EDI - Part 2

Electronic Data Interchange is an effective tool for more and more of today’s businesses. However, just like any other technology system, EDI has benefits and disadvantages that must be weighed before deciding to implement an EDI system. In Rookie’s Guide to EDI: Part I, we outlined the basics of what EDI is and how it works, in this installment, we’ll look at the advantages and drawbacks of EDI.

Advantages of Implementing an EDI System

Implementing an EDI system has three main advantages:

1. Increased Speed
2. Higher Accuracy
3. Cost Savings

Speed

One of the most obvious benefits of implementing an EDI system is an increase in productivity thanks to the lightning quick speeds of data transmission provided by the system. Processing an order or request no longer takes days; with an EDI system, orders are often processed and shipped the same day they are received.

In many businesses, EDI can be set up so that data flows directly into the accounting or ERP system This makes data entry, tracking, analysis, and production efficient and nearly effortless. It also produces a reduction in man-hours in nearly every department, including marketing, shipping, and quality control.

Accuracy

A second major advantage to EDI is accuracy. Because EDI transmits the same data to multiple destinations after a single data entry session, there are less data entry errors. The data is entered once, double-checked, and put to work. There is no need to enter the same data multiple times, opening the door to human error.

Cost

Many businesses take an in-depth look at the cost effectiveness of implementing an EDI system, and in most cases, executives decide in favor of implementing the system. An EDI system not only saves money by reducing costs related to paper consumption and postage, but the increased productivity that results from the use of an EDI system has far-reaching effects.

EDI systems often reduce the necessary numbers of data entry personnel required prior to the initiation of the system. This reduces the number of man-hours paid out by the company.

In addition, because EDI streamlines productivity and processes requests in a fraction of the time necessary with traditional methods, customer satisfaction is greatly increased This results in more repeat business and business acquired through word of mouth recommendations as the company gains a reputation for quick delivery of goods. Fewer errors in processing information guarantees a greater percentage of customers receive exactly what they order, when promised.

Because EDI systems integrate with other departments within a company, critical information is accessed in nearly real-time results. This ensures that information gathered for analysis, tracking, and marketing is accurate, up to date, and reliable, making marketing and analysis efforts more effective.

EDI is often ideal in inventory control and the ordering of raw materials used in production. Because these requests are processed as soon as an order is placed or a product is sold, inventory and material counts are more accurate, resulting in less resources collecting dust on shelves. This makes better use of the company’s resources and keeps production flowing smoothly.

Other advantages may include environmental friendliness since paper consumption is greatly reduced by using an EDI system. In addition, utilizing an EDI system may enable a company to do business globally, since data is transmitted in minutes, around the globe if necessary.

While EDI systems have a multitude of desirable benefits, they do have a few drawbacks to consider as well.

Drawbacks of EDI

Expense

Instituting an EDI system has the obvious drawback of an added up-front expense of obtaining the software, installing the system, and training personnel. This cost can be compounded if additional software currently utilized by the company must be altered to integrate with the new system. In addition, some businesses may need to upgrade their infrastructure to accommodate the increased strain of an EDI system. There is also the obvious necessity of purchasing and maintaining compatible systems or web services to enable EDI.

Resources

Regardless of the EDI system used a company will need to build up expertise in EDI processing in order to accommodate customer requirements and changes.

Regulations

For some businesses, EDI systems have recently resulted in an increase in supervisory employees and committees to oversee the EDI process. These companies, which are subject to the United States’ new Health Insurance Portability and Accountability Act (HIPAA),must ensure that information transmitted over an EDI network is secure and kept confidential. This presents new challenges for laboratories, physicians, hospitals, and other health care providers and their associated healthcare institutions.

EDI is a powerful and valuable tool for many businesses. Utilizing today’s technology enables various companies to reach business goals that were only dreams before implementing EDI.

While EDI offers attractive benefits in the forms of saving time and money, and increasing productivity, efficiency and customer satisfaction, it also poses a significant problem for some businesses. EDI implementation is right for many businesses, but must be considered on an individual basis.

Electronic Data Interchange is a complex business tool with the power to transform the way you do business.