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It's not the kind of mail any business owner likes to receive. Late in 2003, Greg Kieler got a letter from Lowe's Home Improvement requesting that Worktools International, the $8 million specialty paintbrush company of which he is co-president, adopt a new electronic product-data system. That would let Lowe's and other retailers more easily track inventory. Worktools' deadline: April, 2005. Largo (Fla.)-based Worktools doesn't have an IT department, and none of its 40 employees has real computer expertise. But Kieler didn't have a choice. Lowe's is his largest customer.
Kieler hustled. "We started right away, knowing that we'd have a huge learning curve," he says. He hired consultants that had worked with Lowe's. They upgraded Worktools' software, charging a $1,000 set-up fee and $125 a month in ongoing support. Worktools will also pay $600 a year to have its products listed in UCCnet, a registry run by the Uniform Code Council. When Lowe's goes live with the system, Kieler will be ready. "Now we hopefully have an inside track on making Lowe's happy," he says.
Worktools isn't the only small business receiving nerve-jangling letters. Mega-retailers are pressing their suppliers to make fast, often expensive, technology upgrades -- or risk losing their business. Lowe's, Wal-Mart, Home Depot, Wegmans Food Markets, Office Depot, and AutoZone are among those aiming to link members of their supply chain electronically, eliminating paper invoices and tracking documents. The first salvo to smaller vendors appears to have come from Wal-Mart, which sent an April, 2003, letter to about 20,000 suppliers, saying it expected to receive all product data electronically by January, 2004.
Other big retailers were quick to follow suit. Home Depot notified vendors on Feb. 18, 2004, that it plans to eliminate all manual processing of product data by 2005. "This project will take considerable time and resources within your company," the letter warns. "If you have not already started, we urge you to get involved today." And a June 7, 2004, letter from Office Depot alerts vendors to the company's plan to adopt UCCnet by July, 2005.
The letters are peppered with terms like "suggest" and "request," but make no mistake -- they're nothing short of mandates. Wal-Mart spokesman Gus Whitcomb doesn't say the company will drop businesses that don't comply. But, he says, vendors "have to consider if they can get a competitive advantage on someone else who might be a supplier to Wal-Mart." Lowe's spokeswoman Chris Ahearn is more direct: "At some point everybody will have to be part of the system."
Even for tech-savvy entrepreneurs, the requested upgrades are seldom quick or painless. But those doing business with the retailers -- or hoping to -- have little choice. "The bottom line is that [suppliers] are going to have to automate to stay in the game," says Gene Alvarez, vice-president of technology research services at the Meta Group in Stamford, Conn.
Retailers are pushing three initiatives. Electronic product registries assign each item a 14-digit code, then include it on a global list accessible to retailers. Vendors pay to get their wares listed. The UCC charges sliding-scale fees: Companies with less than $1 million in sales pay $100 a year, while those with $100 million pay $7,500.
Electronic data interchange (EDI) lets suppliers and customers communicate directly electronically. Expect to pay $4,000 to $10,000 in set-up fees, plus a few thousand in annual support, says Adam Eiseman, CEO of New York consulting firm The Lloyd Group.The use of radio frequency identification tags (RFID) is less commonly requested, at least for now. The tags incorporate a sort of souped-up bar code that transmits information, aiding in inventory tracking. Meta Group's Alvarez says the system can cost up to $70,000 to implement.
Of course, retailers' requirements differ. Some retailers insist only on electronic purchase orders. Others want everything from shipping notices to invoices handled online. "Retailers have manipulated the standard to meet their own needs, thus destroying it," says Carl Lehman, vice-president of enterprise applications at Meta Group. Retailers including Wal-Mart ask suppliers to use AS2, an EDI standard that is relatively easy and inexpensive to implement.
Retailers aren't leaving their vendors completely in the cold. Wal-Mart has a support desk to answer questions about UCCnet and is providing technical assistance to those installing RFID, says Whitcomb. Others provide a list of third-party vendors familiar with the technologies. But some require that businesses work only with vendors on that list, so entrepreneurs don't have the option of looking for lower-priced or more conveniently located services.
The upgrades that one retailer requests can often help in dealings with others. Josh Simon, IT manager of Budge Industries, a Lansdale (Pa.) company that makes automobile covers, tries to ensure that any new systems can be used with multiple customers. Since 2003, the $15 million, 60-employee company has spent about $7,000 to make upgrades requested by Wal-Mart. "It has made my life easier," says Simon. "It really helps us organize our products."
Bay TravelGear, a $60 million, 80-employee luggage maker in Scottsdale, Ariz., began installing AS2 in December, 2003, at Wal-Mart's behest. "It actually saved us money, so our EDI guy is trying to get as many customers as possible switched to AS2," says applications manager Kevin Silacci. He hopes to use the system with Target soon. Don't worry: Silacci doesn't have time -- yet -- to make sure his suppliers are using it too. By Eve Tahmincioglu