No doubt, EDI or electronic data interchange process has increased efficiency in exchanging business documents between companies. This process replaces faxing and mailing of documents. The process utilizing specific record formats that are based on widely accepted standards (CovalentWorks, 2014). EDI is used in a variety of industries; over 160,000 companies have switched to EDI to increase their efficiencies. In addition, a vast majority of the companies require their partners to use EDI as well. Assuredly, there are many benefits and some drawbacks for companies that use EDI. One major benefit of EDI is the computer-to-computer exchange of information is much less expensive than handling paper documents. Moreover, studies have concluded that the processing of a paper-based order can cost of up $70 or more. On the other hand, the processing of an EDI order will cost less than a dollar. Other benefits of EDI are much less labor time required fewer errors because the documents are processed by computers, and a faster flow of business transactions (CovalentWorks, 2014).
In addition, fast transactions assist in reducing inventory levels, increase warehouse space, decrease out-of-stock levels, as well as lower freight costs. However, one drawback is companies must ensure they have the resources in order to make EDI successful. The resources are attained by purchasing, hiring, and outsourcing. Nevertheless, some of the costs may be offset by the increased efficiency of EDI. EDI works when a buyer prepares an order in the purchasing system and has is approved. Next, the EDI order is translated into an EDI document format called an 850 purchase order (CovalentWorks, 2014). The purchase order is then transmitted to the supplier either by the internet or through a VAN (Value added network). If the VAN is the chosen delivery route between the buyer and supplier, it is always sent on a secure and reliable network. In addition the supplier’s VAN ensures the supplier receives the order. The supplier’s computer system processes the order. Hardware, software, internet access, and e-mail are required for the processing to take place.
Passwords, user identification, and encryption are used to maintain data security and control throughout the transmission. Lastly, the buyer’s and suppliers edit and check the EDI documents for accuracy (CovalentWorks, 2014). EDI (electronic data interchange) is utilized at my current employer which is a large retail drug store chain. Our chain uses EDI for supplier’s orders, as well as processing invoices and credit memos. For example, a soda vendor will visit our store, merchandise the shelves, and then write an order. The order connects through EDI into our system. Additionally, the order can be viewed as a pending order on the AS400 computer. On arrival, one barcode (per pallet) is scanned in with a Telxon unit. The invoice number and quantities of the order automatically populate and the on-hand quantities are adjusted once the invoice is posted. However, not all vendors are set up through EDI. Through EDI, once the invoice has been posted, it is just filed in the office because the supplier will be automatically paid.
If the supplier is not set up through EDI, then the invoice must be stamped with a receiving number and mailed to the corporate office for payment which is a much longer process. Non-EDI invoices risk the chance of getting lost and require a lot more postage and labor revenue to process. However, more and more of our vendors are transitioning to EDI, especially the ones that supply us with product consistently every week. The business requirement that drove the system’s initial development is the labor intensive high cost supply chain. Moreover, there was a need for improved efficiency with ordering, updating on-hand quantities, and payment of invoices and the receipt of credit memos. The company has over 8,000 stores.
Therefore, if each store averages 5 invoices per day, that is 40,000 invoices per day that need to be processed. EDI potentially can save thousands of dollars daily in the reduction of labor hours. Furthermore, it reduces the chance of errors and non-payment of received merchandise. In conclusion, EDI has many more benefits than drawbacks. EDI transmits and processes documents very cost effectively, efficiently, and accurately. I believe the company I work for will continue to make EDI arrangements with non-EDI vendors. I also think larger companies and corporations will follow suit and transition to EDI if they have not done so already.
Covalentworks (2014). Electronic Data Interchange. Retrieved from: http://www.covalentworks.com/what-is-edi.asp