, DMRD 941 programmed cost reductions into 
the DOD' s budget. The greatest potential for the projected 
savings was in the procurement/contract administration and 
payment/ financial areas. These cost savings identified by 
DRMD 941 were based on converting sixteen common purchasing 
and logistic forms into EDI format. The following are the 
forms identified by DMRD 941: 

DD 250 Material Inspection and Receiving Report 

DD 1155 Order for Supplies and Services 

DD 1898 Aviation Fuels Sales Slip 

MT 364R Standard Tender 

SAV 926 Monthly Report, Receipt of Repairable 

SF 18 Request for Quotations 

SF 30 Amendment of Solicitation/Contract 

Modification 

SF 129 Solicitation Mailing List Application 

SF 364 Report of Discrepancy 

SF 362 Transportation Discrepancy Report 

SF 368 Product Quality Deficiency Report 

SF 1103 Freight GBL, CBL, and Public Voucher 

SF 1169 Government Travel Request and Public Voucher 

11 



SF 1203 Personal Property GBL 

SF 1443 Contractor's Request for Progress Payments 

619/619-1 Statement of Accessorial Services 



In addition to downsizing, smaller budgets, and new 
technologies, procurement professionals and vendors must 
now incorporate the changes brought on by the Federal 
Acquisition Streamlining Act. In 1994, the Federal 
Acquisition Streamlining Act (FASA) was passed by Congress 
and signed into law by President Clinton. The major 
changes FASA made in the contracting environment were: 

Raised the simplified acquisition threshold from 
$25,000 to $100,000. 

Emphasized the acquisition of commercial items. 

- Micropurchases (acquisitions less than $2,500) are 
no longer small business set aside. 

- Modified the bid protest process, decisions are to 
be more timely and the debriefings of unsuccessful 
offerors are to be more informative. 

Past performance considerations. 

- Modified the Truth In Negotiations Act, raising the 
threshold of Cost and Pricing Data from $100,000 to 
500,000. 

Requires agencies to adopt EC/EDI procedures within 
five years. 

Established the Federal Acquisition Computer Network 
(FACNET) . 

Of these changes, the simplified acquisition threshold 

and the establishment of EC/EDI requirements and FACNET 

will be discussed here. The simplified acquisition 

12 



threshold enables procurement activities to streamline and 
reduce paperwork requirements for many of their 
procurements that are between $2,500 and $100,000. In 
addition, another incentive to make the move to EDI is any 
procurements that are between $25,000 and $100,000 that are 
issued and solicited using FACNET, will no longer be 
required to be synopsized in the Commerce Business Daily. 
The only catch is the agency needs to be certified and are 
required to transmit 75 percent of their eligible 
transactions via FACNET by 31 December 1999 in order to 
retain the $100,000 threshold. If the agency fails to meet 
this deadline, the threshold falls back to $50,000. FASA 
does not define what eligible means, it has tasked the 
Comptroller General to report to the Administrator for 
Federal Procurement Policy and Congress on what types of 
contracts are not suitable and not eligible for EDI. 

The Federal Acquisition Regulation defines eligibilty 



as: 



(a) Simplified acquisition procedures shall be 
used to the maximum extent practicable for all 
purchases of supplies or services not exceeding the 
simplified acquisition threshold (including purchases 
below the micro-purchase threshold) , unless 
requirements can be met by using required sources of 
supply under Part 8 (e.g., Federal Prison Industries, 
Committee for Purchase from People Who Are Blind or 
Severely Disabled, and Federal Supply Schedule 
contracts) , existing indefinite delivery/indefinite 
quantity contracts, or other established contracts. 

(b) The contracting office shall not use 
simplified acquisition procedures for contract actions 
exceeding $50,000 after December 31, 1999, unless the 

13 



office's cognizant agency has certified full FACNET 
capability in accordance with 4.505-2. [Ref. 9] 

The Government is strongly pushing the use of EDI 

because it sees the use of EDI as the best method to force 

the implementation of acquisition reform. FASA provides 

strong incentives for adopting EDI via the FACNET. "To 

provide an incentive for adopting EDI, the DMRD gives 

Departments and DLA money to invest in hardware, 

operations/ maintenance, systems development, and 

engineering." [Ref. 10, pg. 1-5] FACNET is discussed in 

more detail in Chapter III. 

C. BENEFITS OBTAINED BY USING EDI 

As EDI becomes more prevalent as a way of conducting 
business, the majority of business people are considering 
adopting EDI to gain or maintain an important customer or 
supplier. A 1994 industry survey found that 55 percent of 
the companies surveyed got into EDI because a trading 
partner required it. [Ref. 11] The definition of a trading 
partner "is a business that has agreed to exchange business 
information electronically." [Ref. 12, pg.l) 

One may ask, what benefits will they receive by being 
a trading partner and using EDI? The following subsections 
provide an explanation of several benefits. [Ref. 13, pg. 
2] 



14 



1. Improved Customer Satisfaction 

Improved customer service is realized through the use 
of EDI. By speeding up the transfer of business 
information and the reduction/elimination of data errors, 
EDI allows contractors to process and fill orders faster 
than a paper based system. This faster turnaround enables 
managers to act on information with greater accuracy. 

The ease of data transfer has been experienced by 
retailers that have implemented a program called Vendor 
Stock Replenishment (VSR) . VSR requires vendors to 
maintain appropriate inventory levels in their stores. By 
using VSR, the risk of running out of product while waiting 
for a purchase order to be received is almost eliminated. 
Stock is sent as the EDI system reports it is necessary and 
clients are automatically billed for the product. This 
process reduces the duration of the order fulfillment cycle 
and ensures that the products are always available on the 
store shelves. Utilization of EDI for companies practicing 
just-in-time (JIT) inventory practices will be an essential 
tool of the future. 

2 . Saves Time and Money 

As EDI transfers documents from one source to another 
(or even many) , a reduction of administrative lead-time 
will occur. Also, there is no longer a need to have items 
mailed or handled by administrative work sections. 



15 



This allows Request for Quotations (RFQ) to be received 
immediately by the customers and respond to the RFQ. 

On the Government side, another reduction in time will 
be obtained from not having to synopsize requirements less 
than $100,000 in the Commerce Business Daily. This alone 
can save about fifteen days. As EDI is used more and more, 
the contracting process at Government agencies will improve 
and provide additional reductions in administrative lead- 
time. Upon the completion of the implementation of EDI in 
Government agencies, the time frame that a solicitation is 
open for quotation could be reduced. 

In addition to the timesavings, EDI will drastically 
reduce paper consumption since information is being 
transferred from one computer to another. This reduction 
and transition from a paper-based system will reduce a 
business' operating cost in the long run and will then 
increase or preserve the company's existing revenues. 

Additionally, the transfer of information from 
computer to computer is automatic, the chance for error 
drops to almost zero. By transferring information in this 
manner, EDI will decrease handling and mailing costs. This 
is evident by what RJ Reynolds has experienced with its use 
of EDI. 

RJ Reynolds has 1800 trading partners with 60,000 
purchase orders annually. In March 1993, they had 
achieved 100 percent electronic transactions with all 
trading partners. They had to make a special effort 
in working with the last five percent of their 

16 



suppliers that still processed transactions with RJ 
Reynolds manually. They had determined that it was 
costing the Company $840,000 to maintain a manual 
capability for the remaining five percent of their 
non-electronic trading partners. RJ Reynolds invested 
$40,000 to assist these companies in becoming EC 
capable. As a result, RJ Reynolds has been able to 
maintain 100 percent electronic commerce with all 
trading partners. RJ Reynolds reached these decisions 
through analysis of their manual-based processes 
costing $98.00 per transaction, while their actual 
expenses for the same process is $.93 for each 
electronic transaction. [Ref. 14, pg. Ill] 

EDI's ability to transfer data from computer to 

computer will also improve the user's payment process. 

When it is easier and faster to match and gather all the 

required payment data, the payment cycle will be shortened. 

In addition to the timesavings generated in the payment 

cycle, customers will benefit from the reduced time in 

mailing of payment documents. 

3. Business Reputation 

Using EDI, customers are able to access up-to-date 
information at anytime. This will then enhance the 
reputation that an organization has developed. EDI 
information can be stored in mailboxes which customers can 
access whenever they wish. Accordingly, they can obtain 
the information they require in a timely manner and at a 
time that is convenient to them. The timesavings obtained 
from not having to wait will increase customer's 
efficiency. This ability will form a stronger relationship 
between existing and future EDI users. 



17 



4 . Expansion of Customer Base 

Organizations conducting business via EDI will allow 
the access of their supplies, services, or information to 
many potential customers that are willing and able to 
utilize EDI to their benefit. EDI's computer to computer 
(electronic) proximity will replace an organization's 
physical (geographic) proximity to its customers. This then 
increases the national and global access to an 
organization. 

Also, such visibility will expand a trading partner' s 
market from two perspectives, access to a larger volume of 
items and access to more customers (e.g., DOD' s procurement 
offices, other businesses) . The increased visibility of 
Government/ commercial requirements will increase the EDI 
user' s ability to market its goods and services to 
additional organizations. 

As the number of Government offices transition to the 
use of EDI, the visibility of purchase requirements will 
expand. Currently, a contractor's opportunity to be 
solicited by a government agency is limited to the agency's 
mailing list. So the contractor needs to ensure it is 
working closely with a number of agencies. With EDI, a 
contractor will be able to access the Government 
procurement system via a single point. This ability allows 
the DOD contractor greater opportunities to quote on and 
compete for Government contracts. Once awards are made, 

18 



the results will be posted and accessible via EDI. This 
information will allow contractors to improve their 
knowledge of competitors and prices. This information will 
be extremely helpful to help DOD contractors adjust to the 
declining DOD budgets and business base. 

5. Increased Productivity 

With the downsizing of commercial and DOD 
organizations, increased productivity of the remaining 
workforce is a must. EDI will allow the contract 
specialists the ability to process more Requests For 
Quotations/Proposals (RFQ/RFP) and contract awards. In a 
paper-based system, redundant operations like copying, 
mailing, handling, answering telephone calls, and data 
entry consume a lot of time. As organizations downsize, 
many tasks once handled by clerical staffs will be 
performed by the contract specialists. The use of EDI will 
eliminate many of these redundant activities and thus allow 
contract specialists more time to process more RFQs, RFPs, 
and awards in an efficient manner. 

6. More Competitive Pricing 

With more and more customers being aware of an EDI 

user's requirements through the use of EDI, competition 

will increase on items that have traditionally been 

procured by local sources around an organization's 

geographic area. EDI will allow all suppliers the same 

information no matter where they are located. So as 

19 



competition increases, the market pressures will begin to 
produce lower prices on commodities that are being 
procured. 

7 . Reduced Inventory 

A final benefit is a reduction in required inventory 
levels. In a paper-based system, inventory requirements 
have additional quantities built into them to compensate 
for the longer administrative lead times (processing time) . 
As EDI lowers the administrative lead times for 
procurements, the additional quantities added to 
procurements can be eliminated. This elimination will then 
lower the required inventory levels, which will in turn 
save on organization storage costs. 

D. CONTRACTOR HARDWARE /SOFTWARE REQUIREMENTS 

With the benefits available to potential EDI users, 

the next step is identifying the hardware and software 

required to use EDI. "The term enabling technology refers 

to the communications network, computer hardware and 

computer software requirements necessary for Trading 

Partners to engage in EC/EDI with DOD." [Ref. 15, pg. 6-1] 

In most cases, a standard personal computer system will do. 

There is not a particular brand required to be EDI capable. 

The majority, if not all, of the personal computers made 

within the past couple of years are capable of supporting 

the necessary EDI requirements, including the necessary EDI 

translation and communication software. 

20 



1 . Hardware 

"The objective of the EDI system is to enter specific 
EDI transaction data once and then transmit that data in a 
computer readable format throughout the complete EDI 
cycle. " [Ref. 16, pg. 65] To become fully EDI capable, a 
trading partner needs to review the following when 
selecting computer hardware. 

The major component will be the computer itself. Here 
the trading partner needs to evaluate what it will need 
today and tomorrow. This will be determined by what its 
expected transaction volume will be and how much it is 
willing to spend. There are basically four options to 
choose from; a mainframe computer, microcomputer as a 
front-end processor to a mainframe, a dedicated EDI 
operating system, and a stand-alone microcomputer. 
a. Mainframe Computer 

The mainframe computer will offer the trading 
partner faster processing time, connect the rest of the 
company together, and eliminate data entry since the rest 
of the company is attached and there is a single database. 
It also allows multiple users on the system at the same 
time via a local area network (LAN) . There is a 
disadvantage however, the cost of the system is 
significant . 



21 



b. Microcomputer as a Front End Processor 

This system utilizes a microcomputer to conduct 
all the EDI transactions. The data is stored on the 
mainframe and transferred to the microcomputer. It is then 
converted into EDI formats and transmitted to a trading 
partner. 

The advantages of using this method are that it 
is faster than a stand-alone computer and the cost of the 
front-end processor is usually less expensive than 
mainframe software. The disadvantages are just the 
opposite, it is still more expensive than a stand-alone 
mainframe and it is slower than just using a mainframe 
computer . 

c. Dedicated EDI Operating System 

This system uses a mini-computer and specialized 
EDI software. The advantage of a dedicated system is that 
it allows the company to manage all of its EDI 
transactions. The drawback is that it can be expensive. 

d. Stand Alone Microcomputer 

The minimum approach to EDI is the use of a 
personal computer (PC) . They are easy to install and 
relatively inexpensive, plus there is software to support 
EDI transactions. PCs do have several disadvantages. 
First, there is still a chance of data entry errors, since 
data is still manually inputted and clerical mistakes can 
occur. Second, the system is slower than the other three 

22 



systems. Another disadvantage is the limited volume 
capability. The PC can not match the abilities of a 
mainframe's speed and volume. Finally, the full advantages 
of EDI are not received. Such things as cost reductions 
from reduced clerical work and interfaces between other 
operating systems can not be achieved. 

e. Small Business Needs 

Most small businesses will be able to utilize a 
PC to accomplish their needs. The computer can be either 
an IBM compatible or a Macintosh. The personal computer 
selected should be compatible with EDI translation 
software. "Any EDI-capable system must include a basic 
computer, a monitor, a hard drive, random access memory or 
RAM, a floppy drive, and a modem." [Ref. 15, pg. 6-5] 
According to the Electronic Commerce Office, to be fully 
integrated for EDI, the minimum requirements in 1994 were 
to have a 48 6 computer with eight megabytes of RAM and 200 
MB available on hard disk. A standard PC bought today comes 
with sixteen MB of RAM and one gigabyte (GB) or more of 
hard disk space. 

Other considerations to look at are speed and 
cost. A PC with a 14.4, 28.8, or 33.6 BPS fax/modem is 
sufficient to handle all transmissions between trading 
partners. If necessary, the modem can easily be upgraded 
with a faster modem. The speed of the computer' processor 
is another factor. Currently, most computers have 

23 



processors of 100 megahertz (MHz) or more. The higher the 
MHz, the faster the computer will process information. A 
typical PC system will cost anywhere from $1,600 to $3,000, 
depending on the computer's capabilities. More expensive 
computing systems are available depending on what ones 
needs are. 

2 . Software 

Once the decision on the hardware has been made, the 
software to run your system is required. Most new computer 
systems are outfitted with standard operating system 
software, but to use EDI you must have translation software 
to communicate with Government agencies or any other 
trading partner. To accomplish this, there are two options 
from which to choose: buy the required software or utilize 
the services of a Value Added Network (VAN) . 

a. Purchase of Software 

There many commercial sources that offer EDI 
software. These sources are readily available and eager to 
sell their products. "The average costs will range from 
$5,000 for microcomputer translators to $25,000 for 
minicomputer applications."' [Ref. 1, pg. 6-9] 

There are basically three types of EDI 
translation software available: stand-alone, integrated 
EDI, and EDI/Server Gateway. 

The software for stand-alone PCs provide the 
lowest cost, are user friendly, and easy to install. 

24 



However, they are less capable and the capability for 
expansion is low. 

Integrated EDI software can be used on PCs and 
other platforms. This type of software provides the 
features as stand-alone software but at a higher cost. It 
offers the additional advantage of allowing the 
organization to integrate the EDI software with other 
software applications. 

The last type of software, EDI Server/Gateway, is 
used on mainframes and mainframes with microcomputers 
serving as front-end processors. This software allows the 
greatest flexibility but has a higher cost and may require 
more time and expertise to use/maintain. 

b. Value Added Networks 

The second option to receive the software 
capability required is to go through a commercial 
contractor offering translation services for a fee. These 
are called Value Added Networks (VAN) . A "VAN provides the 
communication skill, expertise, and equipment necessary to 
communicate electronically. " [Ref. 15, pg. 5-3] The Value 
Added Services (VASs) provided by a VAN include statistical 
analysis, ADP services, translation, conversion/fax, 
bulletin boards, and E-mail. A customer will only be 
responsible for its own hardware. 

Start up costs can run up to $1,200 depending on 
the number of trading partners and VAN options selected. 

25 



VAN services are billed on a monthly basis and will run 
from $50 to $1,000 based on the monthly usage. The billing 
will include a charge for basic services, mailbox, network 
usage, and VAN interconnections. For most users, 
subscribing to a VAN to communicate with Government 
agencies is the most practical way. But for a small 
business, the cost may be high. 

Advantages of using a VAN are: 

One toll free or local telephone call to a VAN 
connects you to your trading partners (Government 
agencies) . 

- Maintains your electronic mailbox, all of your 
messages are routed, stored, and forwarded from it. 

- VANs are accessible seven days a week, 24 hours a 
day, regardless of physical location. 

- VANS are very reliable; connecting with your trading 
partners will be accomplished with varying 
communication speeds and protocols. 

Security and technical support is provided. This 
includes audit trails for your transactions. 

c. Software/Value Added Networks Selection 

Software selection should be done carefully. A 
determination of software features that are required by an 
organization should be accomplished. The following 
criteria for selecting software or VAN should be followed: 

Communication capability, speed, and protocols 
supported. 

- Batch transmission and scheduling capability. 

26 



- Permit connections to more than one VAN. 

- Password and other security features. 
Document turnaround features. 

- Trading partner profile table feature. 

- Support for multiple versions of ANSI ASC X12 
standards. 

- Automated archiving and purging capability, data 
backup/recovery services. 

- Mapping and application integration facility. 

Documentation and technical support, including audit 
trails. Has DOD certified them has VAN? 

E. CONTRACTOR IMPLEMENTATION 

As an organization decides to become EDI capable, the 
decision to start with a small system and work up to a more 
complex system may be desirable. This decision will depend 
on the size of the company. As mentioned before, a small 
system may be sufficient for a small business, but probably 
will not do for a large corporation. However, no matter 
what the size of the business is, the following steps 
should be considered as an organization moves forward with 
EDI. 

Commitment of management to recognize that EDI is a 
business strategy and not a technology strategy. 
Additionally, management leadership is required to 
make it a success. 

- As mentioned before, EDI offers many benefits. 
Management needs to establish quantifiable business 
objectives and expectations with respect to new 
revenue, retained revenue, and cost reductions. 

27 



Without these objectives and expectations, 
management will not be able to determine if its 
decision to use EDI was the correct one. Management 
may also need to compare the cost of using EDI with 
something new in the future. 

Assess the current situation of the business. This 
entails determining the cost of the current paper- 
based system and the current capability for EDI. 

Conduct research to get as much information on EDI 
as possible. This includes identification of what 
else will be required to implement EDI, i.e. any 
external assistance. 

Develop an implementation plan that includes roles, 
responsibilities, deliverables, timelines, and 
budget. 

Once the implementation begins, it is necessary to 
manage the plan. By conducting frequent meetings 
to determine progress and any problems, the business 
can ensure the implementation is successfully 
accomplished. 

Upon the completion of implementing EDI, the results 
should be reviewed. Did the outcome meet the 
business expectations? 



F. CHAPTER SUMMARY 

This chapter has presented a lot of information on 

what EDI is, its history, how it can benefit an 

organization that uses it, its hardware and software 

requirements, and things to look for when implementing EDI. 

EDI is not some new technology that has just been 

developed; it has been around for more than 30 years and 

will probably be around for a lot longer in some other form 

that will be developed in the future. 

28 



As mentioned earlier, FASA is the key driving force 
towards EDI implementation. The Government and business 
users desire to achieve the benefits of improved customer 
satisfaction, savings in time and money, improved business 
reputation, expansion of their customer base, increased 
productivity, reduced prices by increased competition, and 
reduced inventory levels. 

As the EDI initiative moves forward, small businesses 
will need to invest in technology that will make them EDI 
capable if they wish to conduct business with the Federal 
Government. For many businesses, a stand-alone personal 
computer will provide that capability. 



29 



30 



III. GOVERNMENT EDI SYSTEMS 

A. INTRODUCTION 

In order for the Government to become EDI capable, 
they must develop a system that allows them to conduct 
business with their trading partners electronically. This 
chapter provides a brief discussion what FACNET is, its 
functions, and infrastructure. It also presents basic 
information on seven automated computing systems that are 
currently being used by the various components of DOD. 

B. FEDERAL ACQUISITION COMPUTER NETWORK 

The Deputy Under Secretary of Defense 
(Acquisition Reform) is developing the Federal 
Acquisition Computer Network for Government-wide use 
in contracting as a means of streamlining the Federal 
acquisition process, reducing the cost of commercial 
products, and expanding business opportunities for 
small and medium-size vendors. The Federal 
Acquisition Computer Network is a cornerstone of 
acquisition streamlining and reform in that it enables 
the Government to evolve from using a paper-burdened 
acquisition process to a process based on the 
electronic exchange of business information for small 
purchases ranging from $2,500 to $100,000. For DoD to 
achieve the goals of using the Federal Acquisition 
Computer Network, vendor participation is essential. 
[Ref. 17, pg. i] 

The Administrator for Federal Procurement Policy, the 

head of the Office of Federal Procurement Policy (OFPP) is 

responsible for the overall policy direction and leadership 

of the FACNET program. FACNET is a computer-based source 

of information that is readily available to both Government 

31 



and private sector users. The use of FACNET will help the 
Government present a single face to industry, that is, 
transactions will look and be processed the same way from 
any agency that uses FACNET. 

As mentioned in the proceeding paragraph, FACNET is a 
computer-based source of information. A buyer at a 
contracting activity using an automated procurement system 
will prepare and transmit solicitations electronically 
through FACNET' s infrastructure. This includes the 
functions of translating the documents into standard EDI 
formats and passing the information to the VANs that are 
certified by the Government. These VANs then distribute 
the documents to vendors that have subscribed to their 
services in accordance with the vendor' s business profile 
information. The vendor will then submit its 
quote/proposal back to the Government in the same manner. 
Once the buyer has made the decision of the winning 
proposal, a contract is sent to the vendor. In addition, a 
broadcast notice announcing the winning vendor is sent to 
the VANS for distribution. 

Among its potential uses, FACNET is able to provide 
the following functions electronically [Ref . 18] : 

Provide widespread public notice of solicitations 
for contract opportunities issued by an executive 
agency. 

- Receive responses to solicitations and associated 
requests for information. 

32 



- Provide public notice of contract award, which will 
include price. 

- Receive questions in reference to solicitations. 
Issue contract orders to contractors. 

- Make payments to contractors by bankcard, electronic 
funds transfer, or other automated methods. 

- Archive data relating to each procurement action 
made using FACNET. This will enhance the quality of 
information available about the acquisition process. 

- Allow convenient and universal user access through 
any point of entry. 

Employ nationally and internationally recognized 
data formats that serve to broaden and ease the 
electronic interchange of data. 

In order for a contractor to become a FACNET trading 
partner with the Government, they need to be registered 
with the system. To help do this, the central contractor 
registry (CCR) was established as the central repository of 
registration information. This allows contractors to 
register once with the Government vice having to register 
with each individual Government agencies the contractor 
wishes to do business with. 

In order for the Government to utilize and take 
advantage of the $100,000 simplified acquisition threshold 
(SAT) past the 31 December 1999, Government contracting 
offices need to receive interim FACNET certification from 
the Director, DOD EC by that date. If an agency fails to 
receive this certification, the SAT falls to $50,000. "As 

33 



of September 1995, the Director, DoD EC had certified 157 
of the 3983 DoD contracting offices. As of November 5, 
1996, 300 contracting offices have been certified." [Ref. 
19, pg. 2] If the current rate of certification is 
maintained, DOD will fall short of having all of their 
contracting offices FACNET certified by the deadline. 

Procurement documentation passes through FACNET every 
business day. Today FACNET links over 300 Federal buying 
activities. FACNET' s design features two network entry 
points, through which all message traffic must flow. 
FACNET uses two network entry points (NEP) to provide 
redundancy in case of a failure. These entry points are 
located in Columbus, Ohio, and Ogden, Utah. "Currently, 
the Ogden, Utah, and Columbus, Ohio NEPs process 15,000 to 
20,000 transactions per day. According to DISA, the 
electronic commerce processing nodes will be capable of 
processing 1.5 million transactions per day." [Ref. 20, 
pg. 14] 

As FACNET continues to move forward, it appears that 
there are still obstacles to overcome. In a recent General 
Accounting Office (GAO) audit, "of 13 contracting offices 
reviewed, we identified 6 contracting offices that were 
interim FACNET certified but were not capable of performing 
the requirements for interim FACNET certification." [Ref. 
20 Pg. 9] "Agencies and vendors have consistently cited the 
lack of clear leadership, direction, and adequate program 

34 



management governmentwide [sic] as major reasons for delays 
in problem resolution and implementation of FACNET." [Ref. 
21, pg. 16] 

As new technologies are developed and existing 
capabilities improved, FACNET may be transformed. In a 
telephone interview with Matt Nielson, NAVSUP-EDI, 
indicated the ''FACNET that we know today will be different 
than that of tomorrow." [Ref. 22] The infrastructure of 
FACNET may remain the same, but the system used (i.e., 
Internet, VANs) to conduct business will be different. 
C. AUTOMATED COMPUTING SYSTEMS 

Along with FACNET, there are several EDI procurement 
systems in use to support contracting office procurement 
functions. These systems have been proposed by the DOD 
component that uses them. "The National Defense 
Authorization Act of FY 1996 (the Authorization Act) amends 
the Streamlining Act by allowing agencies to test 
alternative EC procurement methods or systems that are not 
contingent on full FACNET implementation. " [Ref. 17, pg. 2] 

DLA has two EDI programs in place which operate on the 
Standard Automated Material Management System (SAMMS) which 
is a computerized contracting system. These programs are 
the SAMMS Procurement by Electronic Data Exchange (SPEDE) 
and the Paperless Ordering Placement System (POPS) . 

35 



Currently, DLA conducts approximately 7 percent of its 
business using EC/EDI systems. [Ref. 23] 

SPEDE is a. small purchase EDI program. Purchase 
requests are generated through SAMMS from item managers or 
military customers. These requests are then converted into 
RFQs and sent to potential suppliers. The suppliers then 
respond by using Government developed software. Contract 
award is then sent to the winning supplier, which in turn 
sends shipment and invoice information. All of this is 
done electronically. 

POPS basically does the same thing, except it only 
places orders directly with the supplier that has been 
awarded a long-term indefinite delivery contract. 

The Navy has two programs currently in use. The first 
system is the Integrated Technical Item Management 
Procurement (I TEMP) System. ITEMP is used by the Inventory 
Control Points (ICP) to procure spare parts and services to 
support Navy and Marine Corp units. ITEMP is menu driven 
which enables the buyer to tailor each acquisition's 
specific parts. The system will select clauses and other 
data based on the specific characteristics of the 
acquisition. The system will then use all this data to 
create solicitations and contracts that are ready to mail. 

36 



Additionally, synopsis and award data is automatically 
generated and electronically transmitted for publication in 
the Commerce Business Daily (CDB) . ITEMP is also being 
tested to transmit procurement data among trading partners. 

The Automation of Procurement and Accounting Data 
Entry (APADE) is used by the Navy's Fleet Industrial 
Support Centers (FISC) . It is used in both large and small 
procurements. The "system screens purchase requests 
against existing contractual instruments with the system 
preparing a delivery order, where a vehicle exists, for 
buyer review and award. " [Ref. 14, Pg. 29] The buyers need 
to generate solicitations and contracts for the remaining 
purchase requests. Solicitations can be addressed to 
specific suppliers to restrict the RFQs from being sent to 
every supplier on a Qualified Products List (QPL) or to a 
sole source supplier. 

An Air Force system is the Government Acquisition 
through Electronic Commerce (GATEC) . GATEC is capable of 
sending RFQs, contracts, and award summary information to 
suppliers and receiving quotes back from suppliers. GATEC 
can produce abstracts, solicitations, purchase and delivery 
orders, basic agreements, and contracts used for small 



37 



procurements . RFQs are posted with VANs for nation-wide 
viewing. 

The Standard Automated Contracting System - EDI 
(SACONS-EDI) provides Army contracting offices using the 
Standard Army Automated Contracting System (SAACONS) with 
EDI capability. SACONS-EDI is an application interface 
between SAACONS and the EC/EDI gateway (VAN) . It is a 
commercial off the shelf (COTS) package that allows the 
buyer to electronically send and receive solicitations, 
contracts and quotes. The buyer will use SAACONS to 
receive and review requirements, prepare and print 
solicitations, contracts, and modifications. The buyer 
then uses SACONS to post the requirements on a VAN (the 
General Electric Information Service) , which allows 
potential suppliers the ability to browse and search for 
potential RFQs of interest. In order for a supplier to do 
this, they need to have QuickBid PC. This software package 
will allow the supplier to receive, process, and transmit 
electronic business transactions. 

With the different EDI/EC systems currently in use, 
the Government has made it difficult for contractors to 
conduct business in the same manner between the various 
Government agencies. The Standard Procurement System (SPS) 

38 



which has been developed and scheduled for implementation 
to start in June 1997 will help correct that. "SPS has 
been identified by the Director of Defense Procurement and 
the DoD Procurement Corporate Information Management 
Council as the target system which will bring a common 
operating environment to DoD' s procurement community." 
[Ref. 24] SPS is intended to make it easier to conduct 
business with the Government by presenting "one face" to 
industry. Approximately 900 activities throughout the 
world will utilize SPS, making the core element of 
Government contracting a standard process. [Ref. 25] 

SPS is designed to incorporate acquisition reform 
initiatives and DOD procurement processes with that of best 
commercial practices and new technology. Once SPS is 
implemented, cost and timesavings are anticipated from 
utilizing it. SPS is an integrated system that will be 
capable of the following functions that begin with the 
receipt of a requirement and ends with contract closeout: 
[Ref. 26] 

- Collecting the requirements. 

- Determining the appropriate method for acquiring 
systems, supplies, or services. 

Soliciting and selecting sources. 



39 



- Awarding, reporting, modifying, terminating, and 
closing out contracts and other instruments. 

Inspecting and accepting systems, supplies, or 
services . 

- Monitoring and administering quality assurance 
actions and programs. 

Production and engineering surveillance. 

Property administration. 

- Determining amounts payable. 

- Monitoring, approving, and tracking payments. 
D. CHAPTER SUMMARY 

As FACNET continues to move forward, changes will no 
doubt take place. FACNET will continue to evolve into a 
system that will enable the Government and its trading 
partners to take advantage of using EDI technology to 
conduct business. This may even include the use of the 
Internet to conduct business via a central homepage on the 
World Wide Web. 

As with FACNET, the automated computing systems that 

are used by the components of DOD will be improved and 

changed. This can be seen by the development of the 

Standard Procurement System. The ability to use automated 

systems only improves the effectiveness of an organization, 

By continually improving and standardizing these systems, 

the Government's work force will receive the benefits of 

40 



modernization. Improved automated systems allow the buyers 
the ability to become a more efficient and effective 
worker. By having a standardized system, it also allows 
them the flexibility to transfer from one buying office to 
another. 

FACNET and the automated computing systems are the 
means to disseminate information to many potential 
suppliers of Government requirements. FACNET is dependent 
on the ability of an organization to have the capability of 
being automated. The automated computing system will allow 
the contracting activity the means to process information 
more efficiently and accurately. While the use of FACNET 
will allow more vendors access, via the VANs, to the 
requirements that the Government has. 



41 



42 



IV. SURVEY PRESENTATION/ANALYSIS 
A. SURVEY METHODOLOGY 

To accomplish this thesis, two surveys were conducted 
to obtain the perception of EDI by small business. The 
first survey (see Appendix B) was sent out by a DOD 
organization to 150 of its local vendors. The main goal 
was to determine why there was not a great response to 
attend their second EDI Vendor Conference in December 1996, 
following a very successful first conference a year 
earlier. A second survey (see Appendix B) was sent out by 
the researcher to obtain additional information that the 
DOD organization did not include in its survey. The 
California Procurement Training and Assistance Center 
(PTAC) was contacted to obtain a list of small businesses 
that are using or considering the use of EDI. Fifty 
additional surveys were sent to businesses on that list. 
Survey participants were selected on a random basis and all 
were geographically located in California, with the vast 
majority from the central California area. Survey 
participants were assured that their participation was 
strictly voluntary and their responses would remain 
confidential. At the conclusion of the survey data 
collection, 36 surveys had been returned for the first 

43 



survey and 16 for the second. The return rate was 24 and 
32 percent respectively. 

The questions for both surveys were organized into 
three general categories, which include general 
characteristics/ EDI activity (use) , and problems with 
using EDI . The second survey additionally included 
questions on costs and perceptions of EDI by businesses. 
The following sections will pertain to both surveys unless 
otherwise indicated. 
B. GENERAL CHARACTERISTICS OF THE SMALL BUSINESSES 

The following information deals with the socio- 
economic status, years of contracting experience with DOD 
agencies, and percentage of their business that is DOD 
contracts. 

1 . Socio -Economic Status 

The socio-economic status of the businesses surveyed 
is displayed in Figure 1. The results were obtained from 
the second survey. Of the 16 respondents, four indicated 
they are a small business, four are 8 (a) business concerns, 
two are woman-owned, and six are small disadvantaged. 
Also, seven of the 16 respondents indicated they are 
minority-owned. 



44 



Socio-Economic Status 
Small 8(a) 


WomajSSHfllBP 


uwnea Small 

Disadv. 



Figure 1 . Socio-Economic Status 
2. Contracting Experience With DOD 

The surveyed companies have a wide range of experience 
when it comes to doing business with the Federal 
Government. This range is from zero to 70 years. This 
information was obtained from both surveys. Figure 2 
displays this information. 



Years of Experince 




16-20 21-25 



Years 



Figure 2. Years of Experience With DOD 

45 



3. Amount of DOD Business Conducted 

The percentage of business the surveyed companies 
conduct with DOD is depicted in Figure 3. The survey 
indicates a large percentage of the small businesses 
conduct less than 20 percent of their total volume with 
DOD. Several businesses indicated that their business base 
with the Government was less than two percent. 



Amount of DOD Business 



50 -] 


• 










45- 




40- 




.2 35- 




(0 30- 

Q. 




E 25- 

o 




O 20- 

Ha 




° 15- 




10- 




5- 


H /"^m -4-3i 


*Jl «. 






y 4, >a 


0- 




wt 


S2S VE^4. 


'i'Ji:;:!ii: j»r: : ; W^ : : "jfix&xk "yf 



<20% 



20-40% 



41-60% 

Percentage 



61-80% 



81 - 100% 



Figure 3. Amount of Business Conducted with DOD 

C. EDI ACTIVITY 

As the EDI initiative continues to move forward, the 
question that comes to mind is: are small businesses moving 



46 



with the rest of the business world in using EDI? This 
section presents the results of the surveys that indicate 
how much EDI is being used by small businesses. 

1. EDI Capability 

Of the 52 survey respondents, 21 are currently EDI 
capable and using it to some extent. Three of the 21 plan 
not to use EDI in the future. Out of the remaining 31 
businesses, 17 plan to use it in the future. The remaining 
14 businesses have no plans to use it. Five of the 17 
businesses planning on using EDI in the future indicate 
they should be EDI capable within the year. Figure 4 
displays these results graphically. 



Overal 


1 EDI Use 


Not Using 




27% ^ 


Using EDI 




Within 


In Future 


23% 


Year 




10% 



Figure 4. Overall EDI Use by Small Business 



47 



A 1989 Gallop Poll of businesses in the private 
sector, indicated that 17 percent of the companies polled 
used some form of EDI to conduct business. [Ref. 27, pg. 
16-17] Comparing the Gallop data to these survey results 
indicates that during the past eight years, EDI use has 
increased. 

Of the 21 businesses currently using EDI, 20 of them 

conduct less than 20 percent of their transactions 

utilizing EDI capabilities. Only one business has 20 to 40 

percent of its transactions processed through this means. 

The volume of business transacted between trading partners 

is an important element when deciding on the use of EDI. 

Based on the research conducted, the more business one does 

with a specific trading partner, the more EDI will benefit 

both parties. By being required to use EDI, a small 

business needs to conduct more business via EDI to help 

offset the costs of the system and still maintain the same 

profit level. 

For example, 7 of 12 vendors stated that their 
businesses were so small and their profit margins so 
limited that increased competition, as envisioned in 
using FACNET, could jeopardize their profit margins 
and their continued operations. In order for those 
vendors to be competitive under FACNET, their 
traditional 9- or 10- percent profit margin had to be 
reduced to about 3 percent, a level that would drive 
them out of business. [Ref. 17, Pg. 10] 

48 



Additionally, the respondents that are currently 
utilizing EDI are split on the view that it is a good 
investment. Out of the 21 businesses, 11 of them feel it 
is a good investment because it saves time and money, 
improves customer satisfaction, improves a business' 
reputation, helps expand their customer base, and because 
the Government is using it. The ten businesses that 
consider it a bad investment believe there are insufficient 
EDI sales/usage, start up and maintenance costs are too 
high, there are too many problems with the system, and it 
is inefficient. 

The 14 businesses that plan not to use EDI in the 
future indicated that EDI is not useful to them or they are 
just not interested. They also indicated that the expense 
of EDI and training issues were a factor in not using it. 
EDI users share this opinion as well. The cost of EDI is 
discussed later in this chapter. The training issue is a 
major concern. Currently, the Federal Government funds 
Electronic Commerce Resource Centers (ECRCs) , PTACs, Small 
Business Development Centers, and non-Government sources 
(i.e. VANs) to increase the awareness of FACNET and EDI 
issues. These organizations receive millions of dollars 
per year to provide information, training, and assistance 

49 



to small and medium size businesses wishing to implement 
EDI. The ECRCs receive the vast majority of these funds. 
Many small businesses will not know where to look for EDI 
help if not directed/informed. This should be accomplished 
by the contracting offices that use EDI. These offices 
should have an advocate that can direct and help businesses 
get in contact with organizations such as the ECRCs and 
PTACs. "In fact, only 10 of 54 vendors who were aware of 
FACNET learned about it through the Electronic Commerce 
Resource Centers."' [Ref. 17, pg. 8] The effectiveness of 
organizations to convey EDI information, especially the 
ECRCs, is an area in need of further study. 

2 . Cost 

Only five of the respondents revealed the amount they 
spent to become EDI capable. This cost of implementation 
ranged from $1,000 to $5,000. Even though the number of 
respondents for this question was low, it is consistent 
with a recent GAO report. This report indicated "that 
hardware and software costs generally range from $2,100 to 
$5, 800, and VAN services generally include a start-up fee 
of up to $1,200 and recurring monthly charges." [Ref. 17, 
pg. 10] 



50 



As mentioned in Chapter II, the use of a VAN reduces 
the amount that an EDI user needs to put up front to become 
EDI capable. However, it does cost money to use. Survey 
number two requested respondents to indicate if they used a 
VAN service. Three out of the five (or 60 percent) EDI 
capable businesses subscribed to a VAN. Their monthly 
service cost ranged from $60 to $200. 

According to information provided by California PTAC, 
there are currently 27 VANs providing EDI support service. 
[Ref. 28] As mentioned above, their set-up costs range 
from $50 up to $1,899. In addition to this cost, monthly 
service cost range from $35 to $250. For a small business, 
the higher end of these scales makes it extremely difficult 
for them to afford. These cost are only the basic charges, 
many VANs charge additional fees per transactions, support 
costs, toll charges, and connection fees to other networks. 
Once all these cost are added up, the monthly bill can be 
in the thousands. 

3. Transmission Problems 

Once a small business is EDI capable, it needs to be 
able to conduct transactions without error or the feeling 
that its transactions are being lost. Three of 13 
respondents indicated that they have experienced problems 

51 



when using EDI. These problems include constant network 
shutdowns, download problems and time, non-user friendly 
systems, poor VAN support, and lost transactions. When 
transactions are lost, this can then increase the cost of 
using EDI by having to retransmit additional documents and 
paying additional fees to the VANs . 

Additionally, two of the three businesses using VAN 
support indicated that they do not receive adequate support 
from their VAN. If a problem arises, it takes the VAN ten 
days or more to correct the problem. An interesting point 
to this is that these two vendors pay a monthly service 
charge of $200 while the third vendor only pays $60 and is 
satisfied with the service. When choosing which VAN 
service to use, thorough research needs to be done by the 
business to ensure they receive the support that is 
desired. 

If a business is to remain a going concern, this ten- 
day window is not satisfactory. A business can lose a lot 
of work by lost transactions and any other problems 
associated with the use of FACNET. In a recent audit by 
GAO, 14 of the 54 vendors surveyed that were familiar with 
FACNET identified specific technical problems related to 
the reliability of using FACNET. [Ref. 17, pg. 11] These 

52 



vendors indicated the following concerns with FACNET; 
adequate transmission feedback, transactions processed in a 
timely manner, and transmitting EC/EDI data. This 
information indicates that FACNET and the VANs supporting 
it need to become more reliable to ensure thatthe users are 
receiving the service that they are paying for and that 
they need to conduct business effectively. 
D. EDI AND SMALL BUSINESS 

Small businesses indicate that they are willing to use 
EDI in some form and that the Government has encouraged 
them to use it. But they feel that the Government does not 
have an effective system in place to communicate EDI issues 
with their suppliers. As mentioned earlier, the main 
advocate for EDI should be the Government agencies that are 
using it. They are the organizations that are in contact 
with many business concerns on a daily basis. 

The respondents on the second survey indicated that 
Government personnel do not understand the demands faced by 
businesses using EDI. To help solve this, customer service 
is very important. The DOD agency that sent out the first 
survey is interested in providing this help, but the 
researcher believes that they do not go far enough. This 
is evident by how the survey was tailored to avoid 

53 



questions on the service they provide to their EDI trading 
partners. Their main concern was the low turn out for 
their second EDI vendor conference. In order to help 
business concerns, buying organizations need to understand 
where they need to make improvements . 

Current businesses using EDI state that EDI has 
encouraged professional and business growth to some degree 
and that the Government's use of EDI has benefited them. 
In addition though, they state there are not enough 
alternative options of EDI available to them to make sound 
financial and business decisions. Since there is only one 
EDI alternative available, they can not explore what is the 
most cost-effective way to do business. The only choice 
they have is to become EDI capable to conduct business with 
the Government or not to do business with the Government at 
all. 

Finally, an interesting viewpoint of the respondents 
of the second survey is that they are concerned about the 
uncertainty of EDI in future plans of the Government. As 
with any program that the Government implements, there 
always seems to be the chance it will be cancelled or just 
drift to the wayside. EDI implementation, however, will 
continue to move forward. This is necessary in the state 

54 



of reduced budgets and down sizing. For the Government to 
continue to meet budgets and to increase efficiency and 
productivity, new and streamlined ways of conducting 
business must be implemented. The use of EDI technology 
will be one of these methods that will be used. 
E. CHAPTER SUMMARY 

The use of EDI is to help automate the process of 
doing business with the Government so that all business 
concerns can be players in Government contracting. 
However, the surveys conducted indicate that this is not 
happening. What is happening or evident by the surveys is 
that small businesses that have experience with Government 
contracting are finding it too costly to conduct business 
using EDI. So if the benefits of using EDI are out weighed 
by the cost, many small businesses may be inclined not to 
use it in the future. 

The main issues that face FACNET users are the costs, 
lack of training and support, and transmission problems. 
The success of EDI implementation is dependent upon the 
actions of the Government. The Government needs to 
implement a system that will meet all of the users needs 
and expectations. This system also needs to be easy to use 



55 



and allow a business to make sound decisions at the 
earliest possible time. 

One has to wonder if the Government is undermining its 
own socio-economic programs by using EDI. One of the 
Government's goals is to promote competition at all levels 
and still maintain socio-economic programs. If EDI is too 
costly for many small businesses to implement and use, then 
the competition for contracts that are set aside for small 
businesses is being restricted. 

The advance in computer technology is not going to 
dissipate in the future nor is the movement to streamline 
the Government procedures and practices. Businesses at 
every economic level must be confident in the Government's 
decision to implement EDI. The implementation of EDI should 
help build a bridge into the 21 st century. 



56 



V. CONCLUSION AND RECOMMENDATIONS 
A. CONCLUSION 

As EDI initiatives continue to move forward, many will 
be asking why should I convert from my current way of doing 
business to EDI? As shown in the previous chapters, EDI 
has many benefits to offer to anyone that uses it. 
Although, the most important reason to switch over is the 
fact that EDI will be the standard way of conducting 
business in the future. 

The simplified acquisition procedures provide 
Government agencies with an incentive to continue with the 
implementation of EDI systems. As the Government continues 
to implement and use EDI, contractors that once sold 
material and services to the Government may begin to lose 
potential business in the future. As more commodities and 
services valued under $100,000 are posted using EDI 
methods, it will become increasingly difficult to compete 
against contractors that are EDI capable. 

With more and more businesses beginning to use new EDI 
technology, the Government is again lagging behind the 
commercial sector. EDI implementation still has a long way 
to go. DOD needed 350,000 FACNET EDI capable contractors 
by the end of 1996. Currently, there are only about one- 

57 



seventh of that number. As the EDI initiative moves 
forward, it will continue to challenge both the Government 
and its contractors. 

For many of the smaller businesses, however, FACNET is 
not a viable option. The cost of implementing and using 
the current Government system is just not cost effective 
for them to use. One Government objective of EDI is to 
increase the visibility of agency needs and at the same 
time increase price competition. This has occurred, but at 
the same time it is squeezing out many small businesses' 
ability to compete. As more and more businesses compete to 
do business with the Government, the competition that is 
generated will cause vendors to quote prices as low as they 
can. In doing so, the profit margins of the contractor 
winning the award, will be drastically reduced. This can 
then cause contractors not to compete or to start losing 
money by bidding low and not covering the cost of using 
EDI. 

"Organizations with the most success in using EDI 
technology for purchasing, however, typically use it to 
transmit high-volume, routine, and repetitive transactions, 
such as delivery orders under existing contracts and 
invoices, with a small group of known suppliers." [Ref. 21, 

58 



pg. 5] This tends to indicate that in order to remain 
profitable, small businesses need to increase their use of 
EDI and have a high business volume with the Government. 
Small businesses that are more established and financially 
secure may be able to accomplish this if they sell the 
right product/service. 

The typical small business will not experience this 
high volume of business. For example, a business for a 
single month can experience the following EDI volume. 
Using the bid match service provided by VANs, a business 
could receive 200 potential matches to their profile. The 
bid match service matches a business' profile (kind of work 
they are looking for) to potential RFP/RFQs that are 
advertised through FACNET or some other form of EDI . Out 
of those 200 hits, 55 solicitations are received; the 
remaining hits are notices of award or some other form of 
documents. The business will then submit 35 proposals on 
work that they have the capability of performing. Out of 
those proposals, they will receive three contracts for 
work. [Ref. 28] This is only an 8.57 percent chance of 
receiving work on proposals submitted or a 1.5 percent 
chance for all bid match documents. 



59 



The percentage of success is extremely low and the 
results of the bid match and receiving only three contracts 
does not provide for high volume transactions using EDI. 
The Federal Government is trying to capitalize on the 
success of the commercial success in using EDI. The major 
difference is in a commercial scenario, a company has only 
a few well-established trading partners, while the 
Government is trying to interact with many. 

For small businesses competing for procurements that 
are valued less than $100,000, there must be some form of 
EDI in place that will provide an equal opportunity for any 
business concern to receive a contract from the Government. 
By making small business contractors pay for VAN services 
and computer hardware, many will lose this opportunity 
because their profit margins will not be able to cover the 
additional costs incurred. Additionally, the more 
competition there is, the lower vendors will have to bid to 
ensure they have a chance of award. By doing this, they 
again cut into their profit margins making EDI that much 
more unattractive. 

Unless it is the intention of the Government to 
restrict competition by using EDI as the tool to limit the 
amount of suppliers with which the Government does 

60 



business, other methods of EDI need to be used to conduct 
business with small businesses. 
B. RECOMMENDATIONS 

A review and evaluation of the research conducted 
indicates EDI is and will continue to be a valuable tool 
for the Government to utilize in streamlining its 
procurement process. The following recommendations have 
been formulated to help promote full and open competition 
among small businesses wishing to compete for contract 
awards. 

1 . Use of the Internet 

The first and most effective option is the use of the 
Internet. In today's atmosphere of computer technology, 
the Internet provides small businesses with a means to 
conduct business. The use of the Internet would be more 
cost-effective than using a VAN service. The cost to use 
an Internet service provider can be as low as $15 per 
month, which is much cheaper than the cost of a VAN service 
and many businesses already pay for this service to have E- 
mail and market research capabilities. 

The Government needs to pursue this concept and create 
a central homepage on the World Wide Web to list its 
requirements for material/services. The Internet would 

61 



allow a business to make timely business decisions and 
compete effectively for its products. The Government would 
still benefit and receive lower prices from increased 
competition. 

2. Use of a Single Government Site as a VAN 

This option would require the Government to design, 
develop, and implement the services required by Government 
trading partners and provide the service to small 
businesses for free or a minimal fee. The Government would 
need to compete against established VAN service providers 
or at least outsource this concept to an established VAN. 

The use of a single Government site as a VAN would 
benefit small businesses by not having to pay high VAN 
fees, but it does have its disadvantages. These include 
higher costs to the Government, software must be developed, 
and the Government would be in direct competition with 
commercial VANs . 
C. ANSWERS TO RESEARCH QUESTIONS 

To achieve the objective of this thesis, the following 

primary research question was addressed: 

Are the changes from the Federal Acquisition 
Streamlining Act requiring the use of EDI for 
simplified acquisitions enabling small businesses a 
better opportunity to obtain Government contracts? 



62 



The use of EDI in Government procurement enables small 
businesses to have a more ready access to Government 
requirements that are processed via EDI. However, the cost 
of implementing and using FACNET EDI technology hinders 
small businesses in becoming EDI capable. This hindrance 
then limits the opportunity of small businesses to obtain 
Government contracts as FACNET continues to move forward. 

To answer the primary question, the following 
subsidiary questions were addressed. 

1. What is EDI? 

EDI is an integral part of electronic commerce 
(EC) , as is electronic mail (e-mail) , bulletin boards, 
faxes, and electronic funds transfer (EFT) systems. EDI is 
the computer-to-computer exchange of business documents in 
a standard electronic format. Chapter II provides a 
generalized discussion of EDI. 

2 . What are the advantages and disadvantages of 
using EDI? 

EDI can provide an organization with many benefits. 

These benefits include but are not limited to; improved 

customer satisfaction, a savings in time and money, 

improved business reputation, expansion of customer base, 

increased productivity, more competitive pricing, and 

reduced inventory levels. 

63 



There are disadvantages that are not advertised as 

much as the benefits are. As indicated in Chapter IV, the 

costs for small businesses out weigh the benefits that are 

received. There are complaints of server downtime, lost 

transactions, and basically, EDI is not user friendly for 

someone that does not employ computer experts. Many small 

businesses only employ a handful of people, and these 

people serve in multiple roles. A small business may not 

have the financial capability to hire someone to do its 

computer processing. 

3. What is the current guidance for government 
agencies on the use of EDI? 

The Government is strongly pushing the use of EDI 
because it sees the use of EDI as a method to help in the 
implementation of acquisition reform. FASA provides strong 
incentives for Government agencies to pursue EDI 
implementation and use. FACNET is the primary system that 
the Government is pursuing. There is some doubt about its 
effectiveness though. The future look for FACNET may or 
may not be what is presently envisioned. As new 
technologies and capabilities are developed, FACNET will 
have to evolve into something different. 

Additionally, the National Defense Authorization Act 

of 1996 allows agencies to test alternative EDI/EC 

64 



procurement methods or systems. These systems include the 
use of internet, bulletin boards, and software programs. 
Currently, SPS has been identified by the DOD as the next 
generation software to bring us into the twenty-first 
century. 

4 . What are the viewpoints of small businesses 
toward the use of EDI? 

Small businesses indicate that they are willing to use 

EDI as a business method and the Government has encouraged 

them to do so. EDI has encouraged professional and 

business growth to some degree. However, they do believe 

that Government personnel do not understand the demands 

faced by small businesses using EDI. Finally, there is 

some concern of the uncertainty of EDI in future plans of 

the Government. 

5 . What type of standards exist to facilitate this 
process? 

The Federal Government has endorsed the EDI standards 

established and maintained by ANSI. ANSI ASC X12 is the 

most important EDI set of standards in North America. By 

utilizing these standards, the Federal Government receives 

the benefit from a readily accepted standard and they can 

build on the success of private industry. Chapter II 

discusses these standards in more detail. 

65 



6. What resources are required by a Small Business 
to enable them to utilize EDI? 

Chapter II provides general requirements that a 
contractor needs to conduct business via EDI. For a small 
business to become EDI capable, a personal computer is the 
minimum required. A company will need start up costs of 
approximately $2,000 - $5,000 to purchase hardware, this 
cost depends on the type system purchased. Any EDI-capable 
system must include a basic computer, a monitor, a hard 
drive, random access memory or RAM, a floppy drive, and a 
modem. According to the Electronic Commerce Office, to be 
fully integrated for EDI, the minimum requirements in 1994 
were to have a 48 6 computer with eight megabytes of RAM and 
200 MB available on hard disk. 

In addition to the hardware, software costs can range 
from $5,000 to $25,000 if software is purchased from a 
commercial source. A small business can avoid those costs 
by subscribing to a VAN. This can have a start up cost of 
up $1,2 00 and monthly service cost ranging anywhere from 
$50 to $1,000 based on monthly usage. 

D. AREAS OF FURTHER RESEARCH 

Research conducted for this thesis has revealed the 

following areas of further research: 

- Perform an analysis on a Government activity that 
has converted to EDI and compare the benefits, 
effectiveness, and costs of EDI to that of the 
paper-based purchasing system. 

66 



Perform an analysis on a small business that has 
converted to EDI and compare the benefits, 
effectiveness, and costs of EDI to that of the 
paper-based purchasing system. 

Identify the impact and effectiveness that the 
Government training centers for EDI/EC initiatives 
(i.e., ECRC, PTAC) are having on helping small 
businesses to become EDI capable. 

Investigate and analyze the potential of using a 
single world wide web site to conduct simplified 
acquisitions. 



67 



68 



APPENDIX A 



LIST OF ACRONYMS 

ADP Automated Data Processing 

ANSI American National Standards Institute 

APADE Automation of Procurement and Accounting Data 
Entry 

ASC Accredited Standards Committee 

BPS Bits Per Second 

CBD Commerce Business Daily 

CCR Central Contractor Registry 

COTS Commercial of the Shelf 

DD Defense Depot 

DISA Defense Information Systems Agency 

DLA Defense Logistics Agency 

DMRD Defense Management Review 

DOD Department of Defense 

EC Electronic Commerce 

ECRC Electronic Commerce Resource Centers 

EDI Electronic Data Interchange 

EDIFACT Electronic Data Interchange for Administrative, 
Commerce, and Transport 

EFT Electronic Funds Transfer 

E-mail Electronic Mail 

FACNET Federal Acquisition Computer Network 

FAR Federal Acquisition Regulations 

FASA Federal Acquisition Streamlining Act 

FISC Fleet Industrial Support Center 

GB Gigabyte 

GAO General Accounting Office 

GATEC Government Acquisition through Electronic 
Commerce 

69 



ICP Inventory Control Point 

ITEMP Integrated Technical Item Management Procurement 
System 

JIT Just-In-Time 

LAN Local Area Network 

MB Megabytes 

MHz Megahertz 

MT Material Transportation 

NAVSUP Navy Supply Systems Command 

NEP Network Entry Point 

OFPP Office of Federal Procurement Policy 

PC Personnel Computer 

POPS Paperless Ordering Placement System 

PTAC Procurement Training and Assistance Center 

QPL Qualified Products List 

RAM Random Access Memory 

RFQ Request For Quotations 

RFP Request For Proposals 

SAACONS Standard Army Automated Contracting System 

SACONS Standard Automated Contracting System 

SAMMS Standard Automated Material Management System 

SAT Simplified Acquisition Threshold 

SF Standard Form 

SIC Standard Industrial Classification 

SPEDE SAMMS Procurement by Electronic Data Exchange 

SPS Standard Procurement System 

TDCC Transportation Data Coordinating Committee 

UN United Nations 

VAN Value Added Network 

VAS Value Added Service 

VSR Vendor Stock Replenishment 

70 



APPENDIX B 
ELECTRONIC DATA INTERCHANGE SURVEYS 



This appendix presents the cover letters and surveys 
that were sent out to businesses to help in the analysis of 
small businesses' perception of EDI. The first survey, is 
from a DOD organization to their vendors. The second 
survey was sent out by the researcher to business' s that 
received assistance from the California Procurement 
Training and Assistance Center (PTAC) . 



71 



A. COVER LETTER FOR SURVEY #1 

30 January 1997 

MEMORANDUM FOR GOVERNMENT SUPPLIERS 

From: XXXXXXXX 
To: Distribution 

Subj : ELECTRONIC DATA INTERCHANGE (EDI) QUESTIONAIRE 

Encl : (1) Survey questionnaire 

1. Request you complete enclosure (1) to help XXXXXXXX 
determine the usefulness and applicability of using EDI 
with our vendor base. The questionnaire is being 
distributed to a random number of our suppliers. 

2. In December 1996, XXXXXXXX scheduled an EDI Vendor 
Conference. The purpose of the conference was to increase 
our EDI vendor base thus allowing us to further utilize the 
EDI as the preferred means of conducting business. 
However, due to low vendor response, the conference was 
cancelled. We are interested in the reason for the poor 
response and would like to research our vendor' s perception 
of EDI 

3. Your participation is strictly voluntary, and your 
responses will remain confidential. Your completed 
questionnaire is to be sealed in the enclosed envelope and 
returned to the designated individual at our activity. 

4. Survey results will be used to determine whether 
XXXXXXXX should attempt another EDI vendor conference, 
evaluate our own use of EDI as a procurement tool, and 
identify and technical or software problems that exist. To 
help make good use of this information, please respond by 
14 March 1997. 

5. Your candid responses to the survey questions will be 
greatly appreciated. If you have any questions on the 
matter, please contact me at (XXX) XXX-XXXX. 



72 



B. SURVEY #1 

Instructions 

As stated in the cover letter, this survey is part of a 
study in Electronic Data Interchange (EDI) . The 
questionnaire should take about 15 minutes to complete. 
The findings will be used to evaluate XXXXXXXX' s use of 
EDI. All responses will remain anonymous. 

Please answer each question as honestly and directly as 
possible. The format for most questions asks you to rate 
statement using one of the rating choices and make any 
comments that are applicable in the space following the 
questions. Please circle the statement that most closely 
matches your opinion, more than one opinion may apply for 
certain questions. Don't limit your answers to the space 
provided, please use additional sheets if necessary. 

After completing the survey, place the survey in the 
attached envelope and return it to: 

XXXXXXX 

xxxxxxx 

XXXXXXX 

xxxxxxx 

All surveys must be completed and returned to the above 
address by 14 Mar 97. Thank you for your input and 
participation . 



1. How many years have you worked with the Department of 
Defense activities? years 

2. What type of business is your company? 

3. What percentage of your business are military 
contracts? 

<20% 20-40% 41-60% 61-80% 81-100% 



73 



4. Did your business know about our EDI vendor conference 
that was scheduled in December 1996? 

Yes No 

5. If yes, why did you decide not to attend the 
conference? Circle as many that apply. 

EDI is not useful to my business 

Already using EDI 

Logistic problems (timing, location, etc.) 

Was not interested 

Other (please specify) 

6. Would you like to attend an EDI vendor conference in 
the future? 

Yes No 

7. Is your business EDI capable? 

Yes No 

8. If yes, what percentage of your business is transacted 
using EDI? 

<20% 20-40% 41-60% 61-80% 81-100% 

9. If you are not currently using EDI, do you plan to use 
EDI in the future? 

Yes No 

10. Please explain your answer to question 9. 



11. If you are already using EDI, do you consider it a good 
investment? 

Yes No 



74 



12. If you answered no to question 11, why do you consider 
if a bad investment? Circle as many that apply. 

Start up costs 

Software, hardware or electronic maintenance cost 

Insufficient EDI sales or usage 

Too many problems in the system 

Inefficient 

Other (please specify) 

13. If you are already using EDI, are you experiencing data 
transmission or other software problems? 

Yes No 

14. If yes, please explain the problems: 



15. What frequency do the above problems occur (per week)? 

0-1 2-5 6-10 11-15 >15 

16. Are there any other non-technical problems using EDI? 
(i.e.; lack of human interaction hindering good 
communication) 



17. Other comments are welcomed. 



75 



C. COVER LETTER FOR SURVEY #2 

22 March 1997 

Memorandum 

From: LCDR Paul Hagen 
To: Distribution 

Subj : ELECTRONIC DATA INTERCHANGE (EDI) SURVEY 

Encl: (1) Survey Questionnaire 

1. Request you complete enclosure (1) to help in the 
analysis of using EDI for procurement transactions with 
small business concerns. The questionnaire is being 
distributed to a random number of suppliers. 

2. I am currently working towards a Master in Science 
degree at the Naval Postgraduate School in Monterey, CA. 
The purpose of this survey is to conduct independent 
research and analysis of a subject in the acquisition and 
contracting field. I am interested in your opinion in the 
utilization of EDI for Government procurements. 

3. Your participation is strictly voluntary, and your 
responses will remain confidential. Your completed survey 
is to be folded, stapled so the self-addressed portion on 
the back of the survey is visible, and returned to the 
designated individual. 

4. Survey results will be included in my thesis and used 
in the analysis of the effectiveness of using EDI for 
simplified acquisition procedures. It will also help show 
if small businesses are receiving a fair and reasonable 
opportunity to bid/propose on Government contracts. To 
help make good use of this information, please respond by 
15 April 1997. 

5. Your candid responses to the survey questions will be 
greatly appreciated. If you have any questions on the 
matter, please contact me at (408) 899-1343. 

Sincerely yours, 

Paul W Hagen 
76 



D. SURVEY #2 

Instructions 

As stated in the cover letter, this survey is part of a 
study on Electronic Data Interchange (EDI). In this 
context, EDI is defined as the computer-to-computer 
exchange of business documents in a standard electronic 
format. The questionnaire should take about 15 minutes to 
complete. The findings will be used to evaluate the 
Government's use of EDI. All responses will remain 
anonymous . 

Please answer each question as honestly and directly as 
possible. The format for most questions asks you to rate ; 
statement using one of the rating choices and make any 
comments that are applicable in the space following the 
questions. Please circle the statement that most closely 
matches your opinion, more than one opinion may apply for 
certain questions. Don't limit your answers to the space 
provided, please use additional sheets if necessary. 

After completing the survey, fold and staple the survey so 
the self addressed stamped portion is visible and please 
return it to: 

LCDR Paul Hagen 
238 Ardennes Circle 
Seaside, CA 93955 

I need to have all surveys back by 15 April 1997 to allow 
for data analysis. Thank you for your input and 
participation. 



1 . How many years have you been marketing to the 
Department of Defense agencies? years 

2. What is your company's socio-economic status? 

Small Disadvantaged 

Minority-Owned 

Women- Owned 

8(a) 

Small 

77 



Small Other (please specify) 

Large 

3. What percentage of your business are military 
contracts? 

<20% 20-40% 41-60% 61-80% 81-100 5 



4. Is your business EDI capable? Yes No 

5. If yes, what percentage of your business is transacted 
using EDI? 

<20% 20-40% 41-60% 61-80% 81-100% 

6. If you are not currently using EDI, do you plan to use 
EDI in the future? 

Yes No 

7. In reference to question 6, Why or why not? 



8. If you are already using EDI, do you consider it a good 
investment? 

Yes No 

9. If yes, why do you consider it a good investment? 

Improved customer satisfaction 

Saves time and money 

Improved reputation in the business community 

Expansion of customer base 

Other (please specify) 



10. If you answered no to question 8, why do you consider 
if a bad investment? 

Start up costs 

Software, hardware or electronic maintenance cost 

Insufficient EDI sales or usage 

78 



Too many problems in the system 

Inefficient 

Other (please specify) 

11. How much money have you invested in the implementation 
of EDI? 



12. If you are already using EDI, are you experiencing data 
transmission or other software problems? 

Yes No 

13. If yes, please describe the problems: 



14. What frequency do the above problems occur (per week)? 

0-1 2-5 6-10 11-15 >15 

15. Do you utilize a Value Added Network (VAN)? 

Yes No 

16. If yes, do you receive adequate help and service from 
your VAN? 

Yes No 

17. If you use a VAN, what is the average monthly costs? 



18. How long does it take to correct a problem with your 
VAN? 

1 day 2-3 days 4-5 days 6-10 days >10 days 



19. If you are not using a VAN, what other form(s) of EDI 
are you using? 



79 



20. Are there any other non-technical problems using EDI? 
(e.g.; lack of human interaction hindering good 
communication) 

21. If you are currently using EDI and experiencing 
problems, do you feel that your business is negatively 
impacted? (i.e. financial, reputation) 



22. Other comments are welcomed. 



The following questions should be answered by circling the 
most appropriate answer. The corresponding numbers equate 
to the following: 

1 - Strongly Disagree, 2 - Mildly Disagree, 3 - Disagree, 
4 - Agree, 5 - Mildly Agree, 6 - Strongly Agree, 
7 - No Opinion 



23. Government personnel 

understand the work demands faced by 12 3 4 5 6 7 
your business in utilizing EDI. 

24. Government encourages the use of 1234567 
EDI across all components of a 

supplier's business. 

25. Government has an effective system 

of communicating EDI issues to their 12 3 4 5 6 7 
suppliers . 

26. A primary value of using EDI is 

to strive for user satisfaction. 12 3 4 5 6 7 

27. The Government works to anticipate 

problems associated with EDI. 12 3 4 5 6 7 

28. The Government places an emphasis 

on utilizing EDI to conduct all 12 3 4 5 6 7 
procurement transactions. 



80 



29. Suppliers can count on getting the 
support and resources needed to 
implement EDI to conduct business with 
the Government . 

30. A mechanism is in place to help 
or give feedback to the Government 
suppliers regarding the use of EDI. 

31. Government suppliers receive 
adequate information on specific 
contract requirements via EDI. 

32 . The Government understands the 
needs of their external suppliers 
Using EDI. 

33. The Government provides suppliers 
with options concerning EDI that 
allows them to make sound financial 
as well operational decisions. 

34. The Government offers their 
suppliers training opportunities to 
develop the skills and knowledge to 
keep current with their procedures 
and policies concerning EDI. 

35. My training and experience with 
EDI has encouraged my professional 
and business growth. 

36. Suppliers are concerned about 
the uncertainty of EDI in future 
Government practices and policies. 

37. Suppliers feel the Government's 
use of EDI has benefited my business. 



Thank you for your assistance. 
Please return the survey as soon as possible 



81 



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LIST OF REFERENCES 

1. Drake, Daniel J., "Electronic Data Interchange: 
Opportunities in Defense Procurement", Logistics 
Management Institute, Bethesda, MD, May 1992. 

2. Federal Acquisition Regulations, 13.105(a), "Simplified 
Acquisition Regulations' 7 , FAC 90-4, October 7, 1996. 

3. 15 United States Code 632(a). 

4. U.S. Department of Defense, "DOD Electronic Commerce 

(EC) /Electronic Data Interchange (EDI) in Contracting 
Report", Vol. 2, Deputy Under Secretary of Defense 
(Acquisition Reform), Washington, D.C.,20 December 1993, 

5. U.S. Department of Defense, "Business Opportunities 
With the DOD through EDI", Oakland Electronic Commerce 
Resource Center, Oakland, CA, 1 August 1995. 

6. Bass, Steven, "An introduction to Electronic Data 
Interchange", Washington Publishing Company, 

1 September 1991. 

7. U.S. Department of Defense, Memorandum, Subject: 
"Electronic Data Interchange of Business-Related 
Transactions", by Taft, W. H. IV, Deputy Secretary 
of Defense, Washington, D.C., 24 May 1988. 

8. U.S. Department of Defense, Deputy Under Secretary of 
Defense (Acquisition Reform) , Executive Summary, Subj : 
"DOD Electronic Commerce (EC) / Electronic Data 
Interchange (EDI in Contracting Report", U.S. Department 
of Defense, Washington, D.C., 20 December 1993. 

9. Federal Acquisition Regulations, 13.103 (a) & (b) , 
"Policy", FAC 90-4, October 7, 1996. 

10. U.S. Department of Defense, "Strategic Plan for 
Electronic Data Interchange", Navy Supply Systems 
Command, Washington, D.C., November 1991. 

11. Mason, D.J., "The Real Facts about U.S. EDI in 1994", 
EDI Forum, Oak Park, IL: EDI Publications Inc, 

Vol. 7, No. 4. 



83 



12. U.S. Department of Defense, Electronic Commerce Office, 
"Electronic Commerce (EC) and Electronic Data 
Interchange (EDI) Handbook", Washington, D.C., 1996. 

13. U.S. Department of Defense, Electronic Commerce Office, 
Presentation: "DoD IMPLEMENTATION OF ELECTRONIC 
COMMERCE", Office of Deputy Under Secretary of Defense 

(Acquisition Reform), Washington, D.C., 1994. 

14. U.S. Department of Defense, "DOD Electronic Commerce 

(EC) /Electronic Data Interchange (EDI) in Contracting 
Report", Vol. 1, Deputy Under Secretary of Defense 
(Acquisition Reform), Washington, D.C.,20 December 1993 

15. U.S. Department of Defense, Electronic Commerce Office, 
Instructor Guide: "Electronic Data Interchange: 
Implementing in Contracting", Washington, D.C., 1994. 

16. Carter, Joseph R., and Monczka, Robert M., "Electronic 
Data Interchange: Managing Implementation in a 
Purchasing Environment", Michigan State University, 
East Lansing, MI, 1987. 

17. U.S. Department of Defense, GAO Report: "Vendor 
Participation in the Federal Acquisition Computer 
Network", Office of the Inspector General, Report 
No. 97-002, Washington, D.C., 4 October 1996. 

18. Title IX, Federal Acquisition Computer Network, Public 
Law #103-335, Section 30. 

19. U.S. Department of Defense, GAO Report: "DOD Interim 
Federal Acquisition Computer Network Certifications", 
Office of the Inspector General, Report No. 97-030, 
Washington, D.C., 25 November 1996. 

20. U.S. Department of Defense, GAO Report: "DOD 
Implementation of Electronic Commerce in Contracting 
for Small Purchases", Office of the Inspector General, 
Report No. 96-129, Washington, D.C., 24 May 1996. 

21. U.S. Department of Defense, GAO Report: "Acquisition 
Reform: Obstacles to Implementing the Federal 
Acquisition Computer Network", Office of the Inspector 
General, Report No. NSIAD 97-26, Washington, D.C., 

3 January 1997. 

84 



22. Telephone conversation between Matt Nielson, EDI, 
NAVSUP and researcher, 17 March 1997. 

23. Contracting Seminar given by CAPT Bill Jenkins, SC, 
USN, Executive Director, Business Re-Engineering, DLA, 
6 March 1997. 

24. Branch, Elliot B., Executive Director, Acquisition and 
Business Management, to Distribution, 20 February 1997, 
Memorandum on the Standard Procurement System, 
Department of the Navy. 

25. Conti, Deborah, to Hagen, Paul W., 22 April 1997, Email 
on SPS Information. 

26. U.S. Department of Defense, Executive Overview, Subj : 
"DOD Standard Procurement System", U.S. Department of 
Navy, SPS Wed Homepage, Washington, D.C., 22 April 1997, 

27. Masson, D.J., and Hill, N.C., "The State of U.S. EDI: 
1989", EDI Forum, v. 2, 1989. 

28. Conversation between E. Sue Coates, California PTAC and 
researcher, 30 April 1997. 



85 



86 



INITIAL DISTRIBUTION LIST 



1. Defense Technical Information Center 2 

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Ft. Belvoir, VA 22060-6218 

2 . Dudley Knox Library 2 

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411 Dyer Rd. 

Monterey, CA 93943-5101 

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Naval Postgraduate School (Code SM/St) 
Monterey, CA 93943-5002 

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Naval Postgraduate School (Code SM/Db) 
Monterey, CA 93943-5002 

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Naval Postgraduate School (Code SM/Lt) 
Monterey, CA 93943-5002 

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California, MD 20619 

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California PTAC 

111 North Market St., Suite 651 

San Jose, CA 95113 



87 



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