Wal-Mart project boon for software makers

A fast-approaching deadline that requires thousands of suppliers to update their communication channels to megaretailer Wal-Mart Stores has become a boon to some software companies.

Black & Decker and drugmaker Abbott Laboratories are among a handful of major companies that this week said they have purchased and installed special software to help meet new requirements for doing business with Wal-Mart, the world's largest retail chain, with more than 4,700 stores around the globe.

The software is designed to shuttle a daily flow of electronic purchase orders, invoices and shipping notices between companies by using the Internet rather than private networks.

Getting in on the act are companies from several corners of the software market, including so-called application integration companies such as WebMethods and Tibco, as well as e-commerce companies such as General Electric spinoff Global Exchange Services. Hewlett-Packard and IBM also are selling products and services around the concept.

Although Wal-Mart declined to specify the dollar value of the various projects, one analyst estimated Wal-Mart suppliers are collectively spending tens of millions, if not hundreds of millions, of dollars on software to comply.

"It's starting to boost the market" for software aimed at making electronic connections between trading partners, said Pete Abell, senior partner at the ePC Group, a consulting company based in Boston. "And it's being pushed by Wal-Mart."

Wal-Mart and its suppliers are keen to use the technology to save millions of dollars they've collectively paid each year to owners of private networks known as value-added networks, or VANs. The company did not identify which VAN suppliers it currently uses.

Wal-Mart is so eager that it's given its suppliers an October deadline to get with the program, a Wal-Mart representative said.

Specifically, many Wal-Mart suppliers must be equipped to exchange paperwork electronically using Electronic Data Interchange-Internet Integration, or EDI-INT, a protocol for moving data across the Internet that incorporates Extensible Markup Language (XML).

WebMethods says the Wal-Mart edict is creating fresh demand for its products in a difficult market. "It's a big opportunity," said Jenny Song, a WebMethods spokeswoman. "It's definitely a reason we won some of these customers," including Black & Decker.

Powerful pull
Wal-Mart is an influential force in the information technology industry. Its size gives it considerable sway over suppliers and their IT strategies. For instance, the retail giant recently urged its top 100 suppliers to attach special Radio Frequency Identification (RFID) microchips to cases of products that they ship to Wal-Mart warehouses as part of its effort to manage inventory more efficiently.

Wal-Mart is also something of a harbinger in the retail industry, with other chains often following its lead in the move toward cost-cutting technologies. Major retailers, including Home Depot and Lowe's in the United States and Ahold, Metro, Carrefour, Tesco and Sainsbury in Europe, are not far behind with similar projects, ePC Group's Abell said.

Wal-Mart supplier Dan River, a maker of bedding, drapes and other goods, said it complied with Wal-Mart's Internet communication system in April, using software from WebMethods. The Danville, Va., company is beginning to use the system with several other retailers and expects to eventually save hundreds of thousands of dollars a year in VAN charges and administrative work, said Tony Bender, vice president of information systems at Dan River. "There are many wins around this," he said.

Wal-Mart itself is using a software package from iSoft, a relative unknown in the software industry. Other software companies that specialize in business systems that are designed to handle communication via EDI-INT include bTrade, Cleo Communications, Cyclone Commerce, IPNet and Sterling Commerce.

Many of these companies, including WebMethods, have seen revenue and profits decline over the past couple years, as companies axed IT spending in reaction to a weak global economy. Though Wal-Mart is unlikely to single-handedly change their fortunes, it may offer a glimmer of hope for better times ahead. According to Abell, "It's all in an upswing."

Operators of the old VAN networks could be the big losers in this shift. However, some of the major VAN operators, including Global Exchange Services, IBM and Sterling Commerce, are joining in the push toward the Internet as the basis for business-to-business networks. "This is yet another example of the openness of the Internet displacing proprietary technology," said Mike Schiff, an analyst at Current Analysis.