EDI GUIDELINE
GENERAL SECTION
2
Business Issues
2.1
Impact of EDI
BUSINESS ISSUES
2.1.1 EDI in Business
EDI represents a fundamental change in the philosophy of doing business. Due to its
comprehensive nature, EDI can potentially affect all functional and system areas within a business.
The extent of this impact should not be underestimated. When EDI is used to exchange business
documents, data is transmitted quickly and accurately and is keyed in only once.
Many businesses are finding that EDI gives them a competitive advantage. EDI applications are
adaptable to virtually all business functions and all sizes of organizations. Many business
transactions that were traditionally paper-intensive now have industry-standardized formats for
exchanging data electronically. The telecommunications industry is no exception.
EDI bridges the data gap between different corporations with different computer systems. In the
past, data sent by one company to another company had to be re-keyed into the computer system
of the receiving company. With EDI, business transaction data is sent from one company to the
other in a standard format, which is then translated without re-keying into the receiving company's
application software. An outgrowth of the computer technology that is revolutionizing
communications around the world, EDI combines translation, storage, and transmission to provide
paperless transactions between companies.
2.1.2 Public Versus Private
There are endless variations of formats and terminology’s used in the paper documents of today's
business world. These variations existed with the early electronic transaction format that replaced
paper documents. Large corporations such as GM, Ford, Chrysler, Sears, and K-Mart used their
own unique proprietary (private) formats for electronic purchase orders, invoices, etc. If a
company wanted to do business electronically with them, it had to be able to handle each specific
proprietary format. Companies conducting electronic interchange with these partners were
required to have a separate translation program for each EDI partner.
Public EDI standards are designed to facilitate the electronic interchange of data in a standard
manner among independently organized, owned and/or operated computer and communications
systems. Adoption of the EDI standard developed by ASC X12 enables companies to use a
standard format for data interchange. Within many industries, migration is underway to ASC X12
standards from proprietary formats.
2.1.3 Strategic Issues
Short and long term benefits need to be identified. These benefits need to support the industry or
corporate strategies. The following are specific areas of application considered by top
management:
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Effects on the balance sheets.
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Real time cash management, cash control, and forecasting.
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Inventory and production cycles.
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Effects on accounts receivable.
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BUSINESS ISSUES
Changes in payment schedules based on supplier delivery performance improvement.
2.1.4 Benefits of EDI
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Increased Accuracy and Reduced Data Entry
EDI eliminates manually re-keying the output of one company's computer system into
another. When the same information has to be re-entered into another computer system,
input errors are inevitable. These errors, if not discovered at the time of entry, result in lost
time and money in the effort to discover and correct them. With EDI, this duplicate data entry
is eliminated.
•
Reduced Mailing Costs
Often, implementation of EDI can be justified based on the reduction of mailing and handling
costs alone. Calculating the potential savings of EDI can be done by multiplying the
administrative and mailing costs of a paper transaction by the number of documents
processed.
•
Decreased paperwork
A significant amount of paper can be eliminated when documents are transmitted
electronically. Information which formally arrived in paper format is now automatically
transmitted to, and stored on, the computer.
•
More Timely Information
Accurate and timely information is the cornerstone of managing any business. EDI addresses
both. Accuracy has already been discussed. Computers and telecommunications technology
move information vast distances quickly, making accurate information more readily available
for business decisions.
•
Inventory Reduction
EDI provides the supplier with timely information on what to ship and when. The supplier can
then better schedule material and production runs based on the actual requirements of the
customer, greatly reducing inventory costs. The buyer can also reduce inventory costs,
because materials are produced and delivered on an as-needed or just-in-time (JIT) basis.
•
Reduced Order Time
EDI provides the ability to order goods quickly and have them shipped, in many cases, the
same day with fully authorized documentation. As much as a week or more can be gained
over mailing and handling time. While facsimile machines have made ordering faster, the fax
process still requires re-keying the data into the receiver's computer. This time consuming
step is eliminated with EDI.
•
Better Cash Management
EDI allows more timely and accurate invoicing and purchasing functions. By eliminating the
guesswork associated with receivables and payables, more efficient cash management is
possible. When EDI is taken to its logical conclusion, electronic funds transfer (EFT), each
party's cash managers can make better use of their funds.
•
Customer Satisfaction
Perhaps the greatest benefit to be realized is customer satisfaction. EDI allows an order to be
received, processed, and shipped almost as quickly as it can be transmitted. Sharing
information with customers helps foster better business relationships with trading partners.
Also, the improved communication between partners, necessary to implement EDI, allows for
quick identification and resolution of problems.
•
Just-In-Time and Quick Response Support
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The benefits of JIT and quick response techniques have been documented in numerous
publications. While EDI is only one tool that facilitates the implementation of JIT and quick
response programs, EDI is essential to fully realize the benefits of these programs.
2.2
•
Competitive Edge/Retaining Market Share
EDI can strongly influence a corporation's ability to reduce overhead, manage the audit trail,
enhance materials management, improve inventory control and forecasts, and maximize the
effective use of resources. However, the most compelling reason to implement EDI may be in
response to major trading partners requesting the establishment of these links in order that
they might realize the benefits. Competition for market share is intensifying the need to
improve service and quality to achieve product differentiation.
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Changing to a Paperless Environment
From a functional viewpoint, EDI can replace many paper documents. An order is placed, a
purchase order is generated, a product or service is provided, and invoice is prepared, and
payment is made. With EDI there is no paper to handle, sign, stamp, approve, file or lose.
An auditor, however, will be concerned with the validation of payments, audit trails,
order/payment control, and correlation of accounting reports with actual transactions. A
challenge to the EDI implementation team is to design an electronic system that will satisfy
the auditor's physical documentation needs. Fortunately, there are simple ways to meet these
challenges. For example, codes and identifiers can be used to replace signatures.
Functional acknowledgments can be used as further checks on validity. EDI systems can and
should be designed to require terminal or PC identifications, user identification, date and time
of initiation. Specific audit trail databases can be kept. Password controls and authentication
to restrict access to system and databases can be supported.
Implementation Considerations
When implementing EDI, consider the following:
2.2.1 Management Support
EDI is a partnership. It takes at least two organizations to implement EDI. EDI is also a way of
conducting business that involves several individuals or functional groups within each
organization. For EDI to be successful, all that are involved must work together in an open and
informed environment.
Obtaining upper management support from all functional areas impacted is critical to the success
of an EDI implementation. Each functional area needs a contact person from its personnel to
assist in the implementation process and the ongoing operations.
Some areas of accountability are:
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Accounts Payable
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Accounts Receivable
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Information Services
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Financial
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Legal and Audit
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Marketing
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Materials Management
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Purchasing Group
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Sales Organization
BUSINESS ISSUES
2.2.2 Cost Benefit Analysis
How much is it going to cost? The cost to implement EDI can and will vary widely among
companies. The skills of the business and technical personnel, the design and condition of
existing computer systems, but most importantly, the ability of the organization to absorb and
adapt to change, will determine the cost of this effort.
The companies that have implemented EDI have done so because they believe the benefits are
tangible, the benefits outweigh the costs, and EDI is becoming the commonly used vehicle for
conducting business.
EDI may affect the costs related to the following areas:
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Personnel
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Keying operations
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Reconciliation of payments with invoices, purchase orders with invoices, etc.
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Filing
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Retrieval
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Preparing to mail
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Reports
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Telephoning
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Error resolution
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Staffing costs to run EDI system
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Overhead associated with personnel costs
Error consequence
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Misdirected orders
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Loss of business due to errors
Increased sales staff effectiveness
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Revising/preparing purchase order
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Follow up on order status, payments
Maintenance of customer base
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Faster service
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Response to needs
Inventory reduction
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Value of reduction in safety stock
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Value of reduction in storage costs
Assembly line efficiency
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Value of reduction in delivery time
Time value benefits
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BUSINESS ISSUES
Benefit of earlier payment
Mail, paper, and storage costs
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Postage
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Envelopes/paper
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Storage of paper documents
Hardware
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Computer systems
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Communication hardware
Software
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File conversion
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Translation
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Communication
Training
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Internal--users in the firm
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External--trading partners
Time value costs
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Costs of earlier payments to suppliers
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Data communications costs
When selecting an approach to implement EDI, consideration must be given to the above costs
and their impact on short-term goals and plans for long-term growth.
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As the number of EDI partners increases, very often significant expense may be realized in
overtime hours spent in a reactive mode trying to accommodate the new partners. Careful
consideration should be given to the manner in which EDI is implemented so that your trading
partners can be accommodated.
2.2.3 Strategy for Implementation
The following steps are recommended to implement EDI:
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Develop a business applications/trading partners matrix
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Designate EDI business contacts
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Conduct a trading partner survey of hardware, software, value-added network (VAN),
transactions and standards utilized
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Identify contact information for VANs or direct connections
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Identify contact information for software provider
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Determine what partner identification scheme should be used, e.g., DUNS numbers
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Define terms of exchange and establish agreement between trading partners
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Develop an overall system data flow design
Based on information collected from potential trading partners, develop an overall EDI plan.
Conduct meetings/conferences with trading partners and VAN (if used) to define EDI plans and
dates. Consideration should be given to those trading partners capable of doing EDI and having
the desire to participate.
If a VAN is being used, coordinate the completion of the service and license agreement and any
other documents required to activate EDI. This step is particularly important when a company has
determined that a specific VAN will be used with its trading partners.
2.2.4 Transaction Sets
Determine the required transaction sets and the minimum transaction set data necessary to
satisfy the application. Agree upon the acknowledgments that will be used. It must be
determined whether all transmissions or only exceptions will be acknowledged.
2.2.5 Pilot
A pilot program is a method of initiating EDI which provides the ability to test concepts and
practices prior to establishing EDI policies. An implementation schedule should be initiated.
Guidelines should be set to determine the next step after the pilot, for overall implementation.
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2.2.6 Test
There are various types of test you should consider:
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Test the interface to in-house system(s)
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Conduct system test with translation software and network (if used)
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Conduct system test with trading partners using a test data file and/or testing with live data
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Send sample X12 data to trading partner
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Initiate parallel test process (i.e., both hard copy and EDI transmission for comparison)
Once these tests have been completed, you are ready for live processing to be run in parallel.
Continue parallel processing until you and your trading partners are satisfied.
2.2.7 Education
Education of internal and external personnel is vital to the success of EDI. Educate user
personnel as to why the company is implementing the standards and what impact it may have on
the current procedures. Trading partner education regarding your EDI transactions and future
plans can be accomplished on an individual basis or through sponsoring trading partner
conferences.
2.3
Timing of Transactions
To be determined by company/trading partners
2.4
Modes of Operation
To be determined by company/trading partners
2.5
Security
To be determined by company/trading partners
2.6
Backup and Recovery Procedures
2.6.1 Recovery Procedure Considerations
To be determined by company/trading partners
2.6.2 Disaster Recovery Considerations
To be determined by company/trading partners
2.7
Audit Considerations
To be determined by company/trading partners
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