Step 2—Review of Business Strategy
The benefits of an EDI system can vary greatly among organizations. To discern the area of your business where an EDI system would make the biggest difference, your coordinator should conduct an e-business EDI survey of your organization’s customers and suppliers. Your organization will see the greatest returns in areas where an EDI system can be supported by either a large number of trading partners or a small number of high volume trading partners.
One of the primary advantages of EDI implementation is the level of flexibility and customization it offers for B2B integration.
- Many large companies have started EDI implementation within their purchasing departments as a way to improve business process management (BPM) of supplier purchase orders (POs) and subsequent cost savings.
- Manufacturers tend to find materials release documents a good starting point for their EDI systems, as it helps to foster improved just-in-time (JIT) manufacturing strategies.
- Suppliers generally use an EDI system for sales order processing because many of their major customers prefer to send POs electronically.
- Accounts payable can profit from EDI services, especially within organizations that have many invoice transactions.
Companies in the buying position often have the power to require EDI of their trading partners as a condition of doing business. This is why purchasing is often the first focus of a large organization’s EDI integration efforts.
Undertaking an EDI Survey or Cost-Benefit Analysis
Your EDI implementation coordinator will be responsible for conducting a cost-benefit analysis to further identify the ideal corporate applications for EDI system deployment and lists their priority.
Keep in mind, however, that a cost-benefit analysis should be short enough to maintain momentum towards completing EDI system implementation. It should include a description of the present systems and a determination of the ways EDI implementation can improve those systems.
Since the handling of each type of business document is based on human and machine interaction, this should be a point of focus for determining efficiencies that can be gained with an EDI system. EDI consulting professionals further encourage organizations to look for ways to improve current systems before automation because automating an inefficient system has the effect of magnifying the inefficiency. Improving a process before EDI system deployment may take more time and money (i.e., system development, employee training) at the front end, but will certainly provide greater financial return over time.
To determine where your organization could benefit most from EDI services, your EDI implementation coordinator should consider the following questions:
- How many vendors or customers are involved in each business cycle*?
- How much paperwork is involved in each business cycle?
- How much time does each business cycle currently require?
- Can an EDI system reduce or eliminate
- redundant steps in the business cycle?
- redundant data entry?
- clerical effort?
- the need to carry inventory?
- Can an EDI system improve or support
- relationships with your trading partners?
- customer service through improved delivery times?
- larger business strategies (e.g., JIT manufacturing)?
*A business cycle includes all of the processes and documents involved in completing a transaction. An example of a business cycle is PO receipt, PO acknowledgement, picking list production, issuing shipping notices and invoices, and receiving payment.
The more questions you can answer affirmatively, the greater the opportunities for improvement through an EDI implementation exist.
To get the most benefit from a cost-benefit analysis, it is important that your EDI implementation coordinator first have a comprehensive understanding of a variety of systems types. In this situation EDI consulting is available and can be a very advantageous move to ensure your organization’s investment in an EDI system yields the greatest possible returns.
Typical costs associated with an EDI system implementation
For a large organization, a basic, yet thorough analysis of EDI opportunities or ROI can cost as much as $100,000. System hardware (e.g., computers and telecommunications), EDI software, staff time, training, and EDI consulting may cost between $1-2 million. Transitioning from the pilot stage to deployment can cost another $1-2 million.
Smaller companies with less complex needs can use basic EDI software running on PCs at a much lower cost. Hardware, software, and EDI VAN-based system installation for a PC can cost $3,000 – $5,000 for stand-alone EDI. If the PC system is integrated into a much larger computer system, investment increases by at least another $5,000; however, you begin to open up the system to further uses within the company. For example, the inbound transactions such as purchase orders move directly into the in-house system.
Typical benefits and cost-savings from an EDI system implementation
Following and EDI implementation, the most noticeable change around your office may be the drastic reduction of paper and paperwork. Still, most EDI systems offer the most savings not in paperwork and mailing, but in:
- inventory reductions
- more working capital
- shorter order cycles
- improved order accuracy
- greater staff productivity
- better trading partner relationships
The EDI implementation coordinator should ask the accounting department to create a three-to-five year expense projection.
High Level EDI System Analysis
Regarding information systems, an EDI system needs-analysis must also consider:
- Data required by current system
- Data required by trading partners, but lacking in current system
- Data required by EDI standards
For cost analysis purposes, be sure to include all costs inherent in the current system if it does not include data required by trading partners.
The organization’s existing telecommunications environment must also be evaluated. Many organizations opt to transmit EDI data through third party value added networks (VANs) rather than construct their own data networks for EDI. The Internet also offers a cost effective and viable alternative. Document capacities gathered during the analysis phase of business processes should be stated in terms of required network capacities for current and future needs.
Keep these questions in mind:
- Does your current internal network have enough capacity to handle EDI traffic?
- Will projected traffic through an EDI system require a mainframe or PC system?
- Based on projected EDI system usage, what are the cost differences in managing multiple, individual trading partners vs. using a single connection to an EDI VAN?
- What are the internal programming needs relative to meeting data capacities required by EDI standards and trading partners using your internal systems?
- How easily can an EDI system be integrated with current internal applications?
All of these questions are designed to help your organization determine the most valuable type of EDI system to address your needs in the most cost-effective way.
Summary of EDI Survey
The EDI analysis report from the EDI implementation coordinator should be detailed from financial, management, and deployment perspectives. It should include the following elements relative to a final decision-making process*:
- Project scope
- Current system strengths and weaknesses
- Alternatives to current system that offer process improvement
- Alternatives considered but not chosen
- Relative financial information on alternative systems
- Timeline and funding for EDI system development Personnel needed for successful EDI implementation
- EDI implementation schedule
*Many of the above elements may not be necessary for smaller organizations.