For some suppliers, the concept of Electronic Data Interchange (EDI) can seem so abstract and complex that it’s often ignored until a trading partner expects immediate compliance. At that point, there’s usually a flurry of activity within the organization as everyone attempts to find a quick solution.
When a manufacturer implements EDI in order to conform to the requirements of trading partners the venture is often seen as the cost of doing business. However, EDI is the gateway through which manufacturers gain their largest retail customers. Suppliers that start transacting EDI with one retailer often quickly end up selling to several more trading partners. As their scorecard improves and workflow becomes more efficient, business continues to grow.
Success Story: TonerCycle/InkCycle reduced order processing costs from $18 per order down to $1 an order by implementing EDI-ERP integration, including EDI translation and mapping, and automation capable of handling incoming orders without manual entry.
In this context, it’s clear that EDI can extend beyond the costs of doing business, and can be utilized as a strategic investment, However, this strategy requires due diligence.
From Manual Entry to Complete EDI Automation
Your business is growing, and you’ve finally landed a big retailer. Congratulations! There’s just one catch. Your new retail partner requires you to have an EDI system before they’ll start trading with you. A simple cloud-based EDI solution will enable you to quickly automate workﬂow, fulﬁll orders, and ensure compliance. Manually processed information, such as purchase orders, are translated into EDI and sent to your trading partners. For small to mid-sized businesses with a limited number of trading partners, or who may lack the budget for full integration, using a cloud-based EDI solution is an excellent option.
But what if you plan on adding more trading partners, or anticipate a rapid increase in transaction volume? You may find it difficult to keep pace with the increasing complexity you’re likely to encounter. For example, we work with a ink manufacturer who faced penalties from a retail client for spelling errors on EDI transactions. At the time of the mandate, they manually entered EDI data into their back-office accounting system which led to costly data errors, created a bottleneck in orders processing and increased their labor costs. These unforeseen costs created the impetus to integrate their EDI directly into their back-office accounting system to eliminate errors caused by manual data entry.
How to Prepare For EDI Integration into Your ERP or Back-Office System
Integrating EDI data into your ERP or back-office system is not a one size fits all solution. In fact, in most cases some degree of customization is required. This means that that the process isn’t always as simple as passing information along. Your specific integration will depend on your current business processes, your trading partner EDI requirements, and your ERP (or accounting, ordering or shipping software). Before you begin the process it’s important to conduct an internal risk and needs assessment to determine the value of the integration, the challenges you’d like to overcome and the overall return on investment you expect. This should include the KPI’s you’re hoping to improve, such as order processing costs, labor costs, and any chargebacks or penalties incurred
The EDI Integration Timeline
The unknown is intimidating, and there’s always a perceived risk to embarking on such an endeavor, particularly when you don’t get to “try it on” first. However, the greater risk to a strained supply chain comes with inaction. Eliminate the fear of the unknown by arming yourself with information and better understanding the process. Here’s a general outline of an EDI-ERP integration:
Step 1. Project Kickoff
The project kickoff meeting is commonly held with you and your project manager, ERP Consultant (if applicable), as well as any stakeholders that need to be kept in the loop. This meeting is used to solidify the general scope, determine communication protocols, and establish project governance.
Step 2. Determine Project Scope
The first several weeks of the project are spent determining project scope and deliverables. In order to select the right integration solution for your business, your project manager will need the following information:
- Your current EDI provider
- The type of ERP, accounting or shipping software you use
- The contact information for the designated technical rep (The person from your organization who will work with the EDI engineers/analyst)
- The number of trading partners and EDI documents involved
- Are there any 3PLs involved?
- How will connectivity be established between all parties involved? (FTP, AS2, VAN)
- Sample files and ERP specifications for each inbound and outbound documents
Step 3. Execute
This is usually the most time-consuming portion of EDI integration and can last several months. During this phase, several things occur:
- Trading partner connections will be established (1-3 weeks for each). Each will have an EDI setup form which indicates which EDI documents are required.
- Some buying organizations mandate that the EDI connection is tested, which can usually be done via email and poses no risk to the timeline. However, trading partners that outsource the testing process to a third party may charge testing fees. This can create a delay in the timeline if you aren’t prepared or willing to pay testing fees. Prior to integration, suppliers should initiate discussions with their trading partners to determine if they outsource testing and whether or not they’ll be expected to pay associated fees.
- A gap analysis will identify any gaps between the retailer’s business requirements and the available EDI guideline. This helps the integration engineer and mapping team develop the logic for each ERP map required (EDI 850, 856, etc.). Completed and approved ERP maps are then by the integration engineer.
Step 4. Acceptance & Launch
As your EDI integration goes from quality assurance into production, your trading partners will also be contacted about switching your ISA ID. If you're new to EDI you will get a brand new ISA ID. Think of the testing process as giving a friend your new phone number, then asking them to text you to make sure they got it right, and think of launch as telling that same friend, “You have my new number, just letting you know that my old number will stop working on this date.” Once you’ve approved the launch date, a signoff is required. A simple email will usually suffice, after which the solution moves into production, which takes around 1-2 weeks.
EDI-ERP Integration is Complete. Now What?
Once integration is complete, it’s crucial that you know what benchmarks should be used to track the success of the solution. Those KPI’s include order processing costs, error fees and chargebacks, labor expenses and customer satisfaction rates. Comparing data from your current EDI solution with data collected before the integration can give you valuable insight into how well it’s working, and what, if anything, can be done to further improve your supply chain. The automation, ease of use and scalability provided by EDI-ERP integration present benefits that may not always be quantifiable, but enable growth on a large scale with minimal manual intervention, which for many suppliers is the biggest indicator of success.
Register for the webinar below to learn more about what to expect when integrating your EDI with your ERP or accounting, ordering or shipping software.