Electronic data interchange (EDI), the electronic exchange of business critical documents between two parties, was once touted as a dying technology. To the contrary, EDI is quickly becoming a key process of everyday business, particularly in distribution supply chains.
In today's global marketplace the pressure surrounding prompt delivery of goods and services requires increased visibility and collaboration, as well as the efficient and accurate exchange of data. Demands from large retail chain stores on small- and medium-sized manufacturers and distributors (SMBs) are growing at a rapid rate, forcing SMBs to make quick reactionary investments into EDI supply chain software. In doing so, SMBs often find themselves utilizing a solution that is not properly suited for maximizing supply chain efficiencies based on their individual needs. If, however, SMBs carefully weigh their EDI options, they can streamline their processes and reduce supply chain overhead.
Keeping up with advancing retail supply chain initiatives can be a complex undertaking. While larger vendors tend to have the necessary resources required to manage effective trading relationships, most SMBs are not properly staffed to do so. Retailers remain focused on reducing overhead and placing more demands on suppliers. Products are often expected to arrive just in time to be placed on sales floors, and retailers seek increased visibility to product shipment status. EDI requirements change often, including adjustments to EDI documents, introduction of new EDI documents, and adjustments to means of communication. Add to this the risk of costly compliance charge back penalties imposed on SMBs for making EDI related errors on shipments. With the excitement of large retailer business combined with fear of the unknown, it is easy to understand why many SMBs become reactive to EDI initiatives.
The prospect of outsourcing EDI is appealing to many SMBs. Operational fears and expense-related concerns make it easy for SMBs to pass the responsibilities of EDI to their selected outsourcer. While most EDI providers can accommodate changing retailer requirements, not all are created equal in the solutions they offer. Each provider presents strengths and weaknesses for SMBs to consider before making a decision. EDI options for SMBs typically include using a Service Bureau, purchasing installed EDI software, or using a Web-based or Software-as-a-Service application (Saas).
Service Bureaus tend to shield companies from all technical aspects of EDI. They manage translation mapping, communications and the exchange of data. Printed copies of orders can be faxed to SMBs, and in return SMBs will submit forms advising a bureau of what to update on shipping documents and invoices. Work needed on the part of SMBs to complete these forms is often very time-consuming. While Service Bureaus are often a more expensive solution (since SMBs pay for resources to manually process their data), they allow SMBs to become EDI-compliant with little or no technology.
Another option for SMBs is to use a SaaS solution. SaaS enables EDI providers to offer enterprise-level functionality via Web-based interfaces. Additionally, industry analysts suggest that total cost of ownership (TCO) can be upward of 50 percent less for SaaS when compared to install-based software. Similar to a Service Bureau, SaaS providers take responsibility for all technical aspects of the EDI relationship and ensure successful and timely data exchange, but at fractions of the time and cost.
Whether using a Service Bureau, installed application or SaaS solution, SMBs should not lose sight of the fact that they are investing in their trading relationships, and they should plan for maximum return on investment (ROI). While price for service is important, SMBs are cautioned not to make this the most important factor of their decision. There are too many occurrences of SMBs opting for an EDI solution solely based on cost, with the solution ultimately leading to EDI compliance penalties costing tens of thousands of dollars. In addition to pricing considerations, the key areas of ROI revolve around shipping efficiencies (e.g. the preparation of EDI shipping documents commonly referred to as advanced shipping notices), and integrating data with back-office systems (e.g. accounting and order management applications).