EDI is widely used by large companies around the world. The documents and transmission conform to standards and are independent of the business application used. EDI utilizes a tightly structured data format which allows the data to be processed directly in either the originating or receiving company’s application. Typically, EDI first occurs with key customers then later with vendors and transporters.
An example is a customer Purchase Order. The typical first encounter is a Customer Service person being alerted that it arrived in the ERP or accounting system and has been suspended due to an incorrect price or part-number. This means the data entry step has been eliminated. An outbound example is an invoice created after an order has closed. The only difference is that the invoice is not mailed.
Customers not requiring EDI use Web forms, which are also used for lower volume transactions such as a freight claim for damaged goods.
X12, AIAG, Uniform Code Council – standards setting bodies
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CFOs searching for process automation savings should look to their existing Electronic Data Interchange and E-Commerce tools. Adding more customers, transporters, or vendors can be done economically using existing systems.
Managers have long sought to boost productivity by replacing manual with automated processes. EDI is replacement of data entry staff combined with immediate exception reporting.
The best results occur when changes are implemented incrementally. An example today is gradually setting more links between customers and your ERP system. This typically includes receiving more data for better customer order management or adding more customers. These tasks are incremental. The changes are small enough that the ROI can be calculated accurately.
There are six key means to improve process automation the CFO should pursue:
1. Add more customers or add more documents.
2. Add Transporters to your EDI processes
3. Add key vendors.
4. Make data transmission secure.
5. Automate price sheets.
6. Automate web form data.
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Most direct savings occur from the reduction in Customer Service and I. T. staff. Reduction of data entry occurs when most EDI orders arrive during the night and are processed immediately. An EDI order loads in a fraction of a second. This means all orders are ready for approval or modificationn when the Customer Service staff arrives at work. Staff reduction is usually through attrition.
Other savings are lower inventory levels and better utilization of cash. This results from better tracking of customer sales; enabling quick changes to production quantities for “hot” or “slow” movers.
As EDI matures, the “organization” forced by automation also lowers administrative costs. Finally, more fulfillment time is available due to faster data flow. All of the investments in EDI become permanent productivity boosters.
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Reliability: EDI systems must be as reliable as payroll systems. This is because key customers are involved (and eager to levy chargebacks for mistakes). Your EDI needs to be easily modified since customer requirements are continually changing. For example, customer orders have seasonal discounts that must be reflected on the invoice.
A solid system and thorough exception reports are needed to achieve reliability. Acceptable reliability levels must by written and enforced by the CFO. They are achieved through positive cooperation amongst the Sales, Customer Service, Accounts Payable, I.T., and other departments.
Security: Data sent from your company must be as secure as patient medical records or data exchanged with the Department of Defense. This is a reasonable level of security. The consequence of an error is an embarrassing disclosure or a legal remedy caused by disclosing key customers’ prices and information.
The standard you should use is the standard specified by the federal Departments of Human Services and Defense (EDI INT AS2). Fortunately it is also the standard supported by most industry leaders such as Wal-Mart, General Motors, Intel, and duPont and most industry trade groups.
Failure typically occurs due to inexperience or time constraints. If an I.T. technician makes an incorrect setting, failure is possible.
Security is achieved by attention to the components. When used with a properly configured firewall, AS2 meets the standard. Fortunately, the cost of an AS2 utility is low and the monitoring of its performance is automated.
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The return can be calculated using these expense categories, which are segmented into launch costs and then annual costs for years one, two, and three. A first and approximate calculation is recommended to learn if the proposal has merit.
Costs for ROI Calculation
Following is a list of initial and recurring costs that can be used to calculate the return. (If depreciating, spread the One-time costs over 3 years.)
One-time Costs
Systems
EDI System
AS2 System
Services
EDI Integration
ERP Configuration
Testing – Internal
Testing – Trading Partner
Documentation
Training – I.T. Department
Training – Users
Platform and Environment Setup
Server
Installation and Testing
Personnel Cost
Planning Time
Implementation Time (some services above will be performed by your company others by DCS)
Project Management Time
Other
Taxes
Supplies
Contingency
Annual Costs (Years 1 – 2 -3)
Systems
EDI System maintenance fee
AS2 System maintenance fee
Services
EDI changes (customer driven)
I.T. monitoring and support
DCL technical support
Platform and Environment Setup
Server maintenance
Personnel Cost
Maintenance Time
Training of any New employees
Other
Taxes
Supplies
Contingency
DCS has been very successful in identifying potential savings. Please ask us as you evaluate. Perhaps our free, remote assessment and task list will light-up hidden savings.
Benefits for ROI Calculation
The primary and immediate benefit is Customer Support staff reduction, plus an allowance for wider fulfillment window and greater accuracy.
Faster and more accurate information to the sales staff will also reduce the number of information requests. This means fewer marketing employees needed to support the sales staff either through a reduction in Customer Service staff or an increase in the company size while the staff remains constant.
A number of examples are included below. Keep in mind that cost reductions such as reduced paper and postage or reduced staff salary are recurring in nature and should be included as savings for each year.
Here are specific benefits you may wish to consider when calculating your ROI.
1. Wider fulfillment window through elimination of data entry time and delays. This means Customer Service has more time for Sales Order checks, resulting in less costly re-work and fewer expedited shipments.
2. Lower operating cost through elimination of data entry wages and repetitive steps. (Also Reduces errors and rework.)
3. Adjust for global customers’ different time zones.
4. Reduce deductions and chargebacks with timely Shipment Notices (ASNs).
5. Faster payments when shipping and invoicing are electronic. Funds are transferred directly from the customer to the bank.
6. Improves business controls.
7. Lowers inventory levels and contributes to better in-stock positions.
8. Lowers freight costs.
9. Improve business processes.
10. A preferred way of doing business among Fortune 500 companies.
Calculation of benefits is more difficult, but essential. Most can readily calculate the amount of time saved, but are uncertain about what fully loaded hourly cost to use. DCS suggests you start at $20 hourly for non-salaried employees, $30 for salaried, and later ask the CFO for a corrected rate.
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Is EDI implementation difficult?
Utilizing complex and effective systems requires that EDI software be properly configured. This allows for reliable and efficient EDI integration with your company's back-end office systems. An initial launch requires about a month because more than normal coordination with Customer Service and other users is required. As you begin trading with more partners and you experience business growth, your EDI system will grow in complexity – while your company’s expertise grows.
Why is EDI so complex?
Large corporations continually seek to refine cost allocation to more effectively monitor their vendors’ performance. An example from a customer Purchase Order is specifying the freight carrier to be used, which relates to their performance effectiveness measurement of their logistics department. An incidental benefit for them is that some invoices are not paid because required information is missing or a chargeback can be levied.
What specific experience do I need in order to be able to do EDI?
The amount of experience you need in order to be able to do EDI directly correlates to the type of EDI solution you choose for your business. You will need to know your business application’s tables, the precise definition of every field, and the basics of data transmission. For example, the difference between the first and last shipment date and the first and last arrival date. Since EDI integration is object-oriented you do not need to know Java™ or another language. For EDI software implementation, training is often recommended for your employees.
What is the difference between EDI and E-Business?
E-Business can be the electronic exchange of information in any format; EDI is done through a standardized format and is particularly useful for a large volume of repetitive documents such as purchase orders commonly exchanged between business partners.
Why can't the company just e-mail the information?
By automating the exchange of documents, EDI eliminates repetitive data-entry and common mistakes due to human error, two conditions to which e-mail is susceptible. With EDI, the information is automatically transferred between trading partners.
How long has EDI been around?
For over thirty years, EDI has allowed companies to electronically trade documents. In addition to being a very mature technology, EDI is a long-established communication solution in many companies. With the emergence of new technologies, such as the Internet, EDI has had to evolve. By taking advantage of these new technologies, EDI continues to serve as an effective and efficient mode of document exchange.
DCS has focused exclusively upon EDI since 1991.
Is EDI dying?
Businesses will continue to exchange information, and are likely to increase the amount exchanged. As time passes EDI evolves just as other technology improves. For example, dial-up telephone modems and industry specific XML tags have passed. The solution is to use systems that support both older and newer protocols as customer requirements change over time.
Is EDI only for customers?
EDI documents are high volume, routine documents that can be exchanged with these other organizations if financial benefits are achieved:
Vendors (production or re-sale)
Transporters (truck, parcel, air, rail, and ocean; including logistics providers)
Banks (payments)
Insurance companies (benefits information)
Government (taxes and filings)
How is EDI different from a shopping cart on a Web site?
The fact is that any business has little control over its customers. Conversely, a shopping cart is wholly controllable, which requires fewer protections. Second, the size of transactions measured in dollars is far higher, also requiring greater controls. Finally, EDI transactions are repeated daily or weekly, but consumer based shopping cart transactions are not.
What is XML EDI?
XML EDI combines the best features of traditional EDI (which has broad industry support) with the improvements in software technology within XML (Extensible Markup Language). Typically, EDI is used for high volume count transactions and XML is used for low volume transactions. For Example:
High volume – EDI – customer purchase order
Low volume – XML – freight claim
In an XML EDI message the EDI information is explicitly labeled using standardized tag names. Reference may be made via Internet to a Document Type Definition (DTD) - which contains structure declaration and relevant sets of code values. This illustrates the commonality – X12 and XML are both data with tags schemes.
What are the benefits of XML/EDI over existing approaches?
XML is the most promising approach to move low volume documents through the Internet. In particular XML EDI could bring in small vendors.
Another argument is that XML is versatile. This opens new areas for EDI such as direct integration with the major databases and off-the-shelf business packages or browser software.
Is there any other added value of XML/EDI compared with traditional EDI?
It will be easier to incorporate components such as digital signature, smartcard authorization, routing instructions, spreadsheet, graph and Internet-like adds on into an EDI message, thus making use of the intrinsic flexibility and extensibility of XML.
Because XML is a self-describing format (the structure is apparent in the document), tools can analyze the structure and automatically derive mappings, conversion, import rules, etc.
Consequently the task of mapping is expected to be easier through the use of extended functions in existing user tools (word processor, database, etc.). It is anticipated that search engines could also retrieve information held in XML/EDI messages through the use of embedded tags.
What is the difference between Electronic Data provided by an EDI VAN and Internet EDI?
A Value Added Network, often referred to as an EDI VAN, is a private network dedicated to the secure exchange of EDI traffic. This network serves as an electronic mailbox for sending and receiving electronic documents.
Internet-based EDI enables companies to exchange EDI documents over the Internet using secure methods of encryption.
While there are similar business benefits for both methods of exchange, the determining factor of which method to use depends on customer requirements. You will likely use AS2 for most exchanges, yet need one VAN for those not using AS2. (One VAN will suffice as VANS interconnect for a small fee.)
How can you support so many systems well?
Two reasons. First, DCS has a large staff of consultants with varying experience and skillsets. Second, EDI conforms to a standard and all EDI systems perform the same function. The difference is the commands and processes. This is true for ERP data integration modules as well. Customer purchase order entry, error checking, and reporting is nearly the same on all systems and in all countries. For example, consider the differences between Microsoft Word™, Corel’s Word Perfect™, and Google Docs™. After thorough training and with years of experience, an EDI specialist can master several.
Can EDI support be done remotely?
Most EDI support is already done remotely. Interestingly, systems that are owned or hosted by a third party are serviced identically. The most common misperception is that an ERP hosting provider is an EDI expert. Typically, this level of support is outside the service level agreement.
How fast can you start?
Production down support can begin the same day if approved before Noon Central time.
Adding customers or changing data transmission to secure Internet begins the next day.
For development work such as adding documents or vendors, the start date is included in the work estimate.
DCS policy is to slightly over-staff to ensure you a prompt response.
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