The Agility Tax: The Hidden Price of EDI

The Agility Tax: The Hidden Price of EDI

If you’re a large manufacturer and need access to a rich Web of suppliers — or a supplier looking to sell to a major manufacturer — you know the critical importance of keeping your costs down. But you also know that one cost that can damage your business the most is not being able to share databases quickly enough to take advantage of a new opportunity. This agility tax kicks in when, say, an auto parts manufacturer finds itself short of a specialty heat-treated connector due to a burst in sales or an earthquake near their overseas supplier. If its IT systems can’t easily share the databases of production forecasts and parts it needs with potential new suppliers, production will stop and it will lose sales to its competitors. The same is obviously true for potential new suppliers, who may be able to beat the incumbent on price or quality, but can’t bid for the business because it would take too long to share the required databases. EDI: Right Answer, Wrong Problem Often, the legacy system standing in the way of new business opportunities like these is EDI (electronic data interchange.) Most major manufacturers, suppliers, shippers and retailers (not to mention government agencies) have used EDI for decades to eliminate the use of paper in common business transactions. Despite its name, EDI was designed not to share data in the form of relational databases, but to share standard business forms such as purchase orders, invoices, shipping notices and carrier-to-carrier waybills. It does a good enough job of solving that problem, assuming you and your business partner have enough volume to justify its expense and complexity. But if you need to add new business partners quickly – say, in the wake of a strike, natural or man-made disaster that takes a key supplier offline – EDI is not a good way to quickly share relational databases containing the production and order data you need to ramp up quickly. To know why, it helps to understand what it takes to implement EDI. EDI Under the Covers EDI is a software interface that sits between the different computer systems, and the different data structures, used by the sender and receiver’s systems. That means both parties must buy, configure and maintain EDI software to convert the sender’s form or data into a standard EDI transaction, and to convert the form into a format...

Read More