Edag Future

http://www.edag.com.au/

Executive Summary

Established in 1984, EDAG Future (EDAG) provides advanced product design, engineering and development services to the automotive and general product industries in the Australian, Asian, and global markets. Based in Dingley, Victoria, EDAG employs 91 full time staff.

Acknowledging rapid industry uptake of Business to Business (B2B), EDAG recognised that use of e-commerce was essential to remain competitive.  To this end, in 2000 EDAG seized the opportunity to participate in an emerging automotive industry project called the Australian Automotive Network eXchange (AANX).

Subscribers to the AANX private network connect to any AANX Trading Partners' applications through a Virtual Private Network (VPN) via a single link. The service includes encryption and security to provide confidentiality, integrity, authentication, and non-repudiation of competitive and business critical data.

EDAG's collaboration with trading partners through the AANX B2B system generated incremental revenue of $1,750,000 in 2001 and contributed a total of $350,000 to gross profit for the year. After recognising additional e-commerce cost savings of $138,000 and deducting on-going expenses of $149,834, the net operating benefit to the company was $338,166.

IT Manager, Jim Tanner intends to increase the company's involvement in the AANX network through sourcing opportunities with new trading partners. Jim also plans to incorporate online project data management, Electronic Data Interchange (EDI) and collaborative applications within the network.  This will further streamline the communication and information dissemination abilities of the B2B system.

The Business

Established in 1984, Future Pty Ltd merged with German company EDAG in 1999 to form EDAG Future (EDAG), who provide advanced product design, engineering and development services employing the latest technologies. EDAG's focus is the automotive and general product industries in the Australian, Asian, and global markets.

Typical client categories include major automotive manufacturers and suppliers, whitegoods & consumer product manufacturers, industrial and safety related products and general plastics moulders.

Based in Dingley, Victoria, EDAG employs 91 full time staff.

Getting Started

Acknowledging rapid industry uptake of B2B in 2000, EDAG recognised that use of e-commerce was essential to remain competitive.  To this end, EDAG seized the opportunity to participate in an emerging automotive industry project called the Australian Automotive Network eXchange (AANX).

EDAG's automotive customers contacted the company requesting their participation in the AANX e-commerce project. The company's IT Manager, Jim Tanner, is responsible for EDAG's e-commerce strategy. To implement the strategy, Jim used information from the AANX group and companies that had already implemented the B2B technology.

With comprehensive support and information available, EDAG was able to implement the entire e-commerce solution in one step. As the project required changes to the company's business processes a single concentrated commitment, as opposed to an incremental approach, was necessary to the success of implementation.

B2B

AANX is led by the Federal Chamber of Automotive Industries (FCAI) and supported by the Federal Government through the National Office for the Information Economy's (NOIE's) Information Technology Online (ITOL) program. The AANX project is an industry driven B2B e-commerce initiative to provide an Internet Protocol (IP) based Extranet for the automotive industry in Australia. Their aim was to establish and govern a reliable and secure communications network to host e-commerce and B2B transactions for the Australian automotive industry.

Subscribers to the AANX Private network are enabled via a single link to connect to any AANX Trading Partners' applications through a Virtual Private Network (VPN). The service includes encryption and security to provide confidentiality, integrity and authentication of business data.

Internet protocols and standards have replaced various legacy Electronic Data Interchange (EDI) networks and other proprietary data communications links between the big four auto manufacturers (Ford, Holden, Mitsubishi and Toyota) and their tens of thousands of suppliers.

EDAG primarily operates the AANX B2B solution on a client to server basis whereby EDAG can directly access the client's server system (eg Ford, Holden) and access the appropriate data files. The files need to be 'booked out' before they can be read and modified, and then booked back in. This enables all document accesses and updates to be traced via the booking system as a security and accountability precaution. EDAG use the system primarily for data transfers and product data management where information such as specifications and Computer Aided Design (CAD) files are stored in a library for authorised personnel to access and update.

Current e-commerce strategy

EDAG participates in a supply chain, often acting as an intermediary between the automotive manufacturers such as Ford and Holden and their suppliers. When a customer (e.g. Ford, Holden etc.) makes a request for modifications or design work for particular parts, their suppliers often submit a request to EDAG for the design work. EDAG then performs the required work, communicating with the customer directly via the AANX system. Completed designs are then forwarded to the supplier, usually in electronic format or Compact Disc (CD).  The supplier then manufactures the part to the redesigned specifications for delivery to the customer.

The company's website is designed as a corporate brochure to advertise the company, services offered, capabilities, and examples of recent work with photographs. The website also acts as a portal for customer interaction, providing electronic data interchange processes for customers who do not have access to AANX. Customers are assigned a specific logon that allows them to upload any relevant data, such as CAD drawings or excel documents, to obtain quotes and to assist with the design process. Customers can also download information from the website. Once EDAG have performed the necessary design work and uploaded the modified files to the website, the customer is notified via email that the updated documents are available for download.

In addition to the AANX VPN between trading partners, EDAG have a VPN with other international EDAG subsidiaries worldwide. This allows them to directly access each other's systems in real time to collaborate on research, design ideas, and business information. Company staff also use the Internet to research designs, potential suppliers and customers, competitors and to download the latest CAD design templates.

Most of EDAG's major customers pay directly online and the company's payroll functions are performed electronically through a direct link to the bank.

EDAG's Internet connection is via a broadband service called Digital Data Service (DDS). This provides access to Telstra's Dedicated Digital Network enabling exclusive, dedicated and reliable bandwidth. A sub variant of frame relay, the system is connected via fibre optic cable to Telstra's direct point of presence (DPP) in Lonsdale Street, Melbourne. The service can be scaled from 64kbps (thousand bits per second) up to 2Mbps (million bits per second) for both uploads and downloads. EDAG's access to the Internet and the AANX network are both at 512Kbps upload and download.

Revenue and Costs

* Note: Capital Expenditure was amortised over a four-year period

Financial Analysis

EDAG's collaboration with trading partners through the AANX B2B system generated incremental revenue of $1,750,000 in 2001. This contributed a total of $350,000 to gross profit for the year.  After recognising e-commerce cost savings of $138,000 and deducting ongoing costs of $149,834, the net operating benefit to the company was $338,166.

Cost savings attributed to the streamlining of business transactions amounted to $138,000 in 2001. The major contributor to this figure has been the significant increase in staff efficiency in information processing ($40,000), communications ($50,000) and general administrative tasks ($25,000). Other cost reductions include postage and freight ($10,500), bank charges ($2,500) and staff travel ($10,000).

Establishment costs totalled $67,735 including a $3,700 outlay for web development and preliminary research. A significant portion of the initial investment was allocated to hardware in the form of a firewall ($25,000), web server ($20,000), and backup system ($2,000). Setting up the high-speed fibre optic connection cost $3,500 and Internet Service Provider (ISP) setup costs were an additional $3,000. Connection to the AANX network and installation of the necessary hardware incurred $4,785 while staff time valued at $1,500 was spent in system configuration.

Ongoing costs associated with the e-commerce system amounted to $149,834. The AANX rental, membership, data, and lease charges are $65,000 per annum including equipment such as the VPN gateway, router, and associated hardware. System maintenance is performed in-house for $30,000 per year and Internet access and traffic charges amount to $37,000 per annum. Bank charges for the electronic payment and payroll systems were $1,900. Capital expenditure was amortised over a period of four years at a cost of $15,934 in 2001.

Non-financial Benefits

In addition to forming new partnerships, EDAG's B2B system has strengthened alliances with existing clients. The closer online interaction with critical business trading partners and customers has generated significant time savings in ongoing product development and service delivery. 

The AANX network has also enabled a high level of security and privacy for confidential business content and provided lower EDI costs through a consolidated network using common technology (Internet Protocol). Enhanced communication through the supply chain has facilitated rapid product development and effectively reduced the business cycle.

Challenges

Due to the significant establishment costs of the system and the relatively recent introduction of industry based B2B networks in Australia, Jim found it initially difficult to convince management of the system's potential value. The challenges associated with security and inadequate infrastructure further weakened the initial business case for implementation of B2B technology.

These difficulties were overcome by highlighting the value generated by similar networks set up in the U.S.A. (ANX), Europe (ENX), Japan (JNX), and Korea (KNX). Once management had given consent to the project, Jim was careful to ensure that funds were spent appropriately to set up the system to the required specifications.

Future

Jim intends to increase the company's involvement in the AANX network through sourcing opportunities with new trading partners. Jim also plans to incorporate online project data management, EDI and collaborative applications within the network.  This will further streamline the communication and information dissemination abilities of the B2B system.

The AANX group are also in the process of connecting the Australian network to similar international networks to globalise the B2B opportunities available through e-commerce, the Internet, and VPNs.