EDI, or electronic data interchange, has become one of the most powerful communication tools in today’s digitalized world. As effective communication can make or break a business, knowing how to operate EDI alone is not enough. A business also needs to be EDI compliant – not only to build trust within the partnership but also to avoid unwanted chargebacks.
What does EDI compliance mean?
A company’s ability to send and receive EDI transactions accurately in accordance with the partner’s data requirements is known as EDI compliance.
Depending on a business’ EDI papers, timeline, and other criteria, each company’s standards are different. By implementing a single EDI standard with every business partner, businesses save money and improve their supply chain efficiency.
Being EDI compliant and having trading partners be EDI compliant is extremely important, as it boosts efficiency and allows you to avoid expensive chargebacks, delays, or poor vendor scorecard performance.
What are the advantages of becoming EDI compliant?
The significance of establishing and maintaining EDI compliance should not be looked over, particularly in light of how it can improve your business’s bottom line. Furthermore, most, if not all, major trading partners now require that companies with the intention to conduct business with them be EDI compliant.
Besides the increased chance to work and trade with significant business partners, the following are more reasons for you and your business to become EDI compliant:
Lowering costs
As mentioned earlier in the article, being EDI compliant allows your business to avoid costly chargebacks – some businesses impose financial penalties on their suppliers and vendors for failing to uphold EDI compliance with established SLAs (Service Level Agreements), disrupting the business’ operation. Reducing unplanned cost offsets caused by non-performance is one of the biggest reasons why you should consider becoming EDI compliant – chargebacks accumulate quickly, leading to profit falling.
As you probably have noticed by now, EDI compliance works both ways:
- By having your trading partners adhere to EDI compliance rules, you can drastically reduce your prospective expenditures.
- You and your business can make considerable financial savings and even boost your profitability since EDI compliance ensures you meet your trading partners’ requirements.
Boosted operational productivity
Standardized requirements allow your business to automate crucial processes. Eliminating the tedious tasks of entering and then re-entering data frees up plenty of time, allowing you to allocate your labor for other more important, value-creating tasks.
Furthermore, automating the process means that most of your paper-based documents are digitalized. Not only does the switch significantly reduces waste, but it also makes the process of organizing, processing, and sending business documents much less painful. It is also worth mentioning that EDI transaction sets have built-in features to remove the need for manual data entry and can flag errors in important functions.
The numerous raw data collected gives the manager better visibility of their entire supply chain – what the inventory levels are, how shipments are moving, and what kind of item has a high turnover rate. Based on the data, managers can generate forecasts to make necessary adjustments, too.
All in all, being EDI compliant is operational beneficial – the manual steps are removed, and errors are detected when needed, raw data is processed for important forecasts
More business opportunities
Once you become EDI compliant, you have more opportunities to conduct business with major trading partners – as they require their vendors to be EDI capable. Being both EDI capable and EDI compliant gives your business a higher chance of getting those new products out on the shelves, and much easier as well. Your business may even be favored over your competition if you perform well for a certain period of time. As your business’ reputation grows stronger, it is only natural that other companies seek to do business with you, as well.
What are the disadvantages of not being EDI compliant?
More often than not, retailers are not as willing to engage in trading with non-EDI-compliant businesses. Clearly, this costs your company numerous valuable business opportunities, naturally making things easier for your competitors. This is especially harmful if you own a newly-emerged business since this will have a direct negative impact on your capacity to increase brand recognition, find new customers for your products and customer acquisition expenses.
As mentioned in the previous parts of the article, another risk of not being EDI compliant is the chargeback – financial penalties on their suppliers and vendors for failing to follow EDI compliance and disrupting the business’ operation. Some may believe that becoming EDI compliant is expensive. Nonetheless, it is important to keep in mind that chargebacks are compensation for the financial losses caused by being non-EDI compliant, the chargeback frequently ends up costing far more than the initial cost of being EDI compliant.
How to become EDI compliant
After discussing the importance of being EDI compliant, it is time for the vital question of “How does one become EDI compliant?”
Below are the steps you can take to become EDI compliant:
Understand the requirements
Always do your homework first. Try to learn and understand what specific demand your partner has when it comes to EDI transactions. Fortunately, most businesses disclose this information on their websites, along with other kinds of expectations.
Choose your EDI solution
You can opt for on-premises EDI solutions or a third-party provider. For many businesses, in-house EDI software can be challenging and costly to implement. Nonetheless, with the right EDI provider, it is possible to develop a suitable EDI solution for your business.
Modern, cloud-based EDI is also preferred by many businesses due to being cost-efficient and user-friendly.
Test the EDI solution
Once you have your EDI solution ready to go, it is now time to test it. The testing is to make sure that the digital message exchange carries on with the correct format and meets the data format requirement of your trading partner. The testing process often involves testing out a full transaction process. The order process might look something like this:
- The buyer sends an order to the seller (EDI 850)
- The seller confirms the order with the buyer (EDI 855)
- The seller sends an advance shipment notice (EDI 856)
- The buyer receives the goods
- The buyer sends an invoice with payment information (EDI 810)
If the testing is complete and successful, your EDI solution is ready to use.
Generate reports
EDI is more than receiving orders and generating automatic responses. It also provides you with important reports, especially if you are using EDI 852. Reports are crucial in better understanding your supply chain circumstances and making adjustments where needed.
How to get started
It is important for a business to be both EDI capable and EDI compliant. Not only does it saves a lot of internal costs, and enhance efficiency, but also opens up plenty of financial opportunities. The steps to becoming EDI capable and EDI compliant might sound demanding and lengthy, but it will all be worth it in the end. The journey to EDI is going to be much easier if you have help from professionals. At SCS Solutions, we have experts with years of experience. SCS Solutions team is more than happy to help you get started. Contact us via the website https://www.scssolutions.io/, Linkedin, or Facebook. We are more than happy to help you get started on the fascinating journey of manufacturing EDI.