EDI and Inventory Management

Posted by Brooke Lester on Jun 8, 2022 1:21 PM

using edi for inventory management

Thanks to Electronic Data Interchange (EDI), business communication in inventory management is now faster, more accurate and more efficient than in years past. While EDI for inventory management has been in existence for decades, it has undergone significant transformation since its inception–and the pace of its evolution only continues to increase.

Similar to a language, EDI for inventory management is the digitization and exchange of documents, such as invoices, purchase orders, advance ship notices, and product inventory data reports between servers in real time. Due to its minimal human involvement, it offers numerous benefits to parties across the entire supply chain -- from goods manufacturers, retailers and logistics organizations to consumers. The specific benefits of EDI in inventory management are numerous. They include reduced human error, faster movement of goods, improved communication, and speedier payment to suppliers. Previously, we discussed EDI's importance in other business arenas.

The sections below lay out the key historical developments in inventory management that EDI has ushered in. We also dig further into the technology's benefits in inventory management and why it is critical to the future success of product manufacturers and sellers alike.

What is EDI?

As mentioned above, EDI is the real-time, server-to-server exchange of business documentation between parties in the supply chain. As a wholly paperless transaction technology, EDI allows for the near-instantaneous transmission of essential data from one company to another, regardless of geographic location. This makes EDI far faster and more efficient than paper-based communication. And with a standardized format, there is no lag time required to convert information transmitted through EDI.

How EDI Fits with Inventory Management

Effective inventory management is crucial for any business selling goods; without it, even a company with a steady flow of paid orders is sure to fail. By automating the manual document work involved in any inventory management system, EDI streamlines the entire process, improving communication between players in the supply chain and slashing the cost associated with paper-based accounting methods.

All this makes EDI a natural fit for inventory management. As it grows, a business is likely to buy and store products from more than one source, requiring sound multichannel inventory management. In a multichannel setup, purchase and production orders become more complex, but EDI can handle the complexity.

By automating such time-consuming but necessary tasks as data entry, the submission of order-form requests, and the creation of purchase forms, EDI can shoulder much of the responsibility for repetitive tasks in inventory management -- and complete the work faster and more accurately than a human worker.

How EDI has helped Inventory Management Grow

First developed in the 1970s by the U.S. transportation industry to homogenize the electronic transactions between sellers and customers, EDI has since proved critical to myriad other industries, too.

Walmart, for example, has used EDI for decades to make inventory information available for suppliers and managers. The big box company utilizes a scanner-based system that reads products' UPC barcodes and feeds the data into a central database, allowing for better forecasting, purchasing decisions, and accurate sales computation.

EDI eliminates the need for a large amount of human intervention in the inventory management process, saving time and money for all parties involved. For example, prior to the widespread adoption of EDI for inventory management, retailers were frequently in the dark about when an order would arrive. Then, when goods didn't show up or the wrong items were delivered, worker time and effort were required to manually compare documentation, not always with accurate results the first time.

With EDI, mismatches in documentation are virtually a thing of the past (and real-time tracking lets retailers know where their goods are throughout the shipping process). With far leaner accounting departments and in far less time, businesses from all sectors now exchange information right away instead of waiting days or even weeks to do so.

This has drastically reduced the number of shipping-order errors and the number of errors concerning retailers' product availability at specific locations. The result? Easier and greater growth for businesses.

What Are The Benefits of EDI to Inventory Management?

two colleagues looking at information on a screen

Today, EDI adoption for inventory management is a virtual must-have for businesses, and as such, it has been widely adopted across industries. The benefits of using EDI are numerous and comprise:

  • Reduced human error
  • Automation of data entry
  • Increased data collection
  • Rapid communication

Reduce Human Error

All manual work inevitably brings with it some amount of human error, which is problematic from both cost and security standpoints. The total annual loss attributable to human error is in the tens of trillions of dollars, while in 2021, nearly half of all reported data hacks were the result of human error, according to a study by marketing technology services firm Foundry. Businesses can eliminate worry over mistakes made by human beings in inventory management by using EDI, which largely removes people from the equation. From payment documents to invoices, EDI ensures the accuracy of the business' inventory data.

Automate Data Entry

The reason for significant gains in supply chain efficiency? EDI's automation capability, according to IBM. By automating the repetitive, often painstaking task of data entry, for example, a business can see their productivity soar. No longer are employees saddled with completing individual fields in individual purchase records or orders With EDI, a business can automatically generate and send order forms to their suppliers and/or manufacturers whenever inventory numbers reach a set level.

Increase Data Collection

Using EDI, businesses can collect more data, which gives them more control of their own operations. With more data, a company can better track its shipments and purchases and get more accurate updates. This can lead to improved warehousing and logistic analytics and ultimately better overall supply-chain transparency.

Rapid Communication

Because EDI enables real-time communication, retailers no longer have to deal with communication lag times. A company can submit a purchase order and its supplier will receive it immediately. As mentioned above, with EDI a retailer can set up automatic reordering so inventory levels never dip below pre-set, specified levels. This eliminates the need for time-consuming, ad-hoc communication each time there is a need for additional products from the manufacturer or supplier.

Is There Any Downside To EDI For Inventory Management?

As is the case with any technology, EDI has some drawbacks. Chief among these are:

  • High implementation cost
  • Lengthy preliminary setup period
  • The need for additional cybersecurity measures
  • Standards-imposed limitations; and
  • The requirement for robust backup
High Implementation Cost

While it can save a business significant cash outlay in the long run owing to its ability to boost efficiency, EDI can be expensive at the outset. Much of the cost can be the redevelopment and design of current applications to work with EDI depending on the system that data is being fed into.

Lengthy Preliminary Set-up Period

EDI can take many weeks to implement. There are many variables involved, including partner companies, each of which may use different documents and formats for each of its processes, and all must be taken into account by the developer at the outset.

The Need for Additional Cybersecurity Measures

When a business has EDI, it must invest in additional security systems to protect its data. Such security would need to include hacking, malware, and virus coverage, in addition to protection against other cybersecurity threats.

Standards-Imposed Limitations

There are several standards involved in EDI. Companies are required to adhere to these standards and it could be a challenge for smaller companies trying to meet the demands of larger businesses.

The Requirement for Robust Backup

Having an EDI means having to perform regular maintenance. This means substantial backup is needed for downtime, and such systems constitute an additional expenditure for a business.

EDI in Multi-Channel Inventory Management

Multi-channel retailers can simplify their operations by using EDI for inventory management. Through automation and streamlined communication, growing retailers can add suppliers and partners with ease.

Some of the specific ways in which EDI aids businesses in multichannel inventory management are as follows:

  • Reduces overstocking
  • Saves on warehouse space
  • Eliminates risk of overselling
  • Better overall visibility into inventory

Reduces Overstocking

As any retailer knows, too much inventory is often just as problematic as too little. Overstocking can drain cash reserves, increase insurance rates and drive up warehouse fees. EDI lets a business see what it has, where its products are, and where its items are going, all in real-time. A better grasp of inventory slashes a retailer's likelihood of having too much on hand at any given moment.

Saves on Warehouse Space

Warehouse space is pricey, and no business wants to spend money on it if they don't have to. Retailers using EDI for their inventory management needs won't be required to house inventory or need additional space to house products that are selling because they're holding onto unpopular goods. With EDI businesses know what they need to keep, where they need to keep it, and in what quantities, so they're never wasting hard-earned liquidity on needless storage.

Eliminates Risk of Overselling

With better, real-time visibility into inventory levels and locations, a business won't be at risk of selling what it doesn't have. EDI keeps companies abreast of their inventory's movement and location.

Better Overall Visibility Into Inventory

When a business employs EDI, management no longer has to attempt forecasting. Top-of-the-line software allows a company to track the products, components, and product variations it has across all its channels so it knows which of its items are selling -- and just as importantly, which are not.

It also lets a retailer effectively house (and still manage) its product at multiple warehouse locations. This “stock splitting” enables a retailer to get its product directly to consumers faster, boosting shopper satisfaction, word-of-mouth advertising, and customer return rates.

Why EDI is Critical to Your Inventory management Efforts

For retailers, particularly those selling across multiple channels, EDI is critical to business success. It offers companies the following support:

  • Data integration
  • Supply chain automation
  • Management metrics
  • Optimized product control

Data Integration

Companies that use EDI no longer need to do manual inventory updates, which are both error-prone and time-consuming. Automating these updates and integrating data improves synchronization between sales and actual inventory, giving a retailer a single place to go for inventory-related updates and evaluation.

Having this real-time data available also improves a company's accounting and reconciliation work. EDI lets businesses sync inventory data to their books, saving time and effort and ensuring accuracy.

Supply Chain Automation

By automating tasks a business previously did manually, such as shipment tracking, shipment-label creation, and package updates, EDI can help up the efficiency quotient of the entire supply chain.

Automation of updates means customer service teams are no longer spending hours responding to order inquiries because tracking information goes automatically to the buyer via text or email. Speedy, reliable shipping increases consumer confidence in a retailer and helps boost the chances of returning customers.

Management Metrics

EDI for inventory management allows a company to keep better track of its ever-growing volume of data and measure its performance. Key performance metrics that EDI will help a business track include inventory turnover, customer fulfillment rates, carrying costs, and gross percentage of margin.

Optimized Product Control

Because EDI gives a company an improved picture of its own inventory, the technology enables a business to more accurately anticipate customer demands. This gives it better control of its own supply. Once a company understands its own selling patterns, it can prioritize the best-selling items and better plan and account for sales, promotions and other marketing pushes.

Remedi has been guiding companies on their integration journeys for nearly three decades. Contact us today to learn how you can optimize your results.

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