EDI in the Supply Chain
EDI is used across many different industries, but it has arguably made the greatest impact within supply chain management.
Electronic Data Interchange (EDI) can be considered the supply chain’s first great disruptive digital technology. The quick and accurate exchange of supply chain EDI transactions has accelerated business and improved customer experience. Today, EDI software and services are at the core of efficient supply chain operations delivering the fast and secure file transfer that drives collaboration and increases sales amongst trading partners.
Defining EDI for the supply chain
By replacing paper-based transactions with electronic transactions in a standard format, EDI enables retailers, manufacturers, and logistics organizations to move to a more efficient paperless communication in their supply chain. This has enabled businesses to maximize their efficiency throughout all processes of supply chain management, enabling a more environmentally friendly impact, and increasing efficiencies in both inventory and business operations. Learn more on why EDI transactions are more efficient than paper-based processes.
The development of supply chain EDI transactions
The first processes that EDI solutions addressed were the order-to-cash and the procure-to-pay cycles. EDI payment documents and EDI invoices help remove human intervention, thereby reducing errors in these key business documents. EDI transactions now happen automatically—flowing from the accounts receivable systems of the supplier to the accounts payable systems of the buyer in a matter of moments. Where there were errors, these could be quickly identified and addressed. The entire process of an EDI transaction can take minutes or maybe hours compared to days or weeks for the paper-based equivalent.
It’s little surprise that organizations started creating EDI documents to address other areas of the supply chain as well. EDI shipping and warehousing documents have been developed to include bills of lading, customs documents, inventory lists, shipping status records, shipment authorizations and acknowledgements, and advanced shipment notices and payment information documents. Companies have also established EDI transactions with their banks and financial services partners based around EDI documents such as letters of credit, funds transfer and remittance advice.
Benefits of EDI for supply chain management
There are many benefits from using Electronic Data Interchange technology, especially within supply chain management (SCM). There are many ways EDI for supply chain management helps a business, the top examples are below.
Improve customer experience
It may not be obvious in how EDI for supply chains can improve their customer experience, but it’s a fundamental effect and benefit that many businesses seek when choosing EDI. Through streamlined orders and purchasing EDI improves order accuracy and transparency, which allows for more increased communication with customers that provides them accurate information on their transactions with the business. This in turn can greatly improve customer experience and loyalty as there’s no guess work or confusion.
EDI enables speed and improves overall movement throughout a business because timely processes have become much quicker and streamlined. Supply chain EDI transactions between trading partners can be completed faster and at greater volumes which speeds up payments and improves cashflow. This can bring about new opportunities for both the business and trading partner as it can introduce opportunities for buyer discounts and innovative finance options of the supplier.
Mistakes can cost businesses a lot of money. The chance of error is increased because so many factors inherit the risks that come with paper trails for documents. Safety for physical storage, the need for back-up documents, and personnel who examine documents manually all contribute to the risk that something along the way can go wrong. EDI in the supply chain standardizes transactions with suppliers reducing the risk of miscommunication, human error, incorrect shipments and other mistakes. This can especially helpful for large retailers as they deal with a large variety of suppliers within their supply chain.
Save time and money
Inherent in all of the mentioned benefits is the fact that all of these factors help businesses save time on tedious processes, and save money by moving paper transactions to digital mediums. By switching to EDI in the supply chain business processes like ordering and purchasing are sped up. Costly expenses for storage are minimized, while costs for communications and manual checks are reduced due to streamlining and improving processes through the EDI system.
Improve inventory management
EDI documents and supply chain EDI transactions both provide a great deal of transparency for businesses and trading partners, allowing for improvements across the board for supply chain management. By exchanging EDI documents, high levels of supply chain visibility provides real-time updates for businesses so inventory levels are much more accurate. This gives businesses the ability to effectively allocate resources and prevent inventory shortages while also giving them the capabilities to eliminate excess inventory.