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Your EDI Payments - Exposed

coinsThere continues to be confusion around who pays the price for EDI. There are three answers to this based on the definition of the question.



EDI VAN costs

If the question is around the cost of transmitting EDI data, some people in that they believe that the suppliers should pay for the exchange of EDI data as part of the cost of doing business. There may be some retailers/Grocers that are trying to get the suppliers to pay the cost of all data exchanges, however in all of the years that I've been in EDI I usually see that trading EDI is a mutual benefit by both parties and thus each pays their side of the transmission or management of the data, as both gain a value for that exchange.

What I mean by that is this; when a retailer sends an 850 Purchase Order to the supplier, the data exchange is with their VAN and thus they pay for their portion of the transmission of that EDI. The supplier receiving this data is then responsible for paying for their ability to receive that data from their VAN. It should be noted that I have seen Retailers like Dillard's that mandate that a supplier use a specified VAN (theirs) to exchange the EDI data, and if they don't, Dillard's will assess a high penalty/chargeback. This is a great gig on the part of Dillard's in that they don't have to pay for the interconnect fees to their suppliers data, and their VAN gets another partner to have an account with them as its cheaper to have yet another VAN provider then pay those charge backs. (I think that there is another retailer that maybe doing the same thing and I believe it's the same VAN. Their company name escapes me so if any of my readers knows that please provide that in the blog, as these partners should be exposed) The use of this tactic is very unfortunate as it shows that these buying organizations are not truly partners as a true partnership means everyone gets a win thus pays their "fair" share. 

EDI development and support

 In concept, a Retailer gets a win for sending electronic PO's as they'll know that the data was received (using the 997) and that if their data was clean, the supplier will be able to process the data without much intervention (assuming they've integrated). The supplier wins that they get the PO data without data entry, and too if the information provided by their partner is clean no further intervention is needed, thus the cost is worth the service.

Obviously there are some partners that use a 3rd party EDI provider where the supplier tools are not integrated (all of these have some type of web service) thus one could argue that the supplier does not get the value of the true data without the integration and in many cases there are return transactions where the supplier may have to use that same service to trade.  Perhaps that's where there is a thought that the suppliers are actually paying for EDI more than the retailers. I'd say that may be true, however many of these service providers do not charge all that much for the service, and if one were to include the intangible savings that are associated with electronic trading, one could state that even without integration the suppliers could be getting a win.

For example, (I've written on this before), suppliers complain that they get no value out of the ASN and shipping label requirements, I beg to differ. A supplier should consider what is involved in a retailer managing the distribution/selling of a supplier's product through their facilities. 

  •  Without the ASN, calls are required by the buyer to the supplier about the status of the order.
  •  Without the ASN, the retailer's DC is not aware of what is coming until the trailer arrives, thus they are unable to plan their resources for unloading that trailer. The ramifications of that are the retailer overstaffing on slow delivery days and are understaffed when unexpected deliveries arrive. In addition, there are now trailers sitting in the DC yard waiting to be unloaded. I remember quite a few years ago when I was visiting Burlington Coat Factory's offices one day and when I arrived there were trucks lined up for blocks and blocks waiting to get into their DC. I asked my contact there, what happened? The answer, we have not fully implemented the ASN with all of our suppliers so in order to get better payment terms with the suppliers, our buyers are placing orders in a way that all arrive between the 25th and the 5th of the following month, so we get buried.  
  •  Without the ASN and comfort in the accuracy of that data, it will take hours of manual labor to unload, count and put away a trailer. ASN data allows for the scanning of the cartons barcode thus improve the receiving process 5 - 10 times faster than the manual process.  
  •  With the ASN we've learned that the ASN creation process provides added value as the suppliers' systems tend to validate what was physically picked, thus there's a higher accuracy rate with what the supplier shipped to what was ordered. 

As you can tell, the soft dollar savings add up along with the fact that through the use of the ASN, products' speed to the selling floor improves substantially. Integration through an EDI translator or through one of these 3rd Party EDI providers is the best for all parties to share in the costs of EDI exchanges as you may realize. 

Passing on costs to the consumer

Lastly, there's been a the day old adage that requiring EDI as the method of exchanging data by the suppliers will mean that the suppliers will increase the cost of goods by quite a bit. With that, there are some retailers concerned about bring additional suppliers on board. In all my years, no one has been able to prove that this has actually happened. I have found that any increase was not because of EDI but because of Compliance (or lack of) and had nothing to do with the cost of exchanging EDI.

For those partners that exchange EDI data through a VAN, much of this is pennies per transaction. For those partnerships where one or the other partner is using a 3rd Party provider, certainly the cost is higher but there are enough providers out there that the Market continues to keep each of these players competitive with the services. With all of that said, neither the retailer/ Grocer or the end consumer should really see an increase in the cost of products sold unless one or the other of the partners are over-exaggerating their prices (or cost of doing business) if that is the case, consumer purchasing power with get that under control. 

Trading data electronically is definitely a cost of doing business however it is not as significant as may be perceived. The thousands of partners doing so would not have grown to the level of success they enjoy unless someone (or many someones) did not realize that there was truly efficiencies gained but one of both parties.

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