December 13, 2005
Volume 1 Issue 40

EDI can reduce your cost of doing business

We are continuing to share concepts, about saving you dollars, from our colleagues at EFR.  We will look at EDI, and what it means to you, the small and medium size distributor/processor.  First what is EDI?

Simply stated, EDI is the Electronic transmission of business documents without manual intervention from the end user. EDI has been around for decades and large Corporations across all industries use these capabilities extensively to reduce costs and move greater volumes of data.

If you have ever ordered anything from the Web from the big retailers or trading sites, you started an EDI document.  That order you put in probably does not get touched again by a human if their systems are integrated properly.  Could you imagine if www.amazon.com had to manually input all those orders over Christmas; you’d never see the gift if they did.

Reasons to implement EDI:

Reduce costs of labor and increase efficiency.

• 80% of all orders are processed manually
• 4.7% of shipments from distributors or operators are refunded/returned.
• 20% of suppliers invoices to distributors result in a deduction
• Item/price and promotion are the root cause in 63% of manufacturers invoice errors and deductions.
• Product and price represent over 20 % of the errors on a distributor invoice.

It is estimated, electronic interchange will account for 6.6 billion dollars in savings within the foodservice industry alone.

As your trading partners increase, there is an exponential increase in the number of errors occurring in the document cycle.

How do you get started?

Without automated systems designed for this purpose you cannot get started. There are a number of “stand alone” packages that will receive and send EDI documents, like Sterling Commerce, but the problem is that these are not integrated into your system and manual labor becomes the issue again. 

Some trading partners insist on EDI to do business. SYSCO Foods has an EDI project in motion for their 6000 suppliers, and are very serious about compliance.  Those folks in the retail trade have seen these requirements come down from Corporate.  If you cannot comply, you can sell into those markets. This is a reality the smaller guys have to face.

There are numerous Internet based EDI systems that show great promise.  Such as the ITRADE Network.  These sites have standardized the documents and trading rules for selective partners, and can reduce the cost of compliance.

Integrating 3^rd party EDI systems into your accounting package can be expensive, but may be worthwhile to get or maintain the business.

If you are going to integrate, remember the following tips:

• EDI is never “standard”: although the document standards are established, the content of those documents changes from vendor to vendor.
• Make sure your system vendor has experience in EDI systems; if they don’t, you pay for the learning curve.
• Implementing EDI for the vendor or customer that gives you the most paper volume is the one you will gain the most efficiencies with EDI.
• Focus on vendors or customers that are experienced in EDI, and who can give you more assistance.

In closing, EDI, like Bar Code, from last week is not a new technology, but one that has been slow to penetrate the smaller distributor/processor community.  It is not an “if” issue but a “when” issue.  Be prepared to understand the requirements and fully understand the costs to implement.  Most companies conform to EDI requests because their customer or vendor makes them conform, and then come in kicking and screaming.  This technology is extremely cost effective and will be a business reality sooner than or later.

EDI REDUCES COST ALL ALONG THE SUPPLY CHAIN

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