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.
As SMB EDI needs increase, there is a realization that utilizing a Service Bureau may not always be the most efficient means of conducting business. One option is to purchase installed software and manage EDI in-house. On the surface, this appears to be the best approach to streamlining costs, however accompanying the software can be additional hardware expense, software maintenance, hiring employees that are familiar with EDI technology and issues that surround the management of multiple trading relationships (e.g. communications, missing or incorrect data and mapping adjustments).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).
Most companies are familiar with the benefits of back-office integration. Orders from retailers are imported into back-office systems without employees typing them in manually and are typically available within the back-office system in minutes. Shipping manifests and invoices are in turn exported out of the back-office system and converted into EDI documents based on retailer specific requirements. This reduces employee costs and errors caused by human intervention. SMBs are cautioned, however, to review how EDI providers offer integration, as some systems still require manual labor, ultimately defeating the benefits of having integration in the first place. For example, SMBs using QuickBooks accounting software will export invoices from QuickBooks to an EDI solution for translation and communication. These invoices often lack data that are required by large retailers (e.g. shipment weight, carrier information, total cartons) and employees must manually update this information on resulting EDI documents.
While data integration can result in a measureable ROI, efficiencies achieved in using the proper shipping utilities can be greater and often more important than integration. For example, when shipping to a large retail chain, SMBs may face large shipments containing hundreds and thousands of cartons. Certain EDI solutions that offer accounting integration may require SMBs to process large shipments one carton at a time, resulting in several days of work. Other EDI solutions (that may or may not have back-office accounting integration) offer tools for SMBs to process shipments in batch, resulting in the creation of shipping documents in just minutes that contain thousands of cartons.
Aside from cost savings associated with solutions that offer shipping efficiencies, there are additional benefits: If an EDI solution takes days to create shipping documents, SMBs risk late shipments to EDI-based retailers that could potentially create large compliance penalties, delays in product reaching sales floors and the loss of business.
An SMB supplier of plastic accessories was using a Web-based solution provided by an EDI outsourcing expert in an effort to conduct business with a nationwide home goods retail chain. This solution required the SMB to process each order one at a time, making it difficult to keep up with hundreds of store orders per week for just this one retailer. While their EDI solution worked well for other companies, this particular SMB could not keep up with the demands of the EDI customer and almost lost the business of other non-EDI customers as all resources were focused on processing EDI documents.
After reviewing alternative solutions in the marketplace, the SMB found a more appropriate SaaS solution for their specific needs. What previously took a week's time to process now takes less than one day with the company's new provider. Additionally, all the needs of its EDI and non-EDI customers are being successfully met, without any additional technology or employees.
With EDI pressures mounting within supply chains, SMBs can take advantage of solutions that are more advanced and equipped to streamline supply chain processes. EDI providers offer the tools necessary for reducing onerous shipping procedures, integrating with back-office systems and ensuring that data are delivered both accurately and timely. As there are options available, SMBs are wise to become proactive in their search of the correct EDI solution. Being reactive can prove to be costly in more ways than one.
About the Author: Marc Kalman is co-founder and CEO of eZCom Software, and brings with him 15 years of supply chain experience. Kalman can be reached via [email protected] or 877.765.3564.
