As a technology, Electronic Data Interchange (EDI) is 50 years old – not exactly cutting-edge. But the ability to exchange common business documents electronically between trading partners has never been more important. And, today, EDI is less costly and easier to implement than ever. Let’s look at some of the unique EDI requirements and industry-specific solutions available in the auto parts distribution business.
What is EDI and How Does it Work?
The automotive business produces millions of transactions such as purchase orders, ship notices and invoices every day. In paper form, these documents are expensive and time-consuming to manage. Since every enterprise of any size uses computer systems to create and receive its transactions, doesn’t it make sense to exchange these messages electronically? Besides, the real value and savings in exchanging B2B documents electronically is in the information that it provides to better run your business – more on that shortly.
The core function of EDI is to take a message, such as a purchase order from the buyer’s computer system, and send that message to the vendor’s computer system in a form that it can understand and process. Equally important to both the buyer and vendor are the messages collectively referred to as the “return docs” – acknowledgements, shipping notifications and invoices. The devil, of course, is in the details. It is almost certain that the systems of the trading partners will require different communication protocols; they can potentially format their documents in unique languages and structures; and the technical specifications are certain to vary field by field (length, syntax, decimals, etc).
Given the limitless combinations and permutations of format, protocol and specification, it’s a miracle that any message can be successfully understood by two business systems. Thanks to global EDI standards and industry-specific solutions and best practices, it is common for disparate technologies to exchange messages successfully. In recent decades technical advances such as the Internet and Cloud computing have lowered the cost of EDI, while reducing implementation time and increasing features and security.
EDI connectivity is typically done in one of two ways:
Point-to-point – this refers to the single-use integration that is engineered between the trading partners for each new connection. This requires both parties to have EDI software and a high level of technical resources. This limits the number of connections that can be put into production in any specific amount of time. The biggest drawback is that if any facet of the connection – protocol, format, or specification – changes on the part of any trading partner, the connection fails, and errors occur. Point-to-point is, therefore, only the best choice when affordable alternatives do not exist.
Third-Party EDI solution providers – sometimes referred to as “outsourced” EDI. As the name suggests, when a solution provider is positioned between the trading partners, the connectivity is no longer to a single trading partner, but to a network of other trading partners connected to the provider. The role of the third party is to translate, convert or map the messages from their original form to that required by the trading partner. New connections can go into production in much less time than point-to-point because each trading partner only needs to connect to the EDI service provider one time. New connections require set-up and testing, but little else.
Additional advantages of outsourced EDI are that the on-boarding, service and support of network connections are the responsibility of the third-party. It would surprise no one to learn that to engage and on-board a new supplier on EDI requires multiple messages to identify the appropriate decision-maker; explain the initiative; win the commitment to proceed; and finally implement and test the connection. Performing the on-boarding steps yourself can divert hundreds of man-hours from more productive activities. A full-service, third party EDI solution provider pays for itself many times over.
When a solution provider is focused on an industry such as auto parts and accessories, they can optimize their technology for the specific requirements of the active trading partners. For example, the field “Core Value” is important to pricing a remanufactured product but could be misunderstood outside of the automotive industry. Additionally, large nationwide retailers and distributors require hundreds of trading partner connections – all with similar technical requirements and specifications. A third-party EDI solution provider serving the automotive aftermarket almost exclusively offers the benefit of their domain expertise across several thousands of connections. An example of this was when GCommerce Inc. documented and shared an EDI Super Spec© that reflected the common practices of the trading partners they served. Eighty to ninety percent of the automotive EDI requirements are reflected in the Super Spec © and are re-used from one connection to the next. This makes new EDI connections much faster and simpler to put into production.
What are the Benefits of EDI to Automotive Distributors, Retailers and Brands?
As was stated earlier, the advantages of an EDI community of trading partners exchanging electronic documents are far-reaching and transformative. Some benefits apply more to the buyer than the vendor. And, other benefits apply to every partner using the technology.
With EDI, everyone can benefit from savings in paper, printing, postage, filing and managing mountains of paper documents. Perhaps the largest cost-savings comes in automating data entry and eliminating manual keyboarding. This applies to vendors entering purchase orders and to distributors and retailers entering shipping and invoicing documents to update inventory and accounts payable. Business information is processed immediately and error-free when purchase orders, shipping notices and invoices are exchanged electronically. Imagine the combined financial impact of faster cycle times for document processing; a reduction in document errors and lower operating costs in document handling. Buyers as well as their vendor partners would celebrate the lower costs and faster cycle times of a community of electronic trading partners.
Buyers (distributors and retailers) specifically benefit from improved inventory management, faster/more accurate financial reconciliation and improved visibility to vendor performance. Automotive distribution relies on fast and accurate replenishment of inventory to turn stocks and maintain high service levels. Slow or incomplete data exchange between trading partners has a cascading impact on distribution. Missing advance shipping notifications prevents proper staffing and planning for put-away of stock orders. Delays or errors in order processing require added safety stock to compensate. EDI purchase orders get received and entered in the supplier’s business system in seconds with no manual data entry or errors. EDI shipping notices inform the buyer of the parts in the shipment before the truck leaves the shipping dock. And, EDI invoices complete the procurement cycle and allow the accounts payable system to reconcile the PO and shipment with the invoice electronically and only report exceptions that require intervention. Staff can focus on tasks of higher value instead of pushing paper and entering data that was electronic before it got printed by the sender. Finally, when trading partners are fully committed to electronic messages, the vendor cycle times, order fill and error rates are clearly known in the vendor dashboard and scorecards. Great performance can be recognized, and troublesome performance can be addressed with fact-based information before it becomes a serious problem.
Vendors benefit as well from the speed and accuracy of electronic data exchange. Many manufacturer/vendors are under pressure to fill smaller orders with greater frequency. Fulfilling e-commerce orders and supporting the omnichannel strategy of their distribution partners requires vendors to be nimble, fast and accurate. The alternative to these efficiencies is to operate more DCs at great cost with more people and congestion.
Business decisions and processes are only as good as the latest information about your business. When transactions are exchanged via EDI and data is presented in seconds rather than hours or days, data collection, reporting, and analytics are more actionable and valuable.
In the auto parts distribution business, inventory availability and safety stocks are critical differentiators. The best businesses are measured with superior inventory turns and service levels. Faster order-to-sale cycles enabled by EDI ensure higher parts availability and lower the amount of safety stock required to cover for delays and uncertainty.
Whether you partner with a third party EDI provider (EDI as a service) or choose to go it alone, this 50-year old technology is here to stay and deserves a fresh evaluation with a wide-open lens to the many ways your business can benefit from access to all of the data required to make it thrive. AMN
About the Author
Scott Luckett is a Strategic Account Executive at SPS Commerce, a full-serve supply chain solutions provider based in Minneapolis. Previously, Luckett rose through several positions at the Auto Care Association over 17 years and as CIO had responsibility for the Technology Standards Committee, the Aftermarket eForum, the Telematics Task Force and the National Catalog Managers Association (NCMA). Before Auto Care, Luckett was a sales management executive at a local automotive WD and prior to that was a top sales producer for Triad Systems (now Epicor). Luckett has been recognized for his commitment to education and training in the auto care industry with the University of the Aftermarket Founders’ Service Award. He can be reached at [email protected].