Benefits of EDI

In today’s global economy, every business faces constant pressures to improve the quality of its products or services, while at the same time tightly controlling or reducing costs. Information technology has helped to automate or streamline internal processes. But in many businesses, the external exchange of information with customers and suppliers still lags far behind the internal processes.

The benefits of a properly implemented, fully integrated EDI system can be seen throughout the operations of the business and its trading partner community in a number ways.

Increased speed—Business documents are exchanged electronically rather than physically. Computer-to-computer communication means that transactions can be completed in a matter of minutes, rather than days. Consequently, the activities that are initiated by these transactions can begin to occur immediately. An example:

A PO goes from the buyer’s computer through a network to the vendor’s computer with no human intervention or handling on either the buyer’s or seller’s side
Receipt of the order is acknowledged automatically
Order processing can begin immediately without the need to be manually entered into the seller’s system
When the order is complete, shipment can be arranged and communicated electronically

Improved accuracy—information that is exchanged electronically does not require manual transcription/data entry. This effectively eliminates the introduction of errors into the initial business process or other business systems that may be affected further downstream. Electronic data is usually derived from a database, where data has been subject to prior validation. And even if several different parties process the electronic document, with each party adding data to the existing document, none has the ability to alter previously entered information.

Cost savings/avoidance—As organizations shift from manual to electronic processes using EDI, they will realize significant cost savings. Some of these savings are a direct result of increased speed and improved accuracy of the transactions. Some examples:

Correcting errors costs an organization both time and money; so the reduction of errors also reduces costs. Consider the costs to both buyers and sellers when orders are placed or shipped in error and must be returned, reprocessed, re-shipped, and received. Costs to the buyer can also include lost revenue if the needed product(s) had been out-of-stock.
Reduced order processing and delivery cycle times result in a need for less inventory on hand. Inventory carrying costs are reduced, which can mean a significant savings for many organizations.
Invoices can be processed more quickly, resulting in an opportunity for the buyer to take advantage of net discounts—effectively paying less for the product.
A reduction in manual processes may allow for staff reductions or result in greater output from existing staff levels.

Improved cash flow—As more of a company’s applications are integrated into EDI, its cash flow will improve due to overall efficiencies that EDI provides. For example, invoices can be processed more quickly, allowing sellers to receive and apply payments more quickly.

Reduced overhead costs—Upon implementing EDI, costs for paper, envelopes, and mailing materials decrease as well as those for telephone and courier services used to support transmission of orders and paper documents. Additionally, storage space for paper and supplies is freed thus reducing costs still further.

Better planning and processing—In an electronic environment, rapid receipt of accurate and complete business transactions is the norm. Suppliers can process orders more quickly and shipments can be scheduled accordingly; therefore, manufacturers can anticipate receipt of goods and schedule manufacturing tasks accordingly.

Increased transaction visibility—As paper documents are replaced with electronic transactions, it is easy to maintain electronic logs or audit trails of document handling activity. This provides the ability to track status and measure performance and throughout the entire process. Ongoing evaluation leads to continued process improvement.

Tighter trading partner community relationships—EDI implementation results in clearly communicated requirements, expectations, and agreed-upon procedures that benefit all members. Communication among suppliers, customers, and third party logistics providers becomes streamlined. And all members of the trading community are able to monitor the processes throughout the execution.

Improved customer service levels—As business is handled more quickly and accurately, customers at all points of the supply and demand chain have a better experience. Happy customers become return customers and attract new customers.