The quantity of data moving through today’s manufacturing organizations is staggering. From suppliers to shippers...
to retailers and everyone in between, the transfer of information in a quick and efficient fashion is critical to a company’s survival. Electronic data interchange (EDI) helps to automate these data transfers and escape the tyranny of paper-based communication that bogs many manufacturers down.
“EDI has been around for a while and has a proven record,” said Steve Phillips, ERP industry expert and author of the Street Smart ERP blog. For manufacturers, the benefits of EDI services include fewer manual activities, faster communication with partners and improved data accuracy, he said. Some retailers and suppliers list EDI communication as a business requirement for transactions such as sales orders, advanced shipping notices, purchase orders, invoices and price changes, according to Phillips.
Although EDI was originally designed to automate repetitive paper communications, today’s offerings go beyond automation to also improve data capture, according to Matthew Davis, supply chain research director for Stamford, Conn., research group Gartner Inc. “The most basic benefits [for manufacturers] usually come as cost reduction, resource optimization, quality improvements and improved cycle times,” as well as optimizing supply chain visibility, he said. “By automating the B2B [business-to-business] connections with external suppliers, customers and partners, a company can move closer to real-time visibility of its value chain and then mature processes based on this improved visibility,” Davis said.
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Consumer products companies that distribute through retail channels are working on getting downstream data from their channel partners, including daily point-of-sale [POS] data from stores, according to Davis. Having such information about actual demand allows the manufacturers to dynamically update inventory, pricing and promotion activities to "shape" demand, thereby helping retail partners to improve inventory turns, on-shelf availability and revenue attainment. "EDI can serve as the data distribution mechanism that enables this entire process,” Davis said.
EDI software options evolving
EDI services generally come in four varieties, according to Phillips: servers, value-added networks (VANs), translation software and import-export programs within the enterprise system. “There are industry standards for EDI transmission for various types of information. Most ERP packages support the standards, and most VANs have the ability to communicate with each other,” Phillips said. “Therefore, vendor selection for these components is usually based on cost and reliability considerations, or any unique internal or partner needs.”
When selecting EDI software, it is important to recognize that EDI’s only job is to serve as middleware connecting data from the multiple systems of record in a manufacturer’s network, Davis said. “The most advanced capabilities, like predictive analytics and pattern recognition, are built upon the layers of systems. It is critical to build a foundation of systems of record before pursuing more advanced integration [such as EDI]. In supply chain, this includes item masters, inventory management, financial systems, cost data, order management and others.”
While the concept of EDI is hardly new, some vendors are looking to take its data capture capabilities to the next level, said Bob Parker, group vice president at IDC Manufacturing Insights in Framingham, Mass. “EDI vendors are looking to take advantage of the volume of information that is traversing their products,” he said. “For example, Ariba is taking user procurement information and aggregating it for the purpose of creating benchmarks, and then selling those benchmarks back to the customers for comparison purposes.”
According to Parker, these benchmarks are available only to the company from which the data was originally aggregated, so manufacturers need not fear that their competitors will be getting ahold of sensitive information. “I think the major shift with vendors will be focusing on monetizing information inside these EDI documents, rather than selling the documents themselves,” he said.
A subject of some debate is whether EDI and extensible markup language (XML) can co-exist peacefully, or if XML is essentially designed to be an EDI killer. “In the past 12 years, there have been a lot of ‘EDI is dead’ conversations based on the Internet and XML making it obsolete,” Parker said. “But they didn’t make the heart of EDI obsolete, which is the information standard. EDI lives on in the core principles and data standards that were first established. It’s the fabric of how you connect with trading partners.”
Using EDI services to the fullest
For newcomers to EDI, Parker recommends taking a broad view when selecting service providers. “If you want to grow, you’re going to have more of these [data transfer] requests,” he said. “Look at very robust data translation tools to build data maps that take from your back systems and fill different requests; don’t assume that if you have data mapping tools somewhere else, they can be applied to EDI." Parker said that for larger companies, the challenge will be more one of coordination and collaboration with partners that offer services beyond EDI itself.
The biggest challenge in EDI software selection and integration is typically redesigning internal processes to integrate EDI into the workflow, according to Phillips. He recommends working with trading partners to enhance the end-to-end business process. “This is the difference between just passing files versus making the entire process efficient for both parties,” he said. “Try to stick with the standard data formats established by the industry. Using fields for unintended purposes adds more work to the overall EDI development effort.”
Davis cautions against treating EDI as a broad, quick-fix solution to every data transfer issue. “Start with the larger business issue that you are trying to solve,” he said. “If you need to improve invoicing and billing, then EDI may serve as a way to automate the data interchanges while also reducing quality defects. If you are attempting to get more clarity into channel demand, then EDI can be a way to collect more data faster from a greater number of channel partners. The decision on EDI comes after you’ve designed the process solution for the problem you need to solve.”