Why EDI is Retail’s Trading Foundation

Jul 04, 2011 10:40 PM  By

Major merchants have an exacting set of standards for the ordering, packaging, invoicing, and shipping of products to their store locations. To ensure that these protocols are met by all parties in the supply chain, electronic trading is mandated by retailers via electronic data interchange technology.

EDI is the common language between retailers and their suppliers. Through EDI, traditional trading documents such as purchase orders, invoices, inventory reports, advanced shipping notifications, routing requests and routing instructions are exchanged by electronic means from one computer system to another. Every stage of the fulfillment cycle is reliant on accurate and timely information being passed on electronically.

While EDI is a necessity for doing business in today’s retail marketplace, companies can also leverage this valuable tool to make their supply chains flow more smoothly. Although implementing EDI can be a daunting task, your business has the potential to achieve powerful and measurable benefits from your EDI investment.

EDI can strengthen your relationships with customers and vendors by improving the timing and accuracy in the delivery of goods and services. Technology industry experts such as Gartner Group point out that “EDI enabled” companies can achieve a 30% faster delivery time than those relying on manual order fulfillment processes.

On the operational side, EDI can help lower fulfillment costs, reduce order cycle time, better manage inventory, improve cash flow, and support strategic decision making:

  • Labor and cost savings. With an EDI system in place, most companies realize a substantial amount of time and cost reduction in processing and executing customer orders. With EDI, critical trading documents are no longer individually created, mailed, entered, and then processed. Instead, these documents are processed electronically and accurately, reducing processing time and the number of staff needed to complete each data entry.
  • Cycle rime reduction. Companies can also leverage their EDI platforms to shorten order cycle time – the time necessary for a customer to receive an order after it is placed. Speeding time to market delivery for your products not only increases competitive advantage, but also decreases carrying costs, and improves cash flow.
  • Streamlined inventory management. EDI can reduce the expenses related to storing goods for a period of time. EDI-enabled customer-supplier relationships can provide your firm with more accurate demand forecasts and more dependable supplier schedules.
  • Improved cash flow. Decreased operating expenses and improved accuracy in procurement areas are directly beneficial to your firm’s financial cash flow. Electronically received orders, processed quickly and received on time by your customers, will also allow your firm to negotiate incentives such as more favorable payment terms, discounts, and long-term contracts.
  • Better decision making. EDI-based reporting tools provide managers with access to data and process-status information, which allows them to make more accurate and informed business decisions. By enabling faster analysis and recognition of seasonal trends, pricing changes, and promotional ties, EDI can maximize product availability despite shifting demands.

There are a variety of ways in which an EDI environment can be implemented to support your retail supply chain relationships. Whether you are looking to implement EDI for the first time or expand your infrastructure to support new trading partners, there are a various options available to meet your technical capabilities and budget requirements:

  • Basic EDI. The basic level of EDI enables pertinent information to be entered in a web-based environment. This may be the choice for a company managing a smaller number of transactions. Simple pre-populated forms enable businesses to communicate and comply with their trading partners’ requirements. Using a friendly web-based interface, EDI transactions can be received, edited and traded electronically. You will also be able to receive EDI documents and send EDI invoices and shipping documents without installing any additional software.
  • Integrated EDI. This automated solution directly integrates with your trading partner and your fulfillment partner’s order management and inventory system. Higher volumes of transactions would benefit most from an integrated platform. Transactions and associated routing guide requirements are then processed by your partner’s trained professionals directly from in-house systems.
  • Turnkey EDI. There are many software solutions available for companies who prefer to retain complete control of their EDI environment. For companies without in-house IT expertise, support for EDI software implementation can be gained through your fulfillment partner or a third party integrator.

Jon Roberts is vice president of business development at EchoData Group, a third-party fulfillment and supply chain logistics company based in Coatesville, PA.