Transactions cost savings through the implementation of EDI

By Richard Ward, Chairman, First B2B

In financially troubled times the pressure is on to identify savings at every level of the organisation. Those savings need to be delivered with no capital expenditure and no major investment of time and effort from management or support teams.

In most peoples thinking this would appear to rule out IT developments but an IT term better known from its heyday in the 1980s and 90s is making a comeback and claiming to be able to deliver just this combination of benefits. That term is Electronic Data Interchange or EDI but although the term is the same, the technologies that are being used to deliver it are very different indeed from those of two decades ago.

What is EDI and how can it save money?

But first some explanation for the uninitiated. EDI is the exchange of documentation between different IT systems in different companies, usually of transaction documents associated with regular sales, purchases and logistics between those companies. Most often the data is being fed electronically into in-house ERP, accounting, Warehouse Management or Transport Management systems at both ends of a transaction and the complicated part comes when the trading partners have different in-house systems demanding data in different formats and requiring different transport systems to get it there. The technology deals with these difficulties but the savings are made by the elimination of manual data input of documents into company systems whether those documents are purchase orders, order acknowledgements, delivery notes, invoices, or any of a multitude of documents that can be interchanged between trading partners. Whenever a document is received it needs to be input into the ERP system. When this isnt done electronically there is a cost involved.

One way to assess the return on investment for an EDI project is to look at the costs of entering a single document into the ERP system. If it takes an average of five minutes for a trained employee to enter a single three line order into your accounts system, and that person has a salary and on costs of 15,000 per annum then the cost of entering the three line order is 0.72. If the organisation receives 30,000 orders per annum from its top ten customers then the costs of manually entering those orders into the accounts system are over 21,000 per annum. This assumes no cost escalation for orders typed in incorrectly, lost in the post, costs of opening the post, staff training costs or any other ancillary costs. True integrated EDI will replace this manual input. Some companies claim electronic trading when all they do is email pdf documents to each other, the input costs are unaffected and the savings made, if any, are minimal.

How the savings are delivered

What technology can deliver an EDI project with no capital outlay and no exceptional effort from the in-house IT team - the answer is Integration as a Service (IAAS), or Outsourced, EDI which involves no hardware or software at the premises of trading partners. IaaS is an extension of Software as a Service (SaaS) the fashionable term in IT at present. The biggest vendors of SaaS such as Salesforce.com and Netsuite have proved that strategic business functions such as Customer Relationship Management (CRM) and accounting can be hosted externally to the businesss central IT resource, safely and reliably.

IaaS EDI should involve no capital outlay. The IaaS model is a rental model, based upon charging only for what you use. Therefore you should be able to dip your toe into the water of EDI   without expending large amounts. Prove that it works. Prove you can save time and money. Then, and only then, expand its use.

Some might ask whether Service Oriented Architecture (SOA) can provide more flexible solution to the problems of electronic data integration, providing the flexibility of software environment required to cope with data translation and transport issues. The truth is, however, SOA is still a relatively new technology. First B2B have already used SOA to connect and exchange data for some customers and issues still abound to do with different implementations of SOA, different message content and, as with a lot of IT, everybody has their own unique implementation of the same process. Flexibility has its price and it is called non standardisation. The beauty of an outsourced EDI service is that the expertise is all concentrated at the supplier of the service, there is no need for EDI expertise, comms expertise or even SOA expertise elsewhere, this and sophisticated mapping software allows the problem to simply disappear for the trading partners involved. Therefore we can see that SOA is just another technology that the IaaS supplier needs to accommodate and not an alternative to IaaS.

Logistics Case Study

The proof of a solution lies in its implementation in practice and in a logistics environment just such a proof is available in an implementation by paper logistics specialists gm2 Logistics.

gm2 Logistics is part of the James McNaughton Group whose core activity is the distribution of paper, board and other substrates to the UK graphics art market. gm2 has a fleet of 91 vehicles operating from 10 depots around the UK. gm2 Logistics thrives, and has done right through the consolidation in the UK paper market, which now sees it providing logistics support to a much larger group, Antalis.

gm2 provides customer fulfilment services to the range of brand names within the group and also services household names such as imaging and printing specialist Canon. Customers may order their paper products from Canon and the order is forwarded to gm2 for fulfilment. Timely and accurate transfer for order, despatch and invoicing data is clearly vital for this specialised service, which is why gm2 relies on First B2B Limited for Electronic Data Interchange (EDI) services in support of the Companys logistics operation. The First B2B service is an Integration as a Service (IaaS) solution, which entails no additional hardware, or software, at the gm2 sites, or those of its trading partners.

No matter what data formats or transport mechanisms are required by partners, the EDI service automatically translates them to and from the formats and transports required by the gm2 back office systems and those of the clients and suppliers. The IaaS approach takes care of the message mapping requirements, communications protocols, and dialogue with trading partners representatives during the implementations. All this is managed. IaaS is multi-tenanted so all users benefit from the wealth of experience centrally held by First B2B. This amassed experience of many trading partners and their methods of Electronic Data Interchange leads to much smoother implementations than when starting from scratch with locally installed software and hardware.

Upwards of 180,000 incoming orders per annum are handled in this way for gm2. This represents 25% of gm2s overall transactions. gm2 savings just from these orders amount to more than 72,000 per annum. gm2s commitment to the use of EDI is as much about speed and accuracy as it is about reducing the cost of transactions processing. gm2 IT Manager John Boyd explains While the First B2B service has given us significant direct cost savings from implementing EDI, leading to a first class ROI, a business like ours lives and dies by the quality of service provided. Reliable EDI is therefore a benefit to us in that it operates at high speed and can completely eliminate human error in transaction processing.

For this reason ISO 9001:2000 quality assurance accreditation is important to gm2. John Boyd adds It is reassuring to know that our supplier has the internal disciplines and monitoring mechanisms to ensure that their standards never drop. The last thing we need is errors in data mapping, or lost or delayed transactions. ISO 9001 accreditation gives us and our customers the reassurance that the infrastructure is in place to maintain First B2Bs impeccable record.