EDI: When should you implement it?
In the age of ecommerce, having a defined set of rules for how our computers can talk to each other and handle business on our behalf sounds like the technology of the future, but the exciting news is that this technology is here today! And because ecommerce has such a strong grip on how we do business today, Electronic Data Interchange, or EDI, has become a vital tool for keeping your company relevant.
What is EDI?
EDI isn’t a new way to do business. In fact, it’s been around for decades, with roots in the 1960s. Put simply, EDI is a computer-to-computer exchange of information between two companies. EDI uses a predefined standard of business documents, and the exchange it conducts is completely electronic.
When using EDI, information that was traditionally communicated through paper or emails, such as purchase orders and invoices, is sent from one machine to another using an electronic standard. This standard exists so that neither party has to make any special arrangements to use EDI effectively. If you can adhere to the standard, you can successfully do business with anyone else using that standard.
With that brief definition out of the way, it’s time to determine when it makes sense to start using EDI for your own operations. There are plenty of benefits to using EDI, but what are the precursors that lead to you implementing it and making it a part of the way you do business? The following indicators are a good sign that it’s time for you to take the plunge.
It might be time to implement EDI if…
You’re ready to increase the efficiency of your operations.
Ever have an order go wrong? Maybe you shipped the wrong item, or entered the wrong SKU on a line. It’s happened to everyone, and unfortunately, it’s a byproduct of manual order entry. With an EDI solution, though, orders are created automatically. There’s no user input needed, so there are no manual entry mistakes, and time can be spent on other parts of the business that need the attention required to grow.
Another boost to efficiency comes from the near-instantaneous communication between companies that occurs when communicating via EDI. This automation of data exchanges is a huge time-saver. There are no delays due to time zones, no long email chains to follow, and no waiting for returned calls only to learn that the item you ordered was out of stock. EDI documents are easily traceable, and data validation is incredibly accurate, thanks to the tight standards that must be met for accurate processing. All of these benefits add up to a significant increase in efficiency.
You’re looking to cut costs.
According to SPS Commerce, the cost of ownership for an outsourced EDI solution is up to 30% less than antiquated in-house software.
Taking the burden of manual order entry off your shoulders by using EDI allows you to dedicate resources and energy to growing your company and improving communication with your customers and vendors. With EDI, there’s less need to worry about outdated and overly complex hard-coded business rules. Instead, the focus shifts to improving communication electronically, eliminating costly hardware, software, and licensing fees. Your IT department will thank you!
Some of your larger customers or suppliers demand it.
The first experience many small businesses have with EDI is when a large customer mandates using it. And if you’re considering implementing EDI, you’ll want to keep your primary trading partners at the forefront of your mind. As an established distributor or manufacturer, you already have some existing retailer relationships, and EDI helps you refine these relationships by strengthening the transaction process. The catch here is that it will only work if your EDI software is configured to match the specifications of your vendors. Plus, these retailers usually require you to have an integrated fulfillment solution before they’re even willing to do business with you. And while manually placing orders under these circumstances would be a nightmare, EDI standards make doing business with these retail giants a snap.
Each vendor is unique, but EDI solutions automatically translate orders into the style that each of your trading partners use. For example, various retailers have different needs when it comes to restocking, and some retailers (overseas ones, for instance) use a different currency than others. Some stores may want to restock on a routine basis, regardless of inventory levels. Other customers may require a specific invoice format. Taking your individual retailers and their needs into account will help you configure an EDI solution that will help you hit the ground running.
You drop-ship. A lot.
Drop-shipping your inventory is a method that can do more than just save you a ton of warehouse space. It’s a great strategy to use, but it has a lot of moving pieces. Drop-shipped orders have to make it to your vendors with all the appropriate information, and from there they must reach your customers in the right place at the right time.
On top of that, you might not want your customers to know that their order didn’t come directly from the retailer — and the supplier needs to be reliable, to make sure the retailer looks good. Throw in a few other links in the chain, such as third-party logistics providers, and you can see how it’s easy for drop-shipping to go wrong without the right automation.
Using EDI for your drop-shipping operations can ensure that the right information is getting to the right place. When a product from one of your drop-ship vendors is added to a retailer’s website, EDI systems can verify that the item information is accurate. Then, when a customer makes a purchase, EDI automation will route their order from the retailer’s ecommerce platform to the appropriate vendor to be fulfilled. When the vendor ships the order, EDI can then be used to retrieve the printable documents that use the retailer’s branding, such as packing slips and shipping labels.
Drop-shipping has a lot of moving pieces, but when it’s done right, everyone wins. Profit-boosting drop-shipping methods rely heavily on the type of data standardization and process automation that EDI solutions offer.
So let’s give a more concrete answer to our original question: “Who should be using EDI?”
If you’re a startup or other very small business, chances are you don’t need EDI just yet, simply because your list of customers and vendors is likely small enough to manage without it. However, as companies grow, using an EDI solution starts to make much more sense. Once you’ve got a significant list of suppliers and customers, you may find it’s time to take advantage of the increased efficiencies EDI has to offer.By implementing an effective solution, you can deepen your relationship with your larger customers while using a platform that lets you grow quickly and efficiently.
For more information on how EDI works with SalesPad Desktop, be sure to head on over to our resources page and download our fact sheet. We’ve allied ourselves with SPS Commerce, the premier provider of EDI services, and we’d love to help you make the leap.