Since its advent in the 1960s, EDI has gained vast inroads in supply chain operations. As one of the most valuable tech investments for supply chain management, Electronic Data Interchange (EDI) has consistently proven effective at improving supply chain efficiency and helping companies maximize the advantages of trading partner collaboration. Today, many of the largest, most successful manufacturing, distribution, and retail companies utilize EDI solutions to exchange business information autonomously and in real time.
When effectively deployed in supply chain management, EDI replaces traditional, time-consuming, and disorderly document processing and data sharing with digitized, automated transactions, reducing errors, improving transaction speeds, and enhancing the quality of B2B communications.
Read on as we discuss EDI's irrefutable, long-standing role in modern-day supply chains and how you can leverage EDI to improve your operations, drive collaboration, and boost sales.
EDI in the Supply Chain
Electronic Data Interchange is a data exchange protocol that facilitates the autonomous transfer of data and documents between the computer systems of trading partners. EDI allows companies to send and receive information electronically, replacing cumbersome and error-prone paper documentation with real-time digital transactions.
Modern EDI solutions can automate numerous supply chain transactions, including purchase orders, invoices, shipment notices, payment reconciliation requests, returns and credits notifications, item availability inquiries, inventory status messages, and more. Therefore, investing in the right option can have profound benefits across all facets of supply chain management.
How has EDI Supply Chain Management Evolved Over the Years?
EDI adoption in supply chain management has come a long way since the U.S. transportation industry developed it over six decades ago. Then, when all supply-chain-related businesses relied on inefficient and high-risk communication channels, EDI was wholeheartedly embraced as a new way of digitizing document sharing.
The first processes addressed by EDI solutions were the order-to-cash and procure-to-pay cycles. EDI documentation helped remove paperwork and human intervention, minimizing errors and improving cycle speeds.
The First EDI Standards
As EDI gained steam, it quickly became apparent that standardization was needed to take adoption to the next level. So, in 1968, the Transportation Data Coordinating Committee (TDCC) was created and tasked with developing EDI standard formats, which would be used by all supply chain players, from railroads and shipping companies to trucking enterprises and airlines.
After several revamps, the TDCC was eventually incorporated into the American National Standards Institute in 1978, becoming the ANSIX12 committee. Three years later, the committee published the ANSIX12 standards, which supply chain players readily adopted.
Expanding into Europe
By the late 1980s, over 100,000 U.S. companies were using EDI to exchange documents. However, with global commerce expanding, U.S. EDI standards became an unpleasant bottleneck for overseas partners.
In response, the United Nations established EDIFACT (Electronic Data Interchange for Administration, Commerce, and Trade) to develop standard EDI messages for international trade.
The Internet Age
EDI standards gained mainstream acceptance in the early 2000s when the Uniform Code Council developed EDI over the Internet (EDIINT) and later published the AS/2 communication standard to enable data transmission via HTTP. By 2005, large retailers like Wal-Mart and Target had adopted AS/2 to communicate with suppliers, triggering widespread EDI implementation.
Today, EDI is firmly entrenched in modern supply chains and is indispensable for transferring data and documents quickly and securely. The number of EDI transactions has also grown to accommodate documentation like inventory lists, bills of lading, customs documents, shipment authorizations and acknowledgments, advanced shipment notices, and payment documents.
Most impressively, EDI has continuously adapted to evolving business needs. For example, while early EDI tools required trading partners to maintain modem pools that all suppliers dialed into to perform EDI, modern software can integrate various file transmission protocols with EDI standards, reducing costs and barriers to entry. Top-range EDI solutions also integrate with numerous enterprise systems, on-premises and cloud-based, to create a truly paperless, automated workflow.
Benefits of EDI for Supply Chain Management
EDI presents a host of advantages to supply chain management. It allows companies to achieve greater efficiencies and offers more convenience for all parties involved. In fact, for supply-chain-reliant organizations, the quality of EDI implementation can be the difference between success and failure.
Below are some of the most notable benefits of EDI for supply chain management
Enhanced customer experience
Using EDI to automate communication and order processing tasks can profoundly improve transparency and accuracy. Faster, error-free orders and invoices translate to fewer follow-ups, more responsive turnaround, and better customer experience.
Moreover, EDI gives support staff instant access to data and documents from various internal and external systems, enabling them to answer queries faster and minimize call drop-offs, resulting in higher customer satisfaction and retention.
Faster business cycle speeds
EDI integration accelerates business cycles by automating time-consuming documentation and delivering critical information in real-time. Consequently, supply chain transactions can be completed faster and at greater volumes, speeding up payments, improving cash flow, and introducing new cost-saving opportunities for the business and its partners.
Error-free transactions
Manual task handling increases the probability of errors. Critical documents like purchase orders, invoices, and shipping notices can quickly become corrupted when handled by hand. These documents are automatically generated and transmitted with EDI, reducing the risk of human error.
EDI also standardizes information exchange between partners, promoting alignment and minimizing the risk of miscommunication. When all partners are on the same page, they can make faster, more informed decisions, creating a more streamlined and efficient supply chain.
Lower Operational Costs
Using EDI to automate day-to-day tasks like purchasing, order processing, and billing can significantly save time, staffing, paper, filing, and courier costs. Fewer errors also translate to less time and money spent fixing them and mending tarnished reputations.
Superior inventory management
EDI documentation and transactions improve transparency and visibility among trading partners. As a result, enterprises can benefit from real-time order and shipment updates and gain more control over their inventory.
Real-time communication also makes partners more responsive to supply chain disruptions. For example, if an unprecedented event causes material unavailability, shortage, or delay, the affected organization can be alerted early enough to plan a contingency.
Robust partner relationships
Partners using EDI to communicate and exchange documents interact more seamlessly and frequently, develop a better understanding of each other's business, and strengthen their business relationships. Therefore, they can collaborate to solve problems and exploit opportunities more effectively.
Moreover, EDI facilitates the exchange of confidential business information securely and efficiently, without the need for manual handling or distribution. That way, partners can maintain trust and confidentiality while still benefitting from enhanced communication and collaboration.
How do Supply Chain Companies use EDI?
All supply chain players, including manufacturers, distributors, retailers, and third-party logistics providers (3PLs), utilize EDI for supply chain management. When effectively deployed, EDI can automate virtually all transactions that involve information flowing from one system to another. Here are some of the most common EDI transactions in supply chain management.
- Purchase orders: EDI transmits purchase orders autonomously between trading partners, eliminating the need for manual input and reducing the chances of errors.
- Invoices: EDI solutions transfer invoices electronically between buyers and sellers, improving accuracy and speeding up the payment process.
- Shipping notices: Distributors and retailers can send shipping notices to their suppliers and customers in real-time, notifying them of the latest shipment status and expected delivery date.
- Customs declarations: 3PLs use EDI to file customs declarations on behalf of their customers, streamlining the import process and reducing the chances of errors.
- Delivery schedules: With EDI, manufacturers can quickly send delivery schedules to their distributors and retailers, ensuring alignment across the board.
- Price/Sales catalog: A price/sales catalog is a database of items with their corresponding prices and quantities. With EDI, this information can be shared between trading partners in real-time, allowing them to make more informed decisions about pricing and inventory.
- Product specifications: Using EDI to share product specifications electronically assures all supply chain participants that they are working with the latest information about the products they are handling or selling.
- Commercial account summaries: A commercial account summary (CAS) is a document that provides an overview of a company's open purchase orders, invoices, and payments. With EDI, CAS can be automatically generated and shared between partners, saving them time and reducing reconciliation errors.
Future Trends in EDI for Supply Chain Management
Over its decades-long run, EDI has had a tremendous impact on supply chain management. As a result, many companies rely on it as the backbone of their operations. Some of the world's largest organizations even demand that their partners implement EDI to conduct business with them.
However, as markets change, new challenges emerge, and technology rapidly advances, the role of EDI is gradually evolving. Below are four notable trends permeating EDI supply chain management workflows and how you can address them to maximize EDI benefits and future-proof your business.
EDI and API working together
Application Programming Interfaces are protocols and definitions for building and integrating application software. In the context of supply chain management, APIs allow B2B messages to be sent and received between different applications and systems, including those that are not originally designed to support EDI.
APIs have been touted as the next phase of B2B integration, thanks to their adaptability and relative ease of implementation. However, considering EDI's current ubiquity, a future where APIs have entirely replaced EDI is grossly improbable.
These two solutions will more likely coexist to provide more flexibility and unlock new integration possibilities for future companies. For example, an enterprise using an EDI tool to send purchase orders to suppliers can use an API to link its ERP to the EDI solution, eliminating the need to manually transfer order documents from ERP to EDI.
So, if you are keen on future-proofing your business, you are better off supporting both EDI and API-based processes than either option. With EDI and API working together, you can get the flexibility you need to accommodate everything, from legacy on-premise solutions to SaaS applications.
Evolving Expertise Requirements
Traditionally, EDI is managed by specialized IT staff who understand the technology and business processes. However, with the advent of cloud-based solutions and more widespread use of APIs, managing EDI is becoming increasingly more accessible to a broader range of employees, such as logistics, operations, and purchasing.
Therefore, in the coming years, the most in-demand EDI professionals will not be those who can perform EDI data mapping or partner configurations. Instead, data analysts and scientists can turn EDI data into insights that help enhance business outcomes and partner relationships.
As an enterprise looking to remain competitive in the future, it is essential to make sure that you have the right team to leverage modern EDI. Although you may need to invest in some restructuring and upskilling, the benefits will be well worth it.
The Amazon Effect
E-Commerce growth has put immense pressure on suppliers to reinvent their operations. Dubbed "the Amazon effect", e-Commerce has revolutionized how manufacturing, logistics, fulfillment, distribution, and retail companies do business. Today, enterprises can no longer afford a "siloed" approach to their operations, as customers now demand a seamless experience, whether online or in-store.
Technologies like EDI have become integral in enabling the superior integration and collaboration required to deliver synonymous experiences across different channels. By quickly and securely exchanging data with suppliers and other ecosystem partners, businesses can get products to market faster and avoid the customer frustration that can come with a disjointed experience.
As e-Commerce continues to shape the market, enterprises will be even more reliant on technology to create cohesive, responsive supply chains. Therefore, if you are still using traditional EDI solutions, now is the time to implement a modern solution that offers the integration capabilities required to keep up with the competition.
The Democratization of EDI
EDI has traditionally been considered a "luxury" technology reserved for large, well-funded enterprises. However, the past few years have seen a dramatic increase in the number of cloud-based EDI solutions that are more affordable and easier to use. Additionally, the proliferation of APIs has made it easier for companies to get started with EDI without making significant upfront investments.
This trend favors small and mid-size businesses, as they no longer need to struggle with traditional EDI solutions' high costs and complexity. By choosing the right EDI solution, these businesses can now get all of the benefits of EDI without making significant investments or hiring specialized staff.
As EDI becomes more democratized, it will become an increasingly important tool for businesses of all sizes. So, if you are a small or mid-size business, do not be afraid to start exploring your option.
EDI is Critical to Your Supply Chain
In today's rapidly evolving supply chain scene, all participants must invest in technologies that help them manage activities like procurement, logistics, distribution, inventory management, and supply planning as effectively as possible.
EDI has been around for many years, but its importance is more relevant now than ever. By quickly and securely exchanging data with suppliers and other ecosystem partners, your business can get products to market faster and avoid the customer frustration that can come with a disjointed experience.
Remedi is the leading provider of EDI integration solutions and services for reliable supply chain management.
Contact a REMEDI expert today and let us help take your enterprise to the next level with modernized EDI.
