If you are considering implementing EDI (Electronic Data Interchange) in 2022, you are not alone. The situation surrounding Covid-19 has made many companies think about ways to improve supply chain management. EDI is an essential tool in this respect that ensures stability, visibility and optimization. But only when used correctly. An effective EDI implementation requires planning.
Your challenges include:
- Selecting the right type of EDI solution.
- Ensure compatibility with your supply chain partners.
- Integrate data into your organization.
- Manage security and costs.
- Align results with business requirements and objectives.
At OMS, we’ve used over thirty years of EDI experience to compile a list of the five most common mistakes we’ve seen in the field. And perhaps more importantly, we’ve also provided answers on how to avoid these errors. Of course, EDI implementations that have gone wrong are recoverable, but when you start the right way, you improve ROI and ensure an effective result from day one. Let’s start!
1. Underestimating supply chain complexity
EDI is a great way to overcome complexity and improve supply chain management. But underestimating your supply chain can derail a project from the start. Remember, “EDI” is not just one thing – or really not a “thing” at all. It is a methodology that includes many standards and transmission protocols. Your solution must meet the requirements of your company and other companies within your supply chain.
Globalization has resulted in larger supply chains – increasing both the benefits and challenges of EDI implementation. A rigid EDI system is unable to connect all these stakeholders and presents challenges such as manual entry and ad-hoc procedures that undermine the core of your investment.
Strategies That Help You:
The type of EDI you deploy has a major impact on your ability to manage complexity. Managed services and cloud-based software can solve and simplify many of the integration challenges – more on that in the next section of this article.
In addition to industry- and region-specific standards (e.g. VDA in the German automotive industry), there are three common standards:
- UN/EDIFACT (United Nations/Electronic Data Interchange for Administration, Commerce and Transport)
EDIFACT, the only truly international set of standards, was developed by the UN in 1987 and is still widely used.
- ASC X12 (Accredited Standards Committee X12)
The most widely used standard in North America and often referred to as “ANSI X12”. Founded in 1979 by the American National Standards Institute, the ASC maintains the X12 standards along with a growing number of XML schemas specific to healthcare, insurance, government transportation, and finance.
- GS1 EDI (Part of the GS1 system)
GS1 is in fact a subset of EDIFACT that is popular within global supply chain. This modern development is supported by organizations such as McKinsey.
It is also important that your system is able to support a number of different transmission protocols. This includes commonly used protocols such as FTP, SFTP, and HTTP, and EDI-specific protocols such as OFTP, X.400, and AS2.
High transaction volumes, global partners and multi-sector relationships are all complicating factors to plan around. But complexity can take many forms. For example, don’t underestimate the challenge of onboarding a supplier who has little experience with EDI. OMS can take care of the entire onboarding process for you.
2. Choosing the Wrong Type of EDI
“EDI types” are different approaches to exchange information. Each type has its pros and cons. Choosing the right type for your business is a critical early decision that will impact your entire EDI experience.
The main EDI types are:
- Direct EDI (Point-to-Point EDI)
Direct EDI establishes a single connection between two companies. This provides the most control, is generally on-premise, and can be cost-effective if done properly. However, it also requires the most in-house expertise to implement effectively. Also, direct EDI can make it difficult to accommodate changes and/or multiple protocols and standards.
- EDI via VAN
A VAN (or Value Added Network) is set up by a third party and is a private network used to exchange documents. This adds flexibility and outsources maintenance.
- Web EDI
Web EDI simplifies the exchange of information by replacing paper documents with web forms. Web EDI offers users a low-threshold way to enter information that is then converted into EDI messages. This type of solution is usually provided by a third party and is especially useful for companies (either your company, or companies within your supply chain) that have limited EDI experience.
Each of the above strategies can be performed through self-service options or as a managed service. Managed services are a great way for many companies to get around implementation issues and can help deliver seamless long-term results. Particularly if you want to build a hybrid solution that leverages multiple EDI strategies, managed services can greatly simplify that process for your business. With the managed services of OMS you are completely unburdened.
Strategies That Help You:
If you do not have the right skills, a direct EDI solution is not the right choice. And don’t forget your distribution partners. Your solution must not only meet the technical requirements of your suppliers and customers, but also their level of EDI knowledge. In any EDI solution, you should strive for:
- Intuitive dashboards that filter reports.
- Simple upload tools that enable inexperienced users to submit data.
- Fully integrated solutions that minimize or eliminate manual steps.
3. Corrupt or Incomplete Data
When you start with EDI, it will put your existing data to the test. EDI requires setting up systems that simplify the creation of data over time. Many EDI formats, such as EDIFACT, are not intended for humans to read or understand. That means debugging and remediation is challenging and requires specific (and increasingly unusual) skills. Manual error detection is time consuming, expensive, requires expertise and does not rule out transaction errors.
Strategies That Help You:
Incorrect data often arise at order level. You will usually see incorrect prices, out-of-stock items and/or duplicate orders. The advantage of EDI on data quality is that you integrate systems directly, which prevents human errors. But that data must be correct to begin with. The best place to check and improve the quality of your data is at the source: your ERP system, or that of your trading partners. It is valuable to have error detection tools within your EDI system. OMS works with various ERP suppliers to help you effectively with this
4. Forget about safety
EDI puts you in closer contact with your distribution partners. But by sharing information, you also expose elements of your internal system to those partners – and vice versa. International collaborations can make things even more complicated due to different legal frameworks, privacy and data protection rules, and cultural expectations.
Strategies That Help You:
The security risks associated with EDI are partly physiological. Realistically, you already shared much of the information transferred via EDI with your supply chain partners – now you only do that in a new format. However, you must ensure that you use encrypted transfer protocols and that the data is stored properly on both sides. That means discussing security policies openly with your partners and making sure everyone agrees with some best practices.
It is also important to understand the sensitivity of your data. For example, order data is not that sensitive at all. Invoices, on the other hand, may reveal commercially sensitive information. However, if you manage highly sensitive data, such as health care information, stricter precautions must be taken.
5. Rising Costs
An important motivation for EDI is cost savings. An effective EDI solution streamlines your logistics and supply chain relationships – and delivers process, workflow and cost savings. But getting started can be expensive. If you are plagued by implementation problems, this will entail additional costs. At a minimum, this extends your payback time.
Unexpected costs can occur at almost any stage:
- Development of EDI skills, organizational structure and processes.
- Building an EDI solution or finding an EDI supplier.
- Digitization of data and EDI integration within your company.
- Rollout of EDI to trading partners.
When your EDI implementation does not go well, you also have to deal with reputation costs. Many manufacturers will impose sanctions on suppliers who implement EDI incorrectly because of the negative impact on their production lines.
Strategies That Help You:
Avoiding cost overruns comes down to planning. You need to have a clear view of your objectives, internal skills and supply chain relationships. You then have to make choices that lead to a system that is geared to the right result.
Internally managed systems can be cost effective. However, if that system fails or requires significant changes or additions to your organization, the benefits of an in-house solution can disappear like snow in the sun. EDI via VAN and/or Cloud based EDI are invaluable to a company looking for a more flexible solution that simplifies some of the execution.
Don’t forget the bigger picture
Crucial for an effective EDI implementation is a clear set of goals and a good understanding of your supply chain. Be realistic about your in-house expertise and don’t forget to take into account the technical requirements and EDI expertise of your suppliers and customers.
Basically, your ambition should be to simplify the use, management and flexibility of your EDI system every step of the way. You need a hybrid result capable of supporting the full spectrum of formats, standards and protocols. A solution that can be used by people with limited EDI experience. This probably means a combination of EDI via VAN (DiNet), Web tools and managed services, with which OMS can completely unburden you.
Finally, stay focused on the business outcomes EDI can deliver. Part of that benefit is supply chain efficiency. Better understanding of your supply chain relationships improves your strategic and tactical decision-making, laying the foundation for growing into a distribution-oriented company.