The Cost of EDI
The cost of EDI implementations will be impacted by the approach you take: In-house or working with a third-party EDI provider.
Calculating the cost of an EDI implementation is very important in order to ensure that it will deliver real financial and business benefits to your company. But first you must decide the approach you are going to take with EDI: In-house or working with a third-party EDI provider (sometimes referred to as a value-added network, or VAN).
As you’d expect, there are different pricing models available from third-party providers that you will need to review. Although your final choice will, of course, consider price, you should also consider key business factors such as:
- The number of your partners who are enabled on the providers’ networks already
- Whether the provider covers the range of geographies you require
- The levels of support and training they are able to provide to support you and your trading community
- The range of options that they can provide to enable you and all of your trading community to do EDI
The provider’s charge, to a large degree, is usually based on the volume of data you transmit over the network. This is often measured in the number of kilo-characters (KCs) contained within your EDI document. Based on this, providers offer a variety of subscription models that you can select from, such as:
- Annual subscription
Often these models operate within price bands based on anticipated volumes of KCs or documents. You should also be aware of hidden charges such as minimum record lengths. Some providers specify a record length of 128 to 512 characters. The result is that if you were to send 10 documents of 10 characters you would be charged for up to 5120 characters for sending only 100. If you have a large volume of small transactions this can add a substantial amount to your monthly charge.
It is important that you understand the volume and nature of your business transactions before selecting a provider. That way you can select the pricing model that best meets your business needs. And, look carefully at the small print of any provider that claims to offer a “free” EDI VAN service, as it is unlikely to be the case.
A few very large organizations have created their own EDI networks. This has the advantages of internal management, control and security but it is not something to be undertaken lightly. If you are going to build your own EDI system, at a minimum, you’ll need to invest in:
- EDI software
- Communications software
- EDI transmission methods
- Mapping and translation software
- EDI and mapping specialists
- Ongoing upgrades, support and maintenance
That investment will get you to the start point. You’ll have an internal EDI system. It is likely that you’ll have to assist each of your business partners to implement the system at their end, maybe even build it for them. You will need to do this with each business partner that you want to do EDI with and it will be an ongoing requirement as your trading community evolves, grows and changes.
Little surprise then that most organizations have chosen instead to work with some form of third-party provider who can supply the EDI infrastructure without their having to make that initial investment. This can be particularly important for small- and medium-size businesses that simply do not have the people or cannot find the money for this level of investment within their company.
Click here to download a sample EDI RFP (Request for Proposal) that provides requirements and evaluation criteria for an EDI provider