Looking for ways to improve processes is critical to any business, particularly in the areas of efficiency and cost reduction. Electronic Data Interchange (EDI) allows the exchange of business information directly between the software of your business and your customers and suppliers. It automates unnecessary manual processes while streamlining supply chain transactions.
Companies commonly implement EDI to:
- Gain better visibility into the supply chain
- Reduce errors in exchanging paper or PDF documents
- Reduce costs
- Increase information security.
Let’s have a look at these benefits in more detail.
Gain better visibility into the supply chain
With a manual purchase order and invoice, can a buyer answer questions like:
- Can the supplier fulfil my order?
- When will the goods be shipped?
- When can I expect my goods to arrive?
- What is in each package I am about to receive?
In short, no. But all of these questions can be answered through other EDI messages exchanged in near-real-time.
Often companies will exchange more than just a purchase order and invoice; they’ll exchange purchase order responses (which tells a buyer if the supplier can fulfil the order), advanced shipping notices (which tells the company how the shipment is packed and when it will arrive) and more.
Reduce errors in exchanging paper or PDF documents
Traditional procurement has many manual processes that are prone to error. Human mistakes occur for a number reasons including:
- Inputting incorrect numbers or values
- Missing or skipping key steps in the process
- Transferring the wrong purchase order information
Here is an example of traditional procurement for a PO to Invoice process:
|Buyer manually enters the purchase order in their software||Buyer sends order to supplier via email||Supplier manually enters the purchase order in their software||Supplier manually enters the invoice in their software||Supplier sends invoice to buyer via email||Buyer manually enters the invoice in their software|
With EDI, processes are automated reducing manual errors. For example, when a buyer places a purchase order (PO), it can automatically trigger an acknowledgement to let the buyer know it’s been received, and the order can be put into the supplier’s system.
Here is an example of EDI procurement for the same process as above:
|Buyer enters the purchase order in their
|Purchase order appears in Supplier’s software||Supplier enters the invoice in their software||Invoice appears in Buyer’s software|
When the supplier is ready to ship the order, an advanced shipping notice (ASN) can be created and sent to the retailer to advise them of delivery. This can include information like how it’s packed, when it’ll arrive, the shipping company and more. The supplier can the raise an invoice in their software, which can be sent automatically to their customer’s software. Without EDI, all these processes would require manual creation greatly increasing the risk of errors.Through the use of EDI many areas of the supply process are completed with no additional manual inputting of information.
Want to learn more about EDI? Download our introduction to EDI whitepaper.
In low-margin businesses, reducing costs is critical. Think of a company that issues thousands of purchase orders a month. They’ll likely receive at least one invoice for every purchase order issued. Without EDI, that’s a lot of manual handling.
Some organisations have put a price on manually processing a single invoice in the ballpark of $30. You can see how it adds up! EDI vastly simplifies the supply chain process through automation. Some examples of costs reductions are:
- Manual data entry costs: EDI automates many manual data entry processes, reducing the amount of labour required.
- Transaction costs: No physical sending of documents to your partners reduces costs related to printing, postage and filing.
- Receiving and shipping related costs: By receiving shipment information from suppliers prior to delivery, you can prepare in advance for receiving goods. By streamlining the receiving process, you can achieve reductions in labour costs.
- Error correction costs: Errors in the supply chain can result in extra costs being incurred. With the elimination of manual steps in your processes, errors are reduced. If errors do occur, they can be found and corrected much faster.
Increase information security
In today’s business environment, information security is a prominent issue. Sending sensitive information through unsecure channels can add risk to your business. You could be sending these via email, post or even SMS, which can easily be sent to the wrong person or even intercepted.
EDI can send this information more securely than conventional methods. Using secure message communication types such as Secure File Transfer Protocol (sFTP) or AS2 decreases your risk. EDI adds a layer of authentication to the process which is required for the information to be sent. It also limits the connection to specific partners reducing the risk of your sensitive business information being sent to the wrong recipient.
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