EDI: Workhorse Of The Extended Supply Chain

Article by Lora Cecere from Supply Chain Shaman; published on November 19th 2013

EDI is the workhorse of B2B connectivity. It is not new. It is not sexy. Four decades after its creation, supply chain executives see it as slow and expensive. They are frustrated. They question the value. But it does matter and slowly, we are making progress.

In our recent research study of eighty-nine companies, we find that EDI is used nearly six times more frequently in the connection of trading partners than portals and eight times more frequently than the use of business networks (e.g. trading exchanges or specialized industry hubs). We also find when companies can achieve hands-free orders, order-to-shipment cycles decrease by 50% and there is greater accuracy in fulfillment. The current state of B2B connectivity is outlined in figure 1.

Most companies see EDI and the exchange of documents through established protocols as old-school processes. Many technology options have promised to make EDI outdated, but it has not happened.  Today, no company studied uses just one method for B2B connectivity.  The connectivity with trading partners is usually a mix of portal, business network and manual processes. While companies have invested in portals, trading exchanges and automated business networks, the adoption is low. The reason? Portals are one-way communication. The use of portals is too passive and companies struggle to synchronize the many changes that occur in sales and purchase order processing through this passive form of connectivity. Business networks represent 7% of B2B connectivity.

Figure 1: Current State of Trading Partner Connectivity

The value proposition for automation is compelling. the messaging is pennies and the value proposition is in dollars.  Here are some of the findings of the study:

-Iirrespective of how they are processed, over 40% of customer orders change at least once.  The use of EDI reduces errors and improves processing times.

  • -Today, there are few Incentives to Use EDI in Trading Partner Relationships. Despite the strong value proposition, only 6% of respondents offer order discounts to customers for using EDI for order processing.

-The Use of EDI Reduces Costs. Today, 30% of shipments are received without Advance Shipment Notification (ASN). Shipments without an ASN cost the average company an additional $78/purchase order to process.

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