Electronic Data Interchange (EDI)
The implementation of EDI is important for company’s as it can significantly reduce the cost of sending documents. Always consider the following:
- The number of vendors or customers you can enable into your business process.
- The volume of data exchanged with your trading partners.
- The amount of time it takes to currently key in data.
Who’s asking you to trade electronically?
Under the hub and spoke model, the large customer, the hub, rolls out an EDI initiative to move suppliers, the spoke over to electronic processing. In most instances, suppliers receive the mandate informing them EDI is mandatory in order to continue the business relationship.
Every Hub creates their own messaging requirements and the document types exchanged. They would provide messaging implementation guides (MIG) for each message. Typically a customer would initiate the process by sending a sales order. The supplier would return the accompanying documents as specified in the MIGs.
Since the goal of EDI is to have a standardised message, a number of different standards have been developed and established over the years. The most commonly used message standards are:
- UN/GTDI (Tradacoms) – UK retail standard
- EDIFACT – standard recommended by the United Nations, used mainly in Europe
- ODETTE – European automotive industry
- ANSI ASC X12 – US standard
- Others such as HIPAA, VICS, VDA, UCS, RosettaNet PIP etc.
Communication Method and Volumes
Typically the most common documents exchanged are sales order and invoices and in recent years hubs have invested in supply chain programmes to deliver supply chain efficiency, adding advance shipping notes to reduce turnaround times.
It is necessary to know likely volumes that you will be exchanging up front when selecting your EDI network (VAN) as this can save cost in the long term. Transportation of the EDI file over a network can be done in many ways. There are many communication methods available:
EDI provides you with the competitive edge
In addition to improving speed, cost and accuracy, EDI can enhance the business in a number of other ways, informed decision making, improved customer service, enhanced partnerships and improve cash flow.
- Elimination of mail charges, postage
- Higher productivity with flexibility to re-deploy staff overhead
- Reduce inventory (inventory costs)
EDI translation provides the interface between internal systems and the EDI format sent/received. For an “inbound” document the EDI solution will receive the file (either via a Value Added Network or directly using protocols such as FTP or AS2), take the received EDI file, validate that the trading partner who is sending the file is a valid trading partner, that the structure of the file meets the EDI standards and that the individual fields of information conforms to the agreed upon standards.
Typically the translation will either create a file of either fixed length, variable length or XML tagged format or “print” the received EDI document (for non-integrated EDI environments). This can either be pushed directly into the ERP, Accounting System or custom database or alternatively the file generated can be imported by the recipients import program.
For the outbound document the process for integrated EDI is for the data to be pulled directly out of the ERP, account system database or for the back end system to export an agreed generic file format that the translation can read to generate the outbound EDI message.
Barriers to Implementation
There are a few barriers to adopting electronic data interchange. One of the most significant barriers is the accompanying business process change. Existing business processes built around slow paper handling may not be suited for EDI and would require changes to accommodate automated processing of business documents.
Another significant barrier is the cost in time and money in the initial set-up. The preliminary expenses and time that arise from the implementation, customisation and training can be costly and therefore may discourage some businesses. The key is to determine what method of integration is right for the company which will determine the cost of implementation. The implementation of an integrated EDI solution may be necessary as increases in trading volumes brought on by EDI force them to re-implement their order processing business processes
The key hindrance to a successful implementation of EDI is the perception many businesses have of the nature of EDI. Many view EDI from the technical perspective that EDI is a data format; it would be more accurate to take the business view that EDI is a system for exchanging business documents and integrating the data from those documents into the company’s internal systems. Successful implementations of EDI take into account the effect externally generated information will have on their internal systems and validate the business information received.
Increased efficiency and cost savings drive the adoption of EDI for most businesses.