Written by JEREMY CENTNER
Electronic data interchange (EDI) software is the foundation for sharing and interpreting transaction and inventory data between channel partners and logistics providers. However, many distribution companies confess to having a love/hate relationship with EDI tools.
At its best, EDI facilitates direct, seamless transactions electronically. The rigid standardization found in EDI ensures data is consistently and appropriately formatted to translate across companies and business processes. Data homogeny reduces costs and mitigates order processing, inventory management, storage, and logistics issues. But implementing and maintaining an EDI platform can be challenging, particularly in data mapping and onboarding new clients or vendors, both of which can take months.
Despite the complexities, EDI is here to stay. Distributors must have EDI systems that scale and evolve with the fast-changing supply chain. Many larger trading partners even compel the use of EDI. In particular, big-box stores like The Home Depot and B2B marketplaces like Amazon Business require it to do business with them.
You’re at risk of losing customers and vendors if you cannot communicate and transact in the way they require. On the other hand, distributors also stand to gain a lot with the proper implementation and use of a modern EDI infrastructure.
THE BENEFITS OF EDI FOR DISTRIBUTORS
Distributors yield five key benefits from leveraging modern EDI applications:
- Cost and time efficiencies
With EDI, business documents are automatically processed by channel partners, with greater accuracy, and in less time. Automation also saves money, with less manpower required to process transactions. This is especially true with distributors’ largest and highest-volume customers.
- Data accuracy
EDI eliminates the need for humans to pull and sometimes manually re-enter data, a time-consuming, error-prone process. With EDI, documents transfer seamlessly between companies without requiring manual data entry. In addition, rigorous standardization ensures each document is formatted correctly before entering into a specific business workflow.
- Connects you with important channel partners
Your business ecosystem comprises thousands of vendors, suppliers, customers and more. Each transaction funnels through a patchwork of information systems unique to each business.
EDI maps and translates document data so disparate software can extract the same meaning from a transaction or communication between companies. The result is that EDI can respond immediately to a customer, vendor or another partner request, improving your communication, bettering your relationships, and potentially creating new opportunities for your company.
- Enables digital transformation
The distribution industry understands the need for digital transformation. The alternative is lowered agility, manual processes and the inability to integrate across software platforms.
- Enhanced security
EDI platforms use encryption, decryption, and other security measures to ensure the safe transmission of data and reduce the risk of security breaches.
In four decades, we’ve not developed a replacement system with the same benefits as EDI. Amidst the increasing complexity of B2B interactions, EDI provides powerful insights, faster order processing and better data flows between your business and customers, partners, and suppliers.
The key to getting the most from EDI is to leverage modern platforms, and to say goodbye to legacy practices such as transferring or accepting data with file drops or email, or re-entering data into an EDI system from fax orders and less-efficient methods.
While EDI holds clear benefits, it also has its pitfalls. So, what are the challenges of working with an EDI platform?
EDI DRAWBACKS FOR DISTRIBUTORS
EDI systems have traditionally been costly and complex to set up and maintain. For these reasons, distributors tend to implement EDI with larger vendors and customers.
Distributors must follow custom requirements around data, communication, integration and data mapping, not only within your IT systems but with each customer, vendor and partner you connect to. They must maintain these connections, and onboarding new vendors, for example, takes at least two months (sometimes longer) to complete. The bigger the customer, the more complex the onboarding. The process typically entails:
- Requirements gathering
- Inbound EDI mapping integration
- Outbound EDI mapping integration
- Testing and validating
- Setting up communication channels
- Handling 997 EDI acknowledgments
- Go-live testing
As a best practice, you must follow these steps for each new onboarding partner and by the type of transaction you’re adding. That’s why it’s common to partner with an expert like Sikich who understands the importance of EDI and can ensure it integrates properly with your Dynamics 365 ERP.
Despite these challenges, EDI remains a critical component of distributors’ technology infrastructures. These platforms continue evolving, even as regulatory and business needs change.
WHAT’S NEXT FOR EDI?
As supply chains and global processes grow more complex, EDI platforms play an increasingly important role in our business success. Expect EDI solutions to adapt to some of the significant supply chain technology changes we’ll see in the future, such as:
- Internet of Things (IoT) remote sensors attached to shipping packages to provide better visibility into product delivery.
- Blockchain technology that provides an online indelible record of B2B transactions.
- Artificial intelligence (AI) that can flag non-compliant events within a business process, then act appropriately to replace a shipment or authorize a return—or some other action usually handled by a customer service representative (CSR).
The global EDI market is projected to grow to over $9 billion by 2030.
REDUCE EDI HASSLES AND OPTIMIZE ROI FASTER
The Sikich implementation team works with distribution businesses to roadmap, select, and implement better EDI solutions.
These solutions, which our team has vetted, seamlessly integrate with Microsoft Dynamics 365 Finance and Supply Chain Management. That means you get the visibility you need quicker, and you’re not navigating multiple screens or programs to determine where orders are. Microsoft also requires the applications to stay within any code updates and other requirements.
Set up a free consultation with one of our experts today to learn more about EDI for distribution.
This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.