Taking cost out of the chain

Taking cost out of the chain
EDI (Electronic Data Interchange) has always been seen as a solution for major companies that can support high investment in IT and human resources to gain significant cost and efficiency advantages.



Now, however, the availability of EDI as a Cloud-based, pay-as-you-go managed service, has transformed the opportunities for many smaller companies. But where do the true cost savings from EDI lie for such firms?

Yet typically, at least 80% of orders, invoices, or other documents are compliant and if presented appropriately could pass through multiple business systems entirely automatically.

Firstly, there is massively reduced administrative cost. If data must be extracted manually from a letter, a Fax, or an emailed PDF to input into systems, checked for compliance with information held on several different business systems, and in case of a discrepancy referred to a higher authority, it is easy to see how GS1 and Cranfield have arrived at a range of between £5 and £14 for the administrative cost of order processing. Yet typically, at least 80% of orders, invoices, or other documents are compliant and if presented appropriately could pass through multiple business systems entirely automatically.
 
That 80% is pessimistic – if data, often itself machine-generated, can pass directly to other systems, the chances of additional errors creeping in through ‘fat finger’ syndrome or otherwise, are reduced to close to zero.
 
Depending on the business, this may or may not lead to a direct headcount reduction: but it should certainly free staff for more revenue-generating rather than paper-pushing activities. There is also an impact on the paid costs of goods and services. A typical mid-size company could see anything up to a third of invoices for the carriage of goods being incorrect, for reasons ranging from simple mistakes to failure to apply negotiated rates, charges for additional services not actually incurred, double invoicing or even fraud. It is probably impossible to check manually all these at the level of the individual shipment. The result is that firms could pay more for transport than they should, which can be a lot of cash.
 
Delays in processing orders, invoices or other documents can be costly. A customer who can’t get a firm yes/no to his order, because ‘the paperwork is still going through the system’ is likely to look elsewhere. A company that constantly pays late, because of data workflow issues, is unlikely to receive favourable treatment in future contract negotiations. By contrast, automation of workflow, for which EDI input is a necessary condition, allows for some mutually profitable business practices. For example, compliant invoices can be made immediately available to be drawn on by a supplier in return for a small discount. The buyer pays less and the supplier has improved cash flow with consequent savings.

EDI input enables planning, manufacturing, inventory and procurement systems to run better.

Savings generated by EDI often accrue to customers and suppliers in their own administrative or financing costs as much as to the host company, which can be a powerful and cost saving element in business relations. There are, for example, real cost and efficiency savings to be made by all parties because EDI input enables planning, manufacturing, inventory and procurement systems to run better.
 
These savings are achievable through an in-house EDI operation, but the managed service option captures more of the saving at much lower cost. Upfront capital expenditure is low – many EDI applications can be run from hand-held devices – and the service providers’ costs for updates, secure back up and so on are amortised across many clients. Fees are essentially by usage and therefore become OPEX rather than CAPEX, and the company doesn’t have to hire expensive, rare and ageing EDI expert staff, or indeed to subsidise EDI adoption by smaller trading partners.
 
EDI as a managed service now offers companies of all sizes the savings and efficiencies hitherto enjoyed only by the major corporations – so creating a level playing field.

For further information send us an e-mail at info@datainterchange.com or keep up to date on EDI following our Linkedin profile.