EDI Implementation

Step 2 - Review of Business Strategy

The benefits of an EDI system can vary greatly between organizations. One of the primary advantages of EDI implementation, however, 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 jumping on point for their EDI system, as it helps to foster improved Just In Time (JIT) manufacturing strategies.
  • Supplying companies initially use an EDI system for sales order processing, because many of their major customers prefer to send POs electronically.
  • Accounts payable is also an area that can profit from EDI services, especially within organizations that have many invoice transactions.

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. Companies in the buying position often have the power to require EDI of their trading partners as a condition of doing business, which 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 also 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 information, such as 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 way the can 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:

  • 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?

"Business cycles" include all of the processes and documents involved in completing a transaction. A typical business cycle usually includes PO receipt, PO acknowledgement, picking list production, issuing shipping notices and invoices, and receiving payment.

Other questions to consider include, can an EDI system reduce or eliminate:

  • redundant steps in the business cycle?
  • redundant data entry?
  • clerical effort?
  • the need to carry inventory?

Conversely, can an EDI system improve or support:

  • relationships with your trading partners?
  • customer service through improved delivery times?
  • larger business strategies, (i.e., JIT manufacturing)?

The more areas where you can answer "Yes," the greater the opportunities for improvement though 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.

A basic, yet thorough analysis of a large organization EDI opportunities or ROI can cost as much as $100,000 for a large, complex system. Add in another $1-2 million for system hardware (i.e., computers and telecommunications), EDI software, staff time, training and EDI consulting. Transitioning from the pilot stage to deployment can cost another $1-2 million.

Naturally, 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 standalone EDI. If that PC system is receives in EDI integration into a larger computer system, however, the initial investment can cost another $5,000. With such a move, though, you also offer many more uses for the EDI system within your organization, such as allowing POs to be moved directly into the in-house system.

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 relations

The EDI implementation coordinator should ask the accounting department to create a three-to-five year expense projection.

Summary of EDI Survey

The EDI analysis report from the EDI implementation coordinator should be detailed enough from financial, management, and deployment perspectives and 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 developmentPersonnel needed for successful EDI implementation
  • EDI implementation schedule

+ Many of the above elements may not be necessary for smaller organizations.

High Level EDI System Analysis

Regarding information systems, an EDI system needs analysis 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 relative to the problem of the current systems not including data required by trading partners.

Also, your organization's current telecommunications situation should be assessed, as data transmit can also occur through third-party EDI VAN options. This option can, in some instances, be preferable to creating new in-house EDI networks. Because web based EDI and Internet EDI are also options, document capacities related to network capacities should be examined in regard to current needs and future growth.

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 integration be 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 current needs in the most cost effective way.

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