The Role of EDI in Transforming Supply Chains

In the coming years and decades, the business landscape is likely to see technological advancements improve EDI in the supply chain.

Electronic data interchange – the standardized-format, digital sharing of documents between business partners – is imperative in today’s marketplace. It smooths the workings of supply chains, those businesses, processes and individuals involved in producing and delivering final goods to customers. EDI ensures that companies are able to meet consumer demand while minimizing cost and maximizing efficiency, keeping them competitive.

The Traditional Supply Chain Process

The traditional supply chain process uses a series of processes aimed at making and delivering final goods to customers. They generally comprise five main stages: planning, sourcing, manufacturing, delivering, and returning.

In planning, a company forecasts demand and determines production schedules. This stage requires collaboration between departments within a company, such as production, sales, and marketing.

The sourcing stage involves finding and choosing cost-effective, reliable suppliers with the needed materials and components for production.

In manufacturing, a business converts components into finished goods. During the delivery stage, a business transports finished goods to customers, either directly or via intermediaries, such as wholesalers or retailers.

The final stage, returning, involves managing any returned items. Reasons for return could include defects, missing parts or general consumer dissatisfaction, and companies must have in place processes to receive such products.

Limitations of traditional supply-chain processes

This process has several drawbacks. It limits visibility into the supply chain, making it difficult to track inventory, monitor supplier performance and identify disruptions.

Traditional supply-chain processes can be inflexible. Designed to optimize efficiency and minimize unnecessary cost, they can be slow to adapt to changing market conditions.

They also often rely on manual processes, which can be slow and error-prone. This can decrease efficiency and contribute to higher costs.

And because older methods frequently rely on high inventory levels to make sure of product availability, they can tie up capital and lead to waste.

How EDI Transforms Supply Chain Management

EDI works by allowing the real-time exchange of documentation between entities using a standardized format.

First, a document is created in the sender’s internal system. It is formatted according to the particular EDI standard being used, which determines the document structure and the information it contains.

Then it’s translated into a format the recipient’s system can understand, usually by EDI software that maps the EDI fields to corresponding fields in the recipient’s system. Next, the document is transmitted using a communication protocol, such as AS2 or FTP.

Once the recipient gets the document, it sends an acknowledgment, such as an EDI 997, confirming the transmission went through. Finally, the document is integrated into the recipient's internal system for further processing.

Benefits of EDI in the supply-chain Process

There are several strong advantages to using EDI in supply-chain processes. The first is increased efficiency, which EDI achieves by removing the need for manual data entry, with its high instance of error. This boosts accuracy, reduces processing times and making businesses more productive.

EDI also saves businesses money, primarily through eliminating paper-based tasks (printing and shipping, for example), the costs of which can add up quickly. Fewer mistakes means money saved, as EDI reduces chargebacks and other return-associated costs.

EDI implementation in supply chains also increases visibility. With real-time updates into transactions, inventory levels and shipping statuses, EDI gives all trading partners the ability to make better, faster decisions, upping their market agility.

By using a standardized format, EDI in the supply chain makes for better communication between trading partners, too, which leads to improved collaboration. And with streamlined processes, businesses can see more satisfied customers.

Chains across industries. Retailers use it to exchange invoices, purchase orders and shipping notices with suppliers, streamlining their procurement process and saving money. Walmart considers EDI so beneficial, it requires partners to use the AS2 protocol.

Manufacturers use EDI to find parts suppliers and exchange shipping notices, design data and more with those suppliers, improving the speed of production.

In the healthcare field, EDI helps organizations send and receive patient data, billing information, and insurance claims, making healthcare operations faster and more accurate.

Logistics firms utilize EDI to manage their partnerships and send customs declarations, shipping notices and other documents to carriers and shippers, bolstering supply-chain speed and efficiency.

Challenges in Implementing EDI

Though it is beneficial to businesses, EDI can present a few challenges. The first is integration with existing systems. Companies that have enterprise resource planning platforms or customer relationship management software will need to make changes to these systems in order to implement EDI, and this can be both time-consuming and expensive.

EDI also necessitates the use of standardized formats, and putting these in place with trading partners of varying technological capabilities is sometimes burdensome.

Using EDI for supply-chain management can also require a good deal of upfront spending on software, hardware, and staff training. Because it involves the transmission of sensitive data, EDI also needs a robust security system and regular, frequent updates and monitoring.

Strategies to overcome these challenges

Clearing these hurdles is doable. Entities that want to use EDI for the supply chain need to have an implementation plan with steps they must take to integrate EDI with their already-in-place systems and processes.

No organization can implement EDI completely on its own, which is why choosing the right partner is so important. Remedi has been a leader in managed EDI services for nearly 30 years, designing bespoke integration solutions that let our clients maintain control of their integration environments while still getting the best possible resources. Investing in the right support and training for EDI will pay dividends in the long run.

A focus on data security is important, too. Businesses should put in place encryption, access controls and other security measures to safeguard information.

Finally, there’s no need to rush partner onboarding. Companies can start small by using EDI with a limited number of partners, then gradually scale up as they gain experience with their system.

Future of EDI in Supply Chains

EDI is changing, and its future is likely to be shaped by several trends.

First, more businesses will probably move from in-house to cloud-based EDI solutions, which offer more flexibility, scalability, and cost-effectiveness.

Second, expect to see EDI increasingly integrated with emerging technologies, such as the Internet of Things, artificial intelligence, and blockchain-based networks. These will improve supply-chain efficiency, sustainability and transparency, and prove to be a boon to businesses. In fact, IDC predicts companies will see a 335% return on investment from modernizing their business-to-business integration.

Experts forecast that the use of standardized EDI protocols and formats will become more widespread in coming years, too, reducing the cost and complexity of EDI implementation. Businesses will continue to invest in security to protect their EDI transactions from cyber threats. They will also use EDI to support sustainability initiatives.

Finally, as more companies see the benefits of its use, EDI is likely to expand in various industries, including food, energy and health care.

Technological advancements that will influence EDI

Here’s how several new and emerging technologies will influence EDI in supply chains.

IoT: Companies will improve their supply-chain visibility and optimize their operations through connected devices that collect and send information. Using IoT sensors and equipment, they will better track inventory levels and monitor equipment function, making themselves more efficient and profitable.

Blockchain: By providing a secure, decentralized platform to exchange information, blockchain technology will help companies protect themselves and their trading partners against fraud and tampering during EDI transactions. Blockchain will lend increased transparency and auditability to these transactions.

AI: AI and machine learning technologies will be used to analyze large volumes of data so companies can identify buying patterns and predict demand. They will then be able to make better decisions and improve supply-chain efficiency and responsiveness.

5G: The emergence of 5G networks will give more companies faster, more reliable connectivity, letting them transfer data more quickly and efficiently. This will improve the speed and accuracy of EDI transactions.

Cloud computing: The cloud allows organizations to access applications and information from any connected device at any time, and this will improve trading-partner collaboration and reduce costs. Using cloud-based EDI solutions will allow businesses to streamline EDI implementation with all their partners and give them better visibility into the entire supply chain.

Case Studies of Successful EDI Implementation in Supply Chains

Many companies have successfully implemented EDI in their supply-chain process. Here are three examples:

Wholesale distributor: A Texas-based wholesale distributor and supply-chain firm wanted to move from Gentran: Server for UNIX  to Sterling Integrator – but was concerned about the time and effort required to manually convert more than 100 trading-partner maps. Remedi helped the firm find an EDI solution architect to deploy a proprietary conversion engine that sped the remapping process for the migration. The third-party saved the customer more than $215,000 in mapping costs.

Dairy producer: A major dairy processing company wanted to gain even more value from IBM Sterling Integrator by migrating away from Oracle middleware. So it deployed IBM Sterling Integrator as the middleware message broker to streamline communications, then added Remedi Framework to simplify its trading-partner onboarding. The migration slashed the licensing fees the dairy producer had been paying and reduced the number of integration points it had to manage.

Pharmacy benefits provider: As part of its move away from a legacy ERP system to a cloud-based solution, a national pharmacy benefits firm engaged Remedi to find the right experts to help it rewrite all of its trading-partner maps – in a four-month timeframe. Remedi’s hand-picked consultants helped the firm complete a successful remap within the allotted time.

Conclusion

EDI is critical for transforming supply chains. By streamlining the exchange of documents and data, it helps businesses boost their efficiency, reduce their costs and improve customer satisfaction.

In coming years we can expect continued innovation in the use of EDI in supply chains. Technological advancements are likely to play a growing role in making supply chains more efficient and sustainable, and EDI’s use is likely to grow.

Companies must embrace new tech to help transform their supply chains so they can reap all the rewards EDI offers.

Supercharge your supply chain.