The Benefits And Costs Of An EDI System
What is an EDI system? An EDI system, or electronic data interchange, is a structured transmission of data between organizations through an electronic process. This means that data is interchanged between numerous computer systems in an electronic manner so that the company receiving the transmission receives it exactly as per their requested specifications. The organizations that communicate data through an EDI system are typically doing so to fulfill a sales/ordering process. This process is dictated by, for example, a retailer where they require a specific form to be used for the order to be recognized by the retailer’s system. So if you are a distribution company shipping to this retailer then you will need to integrate each retailer’s “blueprint” or EDI mapping in order to properly ship product, track product, bill product, etc. for that retailer.
By using EDI software, this electronic data exchange can offer a company many rewards.
- An EDI system reduces the amount of paper used since all of the information would be transferred through the computers within each organization. Some of the documents that can be applied to in this manner would be purchase orders, invoices, shipping requirements, ordering receiving and other forms of this nature.
- Arguably with the reduction of paper and personnel hand offs, an organization could fulfill their transactions with less people than if it had to enter everything by hand.
- Another benefit of an EDI system is the speed in which the information can be transmitted. It is far faster than a system that requires the information be sent through traditional mail.
- An additional benefit is having this type of information trail allows both parties to have a clear process in place to ensure orders are received accurately, timely and fit within each organization’s structure.
- Finally, sometimes it is absolutely required that you are able to send this type of EDI document to a retailer/partner/supplier in order to do business with them at all.
The challenges of an EDI solution are mainly cost and time. Most major suppliers and retailers have a long lead time for integrating new partners into their EDI format. There are of course EDI standards, but it depends on the partner’s requirements for which forms you need; EDI 850? EDI 810? Etc. This means that each integration is typically different and in each case you will be dealing with an entirely different technical team. Following this is the testing period where ghost orders are sent through to ensure the edi transactions are posting correctly. The point here is that it may take months for the integration of the two partners and sometimes companies do not have the foresight to get this taken care of in advance. With any process that takes months there is a potential for a high cost through cost of engineering, edi software, and monthly fees.
There are many options that can be looked at when it comes to an EDI system. It is wise to take some time to investigate all of the options that are available before making a decision on which one to use. You want to be sure that the choice you make is the best one suited for your needs. Further there are other solutions out there, especially for the small to medium sized supplier, retailer, distributor and manufacturer. With a little research the smaller company can find online solutions that will solve their need to have better tracking, a solid online ordering system, and compete with the big boys.