EDI Cost Analysis: Make the Right Calculation

EDI cost analysisEDI Cost Analysis makes it possible to conduct a cost justification for EDI. The EDI Cost Analysis will help create the project implementation plan. There are direct and indirect benefits associated with EDI. The following steps should be taken:

  • Accumulate the total cost of all the tasks involved in processing a manual transaction (e.g. the five steps involved in handling a manual PO) for one document and multiply the cost by the number of documents sent and received over a specified period of time. Don’t forget to factor in the cost of errors and exceptions involved in the manual process.
  • Select the tasks that should be automated as a result of implementing EDI. The selection criteria will be driven mainly by the cost of the manual processes involved. Typically, these will be the tasks that: take up a lot of human resource hours (e.g. data-entry, sorting, filing, etc), are error prone (e.g. a key-entry mistake), are redundant or repetitive. Also, consider tasks that can be automated easily and focus on them at first; the “Don’t bite off more than you can chew” principle works well here.
  • Analyze and calculate EDI investment / automation cost. Consider the following: internal software development costs, EDI translator and communications software purchase, EDI VAN costs, infrastructure and hardware costs, training costs.
  • Conduct a Return On Investment Analysis. Consider the following scenario for EDI Cost Analysis that should help with this:
    • A company receives 100 purchase orders a month
    • The cost of manually handling each PO is $50
    • After implementing EDI, the cost of handling each PO will be $5 (includes VAN fees, exception handling, PO changes)
    • The initial implementation costs associated with EDI (including software, communications setup, integration and infrastructure) are $10,000 (reasonable for a company that receives 100 Purchase Orders a month and wants to integrate EDI with a business application).

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