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Thinning margins and intense cost-cutting pressure are forcing Hughes Supply Inc. to sharply reduce paper, fax, and phone communications with its 13,000 suppliers. The distributor of construction and industrial materials will connect electronically to 1,500 of its largest suppliers before the end of year and to 5,000 more by the end of 2003.
Hughes, which moves more than 240,000 products through more than 430 branches in 34 states and Mexico, isn't saying it will immediately drop suppliers that don't go online. But Bob Machaby, Hughes' senior VP of vendor development, says the company is in the process of reducing the number of its suppliers, and those that can work electronically will get more than 95% of its business. The company expects to save millions of dollars by reducing paper purchase orders, shipping notices, and invoices that have to be keyed into IT systems. "We are not putting our finger in the wind to see what everybody thinks; we're pushing ahead and we're going to get rid of paper," he says.
Hughes intends to make it easy for suppliers to get hooked up. The $3.3 billion Orlando, Fla., company has inked a multiyear pact with Advanced Data Exchange (ADX) for EDI translation services that will let suppliers do transactions over the Web. Hughes currently uses EDI to connect to 200 of its largest suppliers, and the company intends to leverage that infrastructure, which is integrated with its Eclipse Inc. Distribution-Management Systems apps.
Machaby says suppliers with nothing more than a Windows PC will be able to do business with Hughes via a portal hosted by ADX. The suppliers would pay a basic subscription rate of $59 a month plus a fee for each transaction. Suppliers that are capable of XML transactions will bypass the portal and conduct business with Hughes using ADX's XML-to-EDI translation service. "More of our suppliers will be able to do machine-to-machine transactions with us," he says.
Meta Group analyst Carl Lehmann says companies such as Hughes increasingly are pushing adoption of business-to-business technology with their suppliers, and, for companies that have standardized on EDI, ADX is a cost-effective way to get suppliers on board. "This kind of service is so inexpensive and will cut costs for suppliers, too, so there is no reason why suppliers of any size should resist," he says. ADX is a subscription- and transaction-fee-based service.