what is electronic data interchange (edi), and how much
TRANSCRIPT
March 22, 2018The processes around procurement can be costly as well as require a high level of transparency, amongst other challenges.EDI (Electronic Data Interchange) can automate the process of issuing POs and entering invoices. Dramatic savings from reduced effort and accuracy are the result.
What is Electronic Data Interchange (EDI), and How Much Can It Save My Local Government?
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Bret ConardVice President of Sales and Marketing
Today’s Presenter
What is Electronic Data Interchange (EDI), and How Much Can It Save My Local
Government?
Presented by
Edict Systems
&
Alliance for Innovation
March 22, 2018
Bret ConardVice President of Sales and MarketingEdict Systems
Bret joined Edict Systems in 2015 with over 20 years of experience in software development, professional services delivery, and sales management in several industries. During his IT and consulting careers at Levi Strauss, RCM Technologies, and United HealthCare, he played key roles in implementing and managing global supply chain and compliance initiatives. His diverse background allows Bret to function fluently at all levels within the complex world of EDI and enterprises of all sizes. Bret holds a BS in Information Technology from American Intercontinental University.
Procurement
Purchase Order(PO)
Invoice(INV)
Basic building blocks of procurement
Buyer Seller
Purchasing generates a Purchase Order
Sales / Customer Service enters Order
AP Enters the InvoiceAR generates an
Invoice
Route for approval
Requisition Process
Approval Process
Pros Cons Functional – Gets the job done
Lots of paper backup / reference
In theory easy to do
Adaptable to any need
Universally understood process
Data entry is labor intensive
Break in the process between order entry and invoice
Filing and storing paper
Accommodation leads to complexity
Very slow, multi step process
Multiple opportunities to induce human error
No visibility into status
EDI 101A set of written standards for formatting a document in a way that enables computer systems to communicate with no human interaction. . By specifying the line and position of specific data elements. An EDI 850 PO for instance says a PO Number will be exactly “here”. Additionally, repeating data is replaced with 1-3 character codes to reduce file size.
Now, instead of writing custom documents for every trading partner, A company can write one 850 and 810 (PO and Invoice) and trade them with any other company who also uses the EDI standards.
A text document that formats the data using exact location, (line and character position) instead of color, size and white space.
Difficult to impossible to read, but perfect for a computer to “read” and process.
Purchasing generates
a Purchase Order
AR generates an Invoice using PO
data
Order data loadedInto system
Route for approval
Invoice data loaded
Into system
Requisition Process
Approval Process
EDI ....... cost savings: Expenses associated with paper, printing, reproduction, storage, filing, postage and document retrieval
are all reduced or eliminated when you switch to EDI transactions.
Errors due to illegible faxes, lost orders or incorrectly taken phone orders are eliminated, saving your staff valuable time from handling data disputes
Cost estimates for manual processed transactions: $35 - $138. Cost estimates for EDI processed transactions: $2.00 - $8.00
EDI ....... speed and accuracy: Exchange transactions in minutes instead of the days or weeks of wait time from the postal service
Improves data quality eliminating errors from illegible handwriting, lost faxes/mail and keying and re-keying errors
Using EDI can reduce the order-to-cash cycle , improving business partner transactions and relationships
EDI ....... efficiency: Automating paper-based tasks allows your staff to concentrate on higher-value tasks and provides them
with the tools to be more productive
Quick processing of accurate business documents leads to less re-working of orders
Shortening the order processing and delivery times means that organizations can reduce their inventory levels
Common EDI documents include:
810 Invoice 820 Remit Advice 850 Purchase Order 855 PO Acknowledgement 856 Advance Ship Notice 860 PO Change Request (Buyer) 861 Receiving Advice Report
Common EDI response documents:824 Application Advise 997 Functional Acknowledgement
Common EDI tasks include:
TranslationApplication Data -> EDI FileEDI File -> Application Data
MappingField xx -> Field yy
TransmitPhysically send file from
A -> B
ResponseFile receipt & or
message
Connection to allow subscribers to communicate over a private Value Added
Network (VAN)
EDI Providers entered the market with proprietary software and services:
Software to translate the output of internal systems to EDI, and EDI into input for internal
systems
Mapping to match data elements of one Organization’s implementation of EDI to
the corresponding fields of another’s implementation
Late 70’s - mid 90’s
- - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - -
Kroger P&G
IBM
Early providers provided and charged for:• The physical network for transmission (the actual copper lines)• The delivery mechanism / software• The on premise translation software • The trading partner “Maps”
Based on what could be huge implementation and operational costs, only the very largest companies could make use of the advantages
1998
3 Revolutionary concepts:
• Hub and Spoke business model
In this concept, the Buyer or “Hub” plays a key roll for several reasons: As the customer, they drive the relationship with the vendors. They set the terms
and control the process. They can issue a “Mandate” There is only one map; theirs. Vendors trading EDI must meet their map. Hubs benefit more from EDI than Spokes (Vendors) do.
• WebEDIThe internet provided an alternative to the privately owned VAN networks of the early providers. Stand alone translation software could be hosted as a web application and enable vendors to trade data even more easily and cost effectively. With only 1 map to a Hub, thousands could easily trade EDI data.
• “One side pays”As with telegraph, telephone, cell phone and all other communication mediums, the practice of charging the sender to send, and the receiver to receive, would eventually fall due to competition. With the concept of Hub and Spoke, and Web EDI, a natural step was to offer the service “Free to the Hub”, and only the vendor pays.
Today
FTP/SFTP
FirewallYour
Vendors
Translate
DataMap
ERP File
ERPSystem
Non - EDIVendors
Testing &Certification
Dramatic reduction in costs to stand up an EDI system from scratch
Competition due to increased number of providers also worked to drive prices down
Variety of connectivity options and SaaS solutions enable even small vendors to participate in an EDI relationship
The net result is: The number of transactions required per month to justify an EDI implementation has dropped from
hundreds of thousands, to hundreds.
It is Easier, Faster and Cheaper than ever before to implement EDI….
Meh, so what?
Finding the numbers……………………
OpenText currently reports a $35 cost for manual / paper based POThis is reported as a “Global” average across all industries and sectors. It includes all segments of a products lifecycle from manufacture to end user.
5 year old study at a consumer electronics company calculated at $85A more specific, and detailed study on the actual cost of wide scale purchasing of raw materials, components and manufacturing sundries.
14 Year old Kroger study was $138.00 to issue a POA highly detailed analysis of the actual costs involved in every phase of the Req-to-Check process. And included data entry errors, catalog discrepancies and error remediation.
We will use the $35 from OpenText*
*with the caveat that it is likely significantly understated.
Many people initially find the $35 - $138 cost per transaction a difficult estimate to believe.
Procurement related costs:
Software and Systems Labor (FTE costs) Operational Costs
• PO Delivery (fax, email, other)• Invoice receipt (fax, scanning, archive)
• Verification • PO arrived• Ship date• Price
• Data entry (Invoice)• Error remediation
• Qty• Price• SKU / Item
• Re-ordering• Scanning / Filing
• Expedited shipping• Higher prices for reorders• Re-sourcing• Missed discounts• Late fees
Red noted costs are by far the most prevalent and the highest.Quantify and total these costs and divide by number of transactions. Global average is $35 and up.
Software (Translation, Delivery, Validation) $ 45.00 Per Transaction
PO $ 0.06 PO Ack $ 0.06 Invoice $ 0.06
Total $ 0.18
EDI Costs:
Software and Systems Labor (FTE costs) Operational Costs
• PO Delivery (fax, email, other)• Invoice receipt (fax, scanning, archive)
• Verification • PO arrived• Ship date• Price
• Data entry (Invoice)• Error remediation
• Qty• Price• SKU / Item
• Re-ordering• Scanning / Filing
• Expedited shipping• Higher prices for reorders• Re-sourcing• Missed discounts• Late fees
The majority of associated costs are eliminated (or reduced to the point of insignificance)Quantify and total the remaining costs and divide by number of transactions. Global average is $2 - $4.
Cost comparison for Manual vs. EDI
*Using the lowest globally published cost estimates for manual, and the highest published estimate for EDI Procurement (non- manufacturing)
Cost comparison for Manual vs. EDI
But let’s assume your organization is more efficient, and streamlined than the global average by 100%Making your cost per transaction $17.50
Real world example: Medium size school district (Fla.)
FY 2017 27,000 PO :: 82,000 Invoice :: 60% Adoption rate (Est)
That is between $650,000 and $1,500,000 in finance and resources they will be able to reallocate back to their core mission.
What does it take to implement
Finance, or ERP system capable of exporting a file for PO data and Importing a file for Invoice data.All modern commercial ERP systems have this capability. Most others can be modified with various levels of effort to achieve the import/export.
Commitment from Leadership to insist vendors comply with the initiative.Adoption rates will be <5% with a completely voluntary message, and as high as 95% with a very firm message.
Project effort typically < 120 hours over 4 – 6 weeks across AP, IT and ProcurementSome training and new workflows may also be necessary but are relatively limited in scope
Some providers may require full or partial cost of developmentMost do not, relying on data fees, and vendor sign-up to generate revenue.
Timelines for project implementation run from 6 – 13 weeks.Vendor “onboarding” then begins and can take as much as 1 month per 100
Questions and Answers
Presented By:2434 Esquire Dr.Beavercreek Ohio, 45431
http://www.edictsystems.com/
Bret ConardVice President of Sales and Marketing
Q&A
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