Increasing profitability through EDI outsourcing

The economic downturn is forcing organizations to review their current IT business processes.
Increasingly Third Party Outsourcing (TPO) providers are reporting of being approached in regards to outsource EDI operations.

Initially the decision on doing EDI is an easy one. It is considered of making a one-time upfront investment in hardware, software and development and then pocket the gains from decreased transaction costand over a short time the initial investment cost have been recovered.

This is the time, when EDI moves from being a profit center, to being a cost center and companies start looking how they could save even more money. At this point outsourcing EDI may become a consideration.

Outsourcing EDI comes in many varieties and flavors. Finding and implementing the right solution depends of the readiness state of an organization. A readiness state is defined as followed:

  • Is the business just beginning EDI operations?
  • Does the business perform already EDI is one or more trading partners?

Under the first scenario, a business maybe forced into EDI by one or more of their trading partners. It could also mean that EDI just may become a corporate necessity.

The first scenario is easy to evaluate, since no established EDI processes and operational requirements have to be considered.

The second scenario becomes more complex, since the EDI department of a business may fall into one of three categories.

  • A one-man shop, handling a minimal amount of transactions, with occasional mapping changes or version upgrades.  This person spends most of his or her time waiting for new EDI activities.
  • A one- or two-man department with high transaction volumes that is overwhelmed with change requests, constant production problems, and setting up (Certifying) new trading partners.
  • Last but no least there is the solid and established EDI shop with a staff of 3 or more handling and monitoring the EDI production around the clock, as well as setting up new trading partners and implementing change requests.

In all three of these scenarios, the inefficiencies are obvious.

In the first, the company is allocating resources towards staff that goes underutilized.

The second is worse, as business opportunities are not being advanced, and revenue is lost, due to understaffing.

Finally, the last example, where despite its efficient appearance, the company has dedicated a huge annual budget to develop proficiency in a discipline that it may have a difficult time turning into a profit center.

All three scenarios have the two main challenges.

  • Efficient use of staff and core competencies
  • Investment in hardware and software, including maintenance and error handling.

Other issues that must be considered in hosting and managing EDI business operations include:

  • Investment required to maintain the Infrastructure
  • Down-time management
  • Environmental stability
  • System redundancy
  • Backup procedures and disaster recovery
  • Security
  • Acquiring, training and retaining staff

All of these factors play a role in a company’s decision of the direction it takes for its EDI operations.

Many businesses are deciding to outsource EDI in order to reduce staff and its associated cost, since a cost-benefit-analysis reveals in most cases that the overall employment cost in one year is higher than the cost of outsourcing the EDI operations partially or completely.

Employment costs are:

A large majority of any EDI budget is appropriated to maintenance.

Maintenance includes tasks, such as:

  • Production monitoring
  • Problem resolution
  • Trading Partner interaction
  • Version changes
  • Map changes
  • Map additions
  • Trading Partner additions
  • Backups
  • Security
  • Handling of occasional system issues

Outsourcing EDI operations enables you to handle these issues in a more cost-efficient manner. Depending on transaction volume and the number of trading partners, it makes sense to negotiate either a fixed cost model or a model based on time and material.

A further issue that can have a significant impact on a business is trading partner satisfaction. The most negative impact on trading partner satisfaction is within the area of error handling and timely response to any occurring issues. It is imperative to catch and resolve any errors early.

Untimely error resolution can lead to:

  • Lost revenue
  • Damaged trading partner relationships

Most organizations batch process their EDI transactions, which usually happens at night and any occurring errors may not be noticed until the next morning. Working with an inhouse solution may even result in an error not being detected until later in the day or week, due to internal staffing and processing limitations.

By using a third party EDI outsourcing provider, service level agreements (SLA) can be established that eliminate crucial error resolution time. This could even become a bigger issue for organizations operating globally and within different time zones.

EDI executed the right way has many intangible benefits.

The Top 10 Benefits are:

  • Improved Customer Service
  • Better Trading Partner Relationship
  • Creates a competitive advantage
  • Lower per-transaction cost
  • Reduces/eliminates manual handling of data, errors and rework
  • Enhances data accuracy
  • Automates routine transactions
  • Shortens transaction processing cycles
  • Improves productivity and business controls
  • Transfers information faster and more accurately

One comment on “Increasing profitability through EDI outsourcing

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