Advantages of EDI

7/28/2019 Advantages of EDI

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Electronic Data Interchange

EDI is the electronic transfer of information between two trading partners systems using a set oftransactions that have been adopted as a national or international standard for the particular businessfunction.

EDI is the computer-to-computer exchange of standardized business documents, such as purchase orders,product information and invoices or EFT.

DIFFERENT TOOLS USED IN EDI

TradeAgreementLegally binding trade agreement between you and your trading partner.

Standard Documents Format

The standard agreed upon format for the document to be electronically transmitted.

EDI Translation Management Software

Software used to convert the document your application's format into the agreed upon standard

format. For optimum performance the translation software should be on the same platform as

your business application.

Communications Software

Programming tool that enables you to write communications protocols, or a separate application.

It can be a module to the translator or a separate software application.

Modem

A hardware device used to transmit electronic information between computer systems. The

higher the baud rate, the faster the communications will be.

VAN

Value Added Network. A network to which you can connect to transmit data from one computer

systems to another. One network can act as a gateway to another.

Point-to-Point

Direct communication link from one computer to another. Some trading partners offer a direct

connection to their EDI computer. Trading partners may opt for this method of communication

instead of using a VAN.


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How It Works:

ABG Creates PO

ABG converts POto EDI format

PO sent to 3rd partymailbox (called a VANvalue added network) orEDI PO is sent directly tosuppliers system

Suppliers systempicks-up order(from VAN) for reviewand acknowledgment

- -OR - -Supplier goes to HostedEDI website to review andacknowledge orderresponse is sent back to

ABG as EDI

Advantages of EDI

Save MoneyThe cost of paper and paper processing is incredibly high compared to a properly implemented EDI program. RJRNabisco estimates that processing a paper purchase order costs the company $70. Processing an EDI purchase orderreduces the cost to a mere 93 cents.

End RepetitionIf your trading partner wants a copy of a document, instead of calling you they simply check their mailbox. Thisresults in a great time savings from not having to copy and fax/mail copies of business documents.


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Save TimeEDI also saves time over paper processing since the transfer of information from computer to computer is automatic.There is no need to rekey information with EDI. And the chance for error drops to near zero, with no data entry.

Improve Customer ServiceThe quick transfer of business documents and marked decrease in errors allow you to do business faster and moreefficient. KMart is an example of a retailer that implements a Vendor Stock Replenishment (VSR) program. WithVSR, the KMart warehouse sends stock as their EDI system reports it and automatically bills the client. It can cutweeks from the order fulfillment cycle and ensures that product is always on the shelf.

Expand Your Customer BaseThus with improved customer service, you can ultimately expand your customer base. Many large manufacturersand retailers are ordering their suppliers to institute an EDI program. So, when evaluating a new product to carry ora new supplier to use, the ability to do EDI is a big plus.

Disadvantges of EDI

Too Many StandardsThere are too many standards bodies developing standard documents formats for EDI. For example your companymay be following the X12 standard format, while your trading partner follows the EDIFACT standard format.

Changing StandardsEach year, most standards bodies publish revisions to the standards. This poses a problem to EDI users. You may beusing one version of the standard while your trading partners are still using older versions.

EDI is Too ExpensiveSome companies are only doing business with others who use EDI. If a company wants to do business with theseorganizations, they have to implement an EDI program. This expense may be very costly for small companies.

Limit Your Trading PartnersSome large companies tend to stop doing business with companies who don't comply with EDI. For example WalMart is only doing business with other companies that use EDI. The result of this is a limited group of people youcan do business with.


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Limitations of EDI

Firms have to incur extra cost for hiring and training staff.

Needs highly structured protocols.

Added security cost to safe guard confidential information from unauthorized access.

It does not allows consumers to communicate or transact with vendors in an easy way.

Applications Of EDI

Companies continually reviews and adds new EDI transactions based on the business initiatives,

market needs and recommendations from business partners.

Currently, Companies uses EDI for the following business applications and much more...

Administration - product catalogs and price lists.

Sales Analysis - sales and inventory information Purchasing/Order Management - orders,

acknowledgments, order status, and changes .

Shipping and Receiving - shipping, notification, proof of delivery, and customs information

Billing - invoicing and statements Payment Applications - payment remittance.


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DIFFERENCE BETWEEN TRADITIONAL

EDI AND WEB-BASED EDI

Traditional

EDIEDI reality

- Old, passelectronicstandard

- Time tested andsuccessfully works- Straight forward toimplement

- Traditionallyexpensive

- Cost of tools aregetting cheapere.g. EDIdEv

Framework EDI- Can be implementedover the Internet- Less bandwidth

- Cryptic

- Once understood,quick to implement- Storage requirementsare minimal- Information can stillbe transported onfloppy disk

- Established

companies(Fortune 500)andgovernments

- Status quo- Established globaluser base- Low business risk

Conclusion

Organization have adopted EDI to expand the automation of business processes beyond traditionalcorporate boundaries. EDI has become the tool to streamline business activities. It also facilitates the

cooperation and coordination between customers and vendors.

EDI is the facilitator for achieving improvement in overall quality by fewer errors, reduction in

processing time, less human intervention and minimized unproductive time.


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