FREE online courses on ECOMMERCE FUNDAMENTALS - Electronic Data Interchange - EDI is a business decision

Companies are using EDI to expand the automation of business processes beyond traditional corporate boundaries. Connecting the computer systems of two inde­pendent organizations into a dependent relationship is not a decision based solely on the merits or the availability of the technology. Instead it is clearly a shift in business paradigm that must be addressed at a strategic as well as a tactical level.

Profound changes have occurred in the way business is transacted in industries where EDI has reached a high degree of penetration.

 

Some of the more notable examples are:

 

Model stock replenishment

 

Retailing margins require strict attention to cost and inventory turnover. In a strategic approach being adopted today by several large retailers and key suppliers:

                                       

·         A retailer identifies a model stock for each location supplied by the vendor and daily provides data back down the supply chain.

 

·         The suppliers then restock the shelves.

 

·         The retailer monitors the supplier's activities while allowing the original model stock to be adjusted by the vendor base on market activity.

 

Materials management

 

An innovative practice in the automotive industry uses EDI Materials Requirements Planning (MRP) and Just-in-Time manufacturing (JIT) to reduce the Original Equipment Manufacturer's (OEM) inventory position virtually to zero:

·         The automotive OEM provides the supplier through EDI, a rolling forecast from which the vendor can plan production schedules.

·         Material releases are then covered via EDI, which specify the parts required over a particular time interval.

 

·         The vendor responds via EDI with advance shipping notice (ASN) which identifies the parts to be delivered and the arrival time on the OEM's dock.

 

·         As the shipment is offloaded at the OEM's plant site the parts are moved directly from the receiving dock to the manufacturing line for use.

 

·         Virtually no inventory is created for the part except as it becomes a component of finished goods.

 

Evaluated receipt settlement

 

Substantial benefits have been achieved in the automotive industry using this technique of eliminating the invoice cycle.

                                         

·         Vendors keep customers abreast with price/sales catalogue data from which buyers extract accurate product and pricing information during the purchasing cycle.

 

·         Suppliers deliver advance ship notices to customers which permit loading docks to be properly scheduled and accurate material receipts to be generated.

 

·         The customer authorizes supplier payment upon confirmation of arrival of the goods making the invoice redundant.

 

Re-engineering tool

 

Successful EDI programs begin with an understanding of the mission of the business and a map of the processes and flows which support the firm's goals. Early practitioners of EDI experienced varying degrees of success depending on their

level of commitment and the amount of integration they established.

 

The least successful programs sought to mirror the pre-existing paper flows, which EDI replaced. So-called door-to-door EDI in some cases involves nothing more than printing out transactions as they are received to produce a paper input form for a keypunch operator.