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July 11th, 2006 Confused About EDI? You’re not the only one…
In today’s business environment, intense competition is forcing
businesses to look at new ways of operating. Warehouse Managers are
constantly looking for new methods that will allow their business to do
things faster, better, and cheaper than ever before. After all, this is a
huge reason for why I started this cost control newsletter in the first
place. The problem with many of these cost cutting approaches is that they
often end up sacrificing one objective in favor of another and sometimes
when you cut costs in your operation you also end up cutting the quality of
your products or your commitment to your customers. Just think about all the
different ways you communicate on a daily basis, for example the postal
service, email, telephone, faxes, etc it’s enough to make your head spin.
And in today’s highly competitive world, these forms of communication are
beginning to fail to meet the rigorous requirements of highly accurate data
that makes it possible for a company to compete in a market in the first
place. This is why EDI has begun to take center stage in the Food
Distribution and Processing Industry. *next week’s issue will discuss more advantages of EDI and how to decide if they outweigh the disadvantages to your food distribution/processing business* What is EDI? EDI stands for Electronic Data Interchange and is a paperless method of transferring such data as purchase orders, forecasts, and invoices between companies or “trading partners”. Very few companies use the same paper document format and since one company’s Invoice form looks different from another, the same often holds true with computer systems. Information stored in one company’s computer system may be in a different format than another and so on and so on. EDI solves this problem by creating a commonly understood format of the data so that one company’s computer system will be able to transmit to the others with minimal human intervention. The most commonly used standard EDI documents in North America are referred to as ANSI ASC X12. The internet has enabled EDI transactions to be transmitted between trading partners in an extremely efficient manner. That is where the concept of a Value Added Network (VAN) comes into play. A VAN is a mechanism that eases the transfer of EDI transmission between trading partners. Think of a VAN as a virtual post office, one that allows a business to send EDI formatted data to their trading partners at any time day or night. The VAN will then hold the file of transmitted transactions until the trading partner to whom it is addressed retrieves it at a later time. (Grocery EC and Itrade Network are two examples of VAN’s) The EDI transaction gets sent from Business A to the VAN to Business B through something called a Virtual Private Network (VPN). All that is, is a fancy term for a secure path that your documents can be transmitted through so that no one else other then the intended recipient can see them. Why should any of this be important to you? The explosive growth of EDI simply can not be ignored. By the end of the decade of the ‘90s, EDI was already affecting almost every business in the U.S from General Motors to JC Pennys. One of the main reasons for the growth in popularity is what you could call the “Domino Effect” within industries, where large companies in the center of an industry (the Albertsons, Con Agras, and Pepsi Co’s of the world) convince their suppliers’ partners to adopt EDI. Soon, the second tier suppliers require EDI links to the third tier suppliers and so on and so on. The food distribution and processing industry is a great example of an industry in which the Domino Effect is overwhelmingly present. Another major factor for EDI is formation of newer and more up to date ANSI Standard EDI Documents. Since its humble beginnings, the number of standardized transaction types has grown from 150 in 1986 to today’s current number of over 315. Once one standard transaction was developed for use a cascading affect took hold, i.e.-the standard Purchase Order brought forth the need for a standard Invoice-The standard Invoice brought forth the need for a standard Shipping Notification-This Shipping Receipt then lead to the desire to make electronic payments, which gives rise to another batch of electronic transactions, etc etc. Furthermore, with the spread of personal computers and available software, it is possible to develop an EDI solution with less than $1,000 investment. Investing in EDI cuts operating costs by stopping the communication breakdown of incompatible business documents with your trading partners. The most tangible benefit of EDI is it saves you money. It's estimated that processing a purchase order or invoice costs about $5 in paper, postage, handling, personnel and other costs. EDI lowers the cost of handling that same document to about $0.13. Just think about how much money you waste every month on hard copy print outs and document shipping costs alone! This is just one of the many reasons why EDI is turning into a must in today’s environment. If haven’t already experienced the Domino Effect firsthand then you most likely will soon enough, as all areas of business-to-business transactions are poised to become increasingly automated with EDI. But at the end of the day if your trading partner insists on EDI, you’re not only ultimately keeping a customer but you’re also positioning your own company for extreme profit growth in the very near future, and this is by no means trivial!!! DISCOVER THE BENEFITS OF EDI & CUT YOUR COSTS TODAY To Unsubscribe
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