Does EDI Outsourcing Make Sense?

Electronic Data Interchange or EDI has been becoming increasing popular since the early 90’s. Often pushed by large organizations, like retail chains, large warehousing and distribution providers, etc.,  with high transaction volumes in order to reduce cost. Cost that occurs through manual data entry labor, printing documents like orders, order confirmations, shipping documents, etc.

Unfortunately EDI has one big drawback. As mentioned, EDI is usually first implemented at larger organizations and then pushed down to their vendor. These larger organizations developed their own standard within the already existing ANSI X12 (mainly deployed US/Canada) or EDIFACT (mainly deployed in Europe and Asia). This standard is then passed on to their trading partners. These trading partners or vendors can be larger organizations that have the resources to maintain their own EDI department, but they can also be smaller organizations that do not have the resources available to have their own EDI department or people.

Now why would I need my own EDI people you may ask. The answer here to is: You have a number of customers of which only a handful may require from you to be EDI compliant. These are usually organizations that deal with a large number of vendors. The way it usually works is that these organizations dictate the trading standard, meaning they tell you what your transaction sets you trade with them has to look like. The most common transactions organizations usually start out to trade are purchase orders (ANSI X12 – 850 / EDIFACT – ORDERS)  and invoices (ANSI X12 – 810 / EDIFACT – INVOIC), since these documents lay the base for all other subsequent transactions and are the easiest to setup.

The problem now is, that you have only a small number of customers that do EDI, but usually every single one of them has a standard developed that fits their ERP Solution and they force you now to adhere to this standard even if it does not fit your system. Your organization needs somebody to develop maps that translates your customers standard into a file format that your system can understand and vice versa any document coming from your system will have to be translated/mapped into a file/transaction that can be read by your customers ERP Solutions.

This process is called “Certification”. It means that your organization needs to get certified by your trading partner as EDI-compliant. EDI compliant means that your trading partner certifies that you were able to import  the transactions (e.g. purchase orders) you received into your system in such a way that you were able to produce an order in your system and then fulfill the order and send back an invoice, which was correct in regards and relation to the original sent purchase order and  that it  could be read and imported into your trading partner’s system without any issue.

Developing these maps and perform testing and certification can be a fairly lengthy and expensive process if you have to do it on you own. The reasons here for are that you will have to invest into you own EDI Mapping Software Solution (Translator), have people who not only are familiar with your Translator but also understand the various EDI Transaction sets (orders, invoices, advanced ship notices, order confirmations, change orders, etc.).  Remember maps have to be developed for every single one of your trading partners and be tested.

You may think that should not be to difficult. Let us just take an order. An order that is  entered manually from a printed form has various information in various places. Take now these manual orders from all your trading partners and compare them side by side. Non of them looks the same. None of them has the same information in the same place on the purchase order form. One PO may require you to ship the product on a certain date. Another PO asks for the product to arrive at the customers location on a certain date. Others give you shipping windows, meaning a product can arrive as early as … but not later then … .

When these orders are now sent in a file the same happens. All the relevant information is in different places within the file.  A human eye can easily detect the various information that is required to process the form. A software unfortunately has to be programmed and told where the information is located within the file and then mapped/pointed into a new file format that fits your system.  This must be done for each trading partner and each single document type for each trading partner.

On top of this, there are various communication methods in which organizations want to send and receive their transactions. Some utilize a Value Added Network or VAN. A VAN is more or less an electronic mailbox in which transactions are stored until they are picked up by the respective party. Then others want to trade directly with you using AS2, Secure FTP (S-FTP) or Secure HTTP (S-HTTP). Some want to send you the transaction in its native ANSI X12 or EDIFACT Form others use their own file format using XML. The variations are almost endless.

For an organization that deals only with a small number of trading partners it may be to expensive now to invest and acquire a translator and have their own resources to develop and maintain transaction sets and on top of it monitor the daily transaction volume.

This is when outsourcing makes sense. Outsourcing providers come in various flavors. There are the ones that require you to invest in your own mapping solution and they then develop the maps. You invest in hardware, software and monitoring resources. Then there are the ones that provide you with the whole service; meaning  they not only have the software and the resources to develop the translation maps, but they also monitor the transaction and are your first line contact for all your trading partners EDI issues and deal as intermediary between you and your trading partner for any questions or issues that may arise.

If you have a large number of trading partners and a high traffic volume it may make sense for you to invest in your own EDI resources (hardware, software, staff, knowledge, etc.)

Often organizations feel overwhelmed with the task evaluating what is the best solution for them and finding the right software and or outsourced EDI Service Partner.

Here is where you may want to talk to me. With more than 15 years of EDI experience, I have dealt or worked  with many different possible solutions. Whether it is doing everything inhouse, partially outsourcing EDI or completely outsource the whole solution, I have spend many ours and days, evaluating various EDI Translators. I have talked to and dealt with various solution partners.

I not only now what to look out for and what questions to ask, but I also have the experience to evaluate with you what may be the right EDI Solution for you, this includes providing a cost/benefit analysis for your business.

Feel free to contact me for a free 1 hour consultation by calling me at 770-776-6182 or sending me an email to oliver.schmid@4954itc.com

(c) Oliver Schmid

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