July 18, 2006
Volume 2 Issue 70

Confused About EDI? You’re not the only one... (Part II)

  Electronic Data Interchange, or EDI, is often referred to as the most effective link between business transactions on the market today. But what does “most effective” really mean? In its most basic sense, it means time saving and money saving. With EDI, paper transactions can be replaced with electronic transmissions thus saving both time and money. But things are never as simple as they seem. The truth is that there are two types of EDI in the world and in order to maximize EDI benefits you have to select the best type for your business. 

  The above diagram is an illustration of the first type of EDI, more commonly known as Non-Integrated EDI or Manual EDI. Non- Integrated EDI is when EDI messages are sent automatically but messages are then printed out by the recipient for further processing. Imagine that your trading partner is Albertsons and they send you a Purchase Order for 250lbs of sausage. The Purchase Order would be sent by their system to the VAN (Value Added Network) and then forwarded to your system for processing; unfortunately you don’t have EDI translation software (because you use Non-Integrated EDI) so the EDI message can not flow seamlessly into your software system. The result is their Purchase Order hits a brick wall and your staff must then print it out and manually enter the information listed on their Purchase Order into your system for processing.

   The above diagram is an illustration of the second type of EDI, more commonly known as Integrated EDI. This is where EDI messages are sent automatically and are received by the recipient for automatic processing. At the end of the day the effectiveness and success of EDI is measured by the degree of integration of EDI as the communication mechanism for you and your trading partners. The extent of this integration is the true measurement of what makes an EDI investment truly successful. The flow of EDI depends on the sophistication of your systems and your EDI software. EDI programs that integrate with your internal systems are much more preferred over software that requires the re-keying of data. Once you understand the differences between Non-Integrated and Integrated EDI you can begin to see the how the benefits only work in your favor if you have EDI fully integrated into your food software package. Users with fully integrated systems experience a wide range of tangible benefits including but not limited to:

·         Reduced Lead Time/Quick Response

·         Increased Warehouse Efficiencies

·         Increased Transaction Handling/Processing Accuracy

·         Increased Salesman/Buyer Productivity

·         Reduced Administrative and Clerical Costs

   Furthermore, since information flows smoothly, cycle times can be slashed. EDI reduces cycle time by an average of 40% for business functions like order entry, purchasing, manufacturing, logistics, and finance. This means you can complete a greater volume of orders without adding extra costs! With EDI, orders can be processed, goods shipped, and invoices sent – all in one day. On average the time it takes to record an order at the buyers location, enter it into the system, print it, mail it, receive it at the supplier, enter it into the system, process the paperwork, fill the order, ship the order, and mail the invoice takes 10 days. With EDI, it is reduced to 1-3 days. Most importantly EDI opens the door to increased business. As more and more companies are mandating EDI capabilities, some companies won’t do business with you unless you’re “EDI capable”.

   Of course EDI, like all other “cure all solutions” to your business problems, comes with its share of disadvantages. The most significant of all involves the cost and initial set up period. The cost of installing an EDI system depends on many factors, such as what computer system you have now (if any), the capabilities of your internal operations software, and the technical capabilities of your staff. The cost of EDI software can range from $1,500 to $25,000 depending on your computer platform and level of integration. Plus you will also have to engage a VAN which will require a one time set up free, plus a monthly maintenance fee; in addition to transmission charges (average estimates place the cost of this around $600 a year). So where’s the good news? Well although there are initial costs involved with developing and implementing a new EDI system, these costs can be recouped and the system can pay for itself many times over by the efficiencies garnered by the use of EDI.

INVESTING IN EDI IN THE PRESENT - ENSURES FUTURE COST CUTTING!

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