Surprisingly, many small and mid-sized business don’t know that answer, according to experts. Typically, suppliers have set up their EDI systems per the requirement of the vendors with whom they do business, and thus view EDI transactions as a cost of doing that business.
Many small and mid-sized businesses simply don’t know what their EDI transactions cost them, and when they do sit down to perform an analysis, they are often surprised. Companies should always evaluate what are the savings to the company. By understanding costs, companies can better evaluate whether they should add new capabilities to their EDI system, or perhaps even extend the EDI functionality to more business partners. For example, some companies may be satisfied by using EDI only for purchase orders, advanced shipping notices (ASNs), and invoices with their buyers but through a detailed cost analysis may find that there are more ways to save, such as exchanging EDI documents with carriers.
Calculating EDI transaction costs can be tricky, but it can be done. Initially, for companies that want to consider how much EDI saves them, a good average to consider is that for every business document exchanged via EDI (versus manual, paper transactions) the savings is $1. That may not seem like much, but it adds up quickly, especially for a small business. If there are 1,000 purchase orders handled, that’s $1,000. If you assume that half the purchase orders will need adjusting, that’s another $500 in savings. ASNs for each purchase order; add in another $1,000. Of course, many of those shipments will be broken into partial shipments, each requiring their own ASN.
Where analysis gets tougher is determining the actual cost of an EDI transaction once a system is in place. Variables that need to be considered include how many EDI transactions, labor hours (both administrative and IT), the software and hardware required (if installing at your site), maintenance and upgrade fees for the software and hardware, services, such as a value-added network (VAN) on which transactions will run, EDI charge-backs and deductions, and more. Companies may also want to compare their existing EDI implementation with other options, whether that’s running EDI in-house, outsourcing it all to a managed service provider, or leveraging a SaaS-based EDI solution.
Perhaps the data most challenging to come by is related to soft costs and savings. Rationalizing a decision to integrate a backend ERP application with an existing EDI system isn’t easy, mainly because it’s hard to calculate the savings gleaned from benefits of that integration, such as error elimination. Many companies still manually key data into their back-end system from electronic purchase orders they receive from buyers. And during that manual entry, mistakes can be made. But what’s the actual cost of those mistakes?
There’s also the soft savings—and earnings—associated with getting and keeping customers. If you are a supplier, and you have an EDI system in place, you can attract new buyers who prefer, or even require, that you leverage EDI. Thus, EDI becomes not simply a cost of business, but perhaps even a revenue generator. The justification of EDI is not just transaction cost, it's also value of the customer retention,” says Kathy Mueller, principal with the www.edi-center.com EDICenter, a resource site for EDI jobs and training.
Last modified on Tuesday, 24 November 2015