EDI Outsourcing and ways to raise the effectiveness of Electronic Data Interchange process
EDI Outsourcing is a critical business function – EDI can be outsourced. In the early days of EDI, a company would purchase an EDI system and assign someone from the IT department to look after it. Over the years, the technology has evolved. Trading relationships have expanded, and the cost to support an in-house EDI system has increased. EDI Outsourcing was not an option until the Internet came along and offered alternatives.
Outsourcing your EDI operation is now a viable option. The objective is not to eliminate jobs, but to become more efficient in a very competitive global economy. It is not economical for some companies to purchase software and dedicate staff to an in-house EDI system. Other companies have come to the realization that they should focus more time on their core business, and less time on operating an EDI department.
1. Reduce operating costs
There are many costs involved with operating an in-house EDI system, which makes this the number one reason for EDI outsourcing.
Infrastructure. This includes the one-time purchase of hardware, EDI software and communications software, plus the recurring cost of annual software maintenance, support and upgrades. An entry-level configuration costs $5,000 – $15,000, while a mid-level configuration costs $25,000 – $50,000. Enterprise configurations cost $50,000 to $150,000 or more. The annual maintenance cost is 15% – 20% of the initial purchase price. At all levels there are additional costs for network security, backup and disaster recovery.
Staff. Some of the activities required to operate an EDI system include setting up new trading partners, mapping and integrating new documents, changing maps, co-ordinating trading partners, testing, daily monitoring, and troubleshooting problems. Small companies can operate an EDI system with one staff member, while large companies require more staff. Costs include salaries and benefits, plus the cost of hiring, training and managing an EDI department. An EDI analyst’s salary ranges from $50,000 to $75,000, and an EDI co-ordinator’s ranges from $25,000 to $50,000. The cost to hire an EDI Outsourcing consultant is $100 -$150 per hour.
Penalties and charge backs. EDI is a complex process, and trading partners in some industries are unforgiving of mistakes. Keying errors, incorrectly formatted transactions, missing data, duplicate transactions, failure to acknowledge a transaction, and not adhering to data transport schedules can all lead to penalties and charge backs. The Advance Ship Notice (856) is one of the most complex EDI transactions that result in penalties because of a late transmission, missing data or other errors.
2. Improve responsiveness to customers
The use of EDI around the globe is increasing, with new companies adopting the technology, and experienced companies expanding their EDI programs by adding new trading partners and new documents. As demand for EDI increases, companies face the following challenges:
- Implementing new trading partners and documents on time
- Implementing and maintaining changes to trading partner implementation guides
- Providing support outside of normal business hours
- Dealing with customers’ global requirements
- Meeting customers’ new technology demands, not just EDI
- Up-scaling infrastructure to handle the increased volume.
3. Focus on core business activities
Keeping up-to-date with technology is mandatory for companies wishing to stay in business, and it can be a burden for some companies. EDI is one of the many technologies that can take the focus away from core business activities. Keeping track of changes to several trading partners’ EDI requirements is time consuming and costly. Every company should concentrate on activities that increase revenue and profits, not activities such as EDI, which are an expense. There are many industry experts out there who can do a better job of running an EDI operation.
4. Pass on the complexities
E-commerce is never stagnant, and it is easy to fall behind in your EDI program because of the complexities involved. Large companies are more adept with technology and can use it to their advantage, while technology can be a burden for smaller companies. Through EDI outsourcing, you can pass on the complexities of EDI to a service provider who has the expertise to readily respond to trading partners on your behalf.
5. Reduce frustration
One trading partner in an EDI relationship is usually ‘forced’ into EDI by their customers. Even though it’s a cost of doing business, there can be resentment, especially when unilateral penalties and charge backs are imposed. It can be a struggle to keep up with the EDI demands from customers, which causes frustration throughout the organization. Losing a key EDI resource creates additional stress, and can cause a company to fall behind, which can lead to costly errors until a replacement is adequately trained.
Learn more about EDI Outsourcing benefits and ways of its implementation at our EDI Fundamentals and Best Practices classes throughout USA and in Canada.