EDI (Electronic Data Interchange) is becoming increasingly prevalent as large retailers look to streamline their own processes saving time & money. If you want to sell your products to the likes of Asda Walmart, Tesco, Morrisons, B&Q, Argos etc you will have to use their EDI tool to pick up Sales Orders and issue Invoices, Credit Notes and possibly ASN (Advance Shipping Notes). This blog looks at the effect EDI has on small businesses and also possible solutions to make the process easier and more cost effective.
To start with: What is EDI?
EDI Can be defined as “The exchange of business data from one organisations computer application to the computer application of a trading partner” The EDI messages exchanged are usually Sales Orders and Invoices although there are hundreds of available messages.
EDI began in earnest at least 20 years ago and is now used by more than 20,000 UK companies. It is used most commonly by the UK retail sector, typically in the Grocery, Catering, Building & DIY, Publishing, Stationery and Department Store sectors.
There are no barriers to the use of Electronic Data Interchange in any industry. The expansion has been driven by major clients insisting that suppliers adopt electronic data interchange (EDI) to reduce overhead costs, thereby helping to enhance the on-going competitiveness of their business.
How does Imposed EDI affect Small Businesses?
To any business, winning that huge contract to supply Asda Walmart with your organic fruit or to sell your consumer products to Argos or B&Q may seem like a dream come true but in reality it can be another story. Once you have ascertained that you can actually meet the required orders by massively increasing your stock handling and processing you are then told you need to receive orders and issue invoices via their own EDI system.
Typically large retailers use Freeway EDI by GXS or Open EDI by Transalis – These seem to be the main players in EDI at present. The supplier will receive an email notification stating that they have orders, they then log in to a Web Portal to view all orders. These orders are usually printed off and keyed in to the suppliers Back Office System for processing. Once processed, despatched and ready for invoicing the supplier then enters the invoice details back in to the EDI Portal so they can be paid. Add in to that part shipments, return of faulty goods, credit notes, advance shipping notes and all of a sudden, you need to employ an extra person to simply act as an interface between your customers EDI and your own back office system. In fact, one wholesale distribution company in Cheshire had to employ two extra staff at a total cost of £40,000 Per Annum to handle their B&Q orders.
The small suppliers were finding that, on busy days, not all of the invoices were going back in to the EDI system delaying payment and holding up the whole “cash to cash”cycle. Human error and mistakes during all of the re keying in to the back office system results in incorrect shipments and returned goods all impacting on the profit the supplier makes and also on their reputation.
It sounds simple but, why can’t the human element be replaced with some sort of interface to capture the data from the EDI Portal and import this direct to the suppliers back office system? In the same way would it not save time if invoices only had to be processed in the back office system and then got sent direct to the customer through their EDI Portal to be paid? The answer is obviously yes.
If the supplier is running a decent back office system like SAP Business One then this can be achieved fairly easily using some clever system configuration with a WorkFlow tool and still remain cost effective. The system lets the supplier know that EDI orders are ready to be received, the supplier then uses a “tick box” system to select which orders to process, this data is then immediately imported in to SAP as a live Sales Order ready for processing. At the end of the day, once all orders have been despatched, the supplier is again presented with a tick list of orders sent out that need to be invoiced through EDI and again a tick box is used for processing. The result is the customer receives orders more quickly and with fewer errors. The supplier can reduce headcount or move staff on to more constructive tasks and ultimately save time, become more efficient and get paid quicker.
EDI is here to stay and if you want to grow your business and supply big retailers or other EDI users then it makes sense to keep the process as simple as possible eliminating the margin for error.