The Evolution to Electronic Data Interchange ... - Aspen Publishers

The Evolution to EDI 79
The Evolution to Electronic Data
Interchange: Are There Benefits at
All Stages of Implementation
Many companies implement electronic data exchange (EDI) as part of their customer–supplier
partnerships. Both the customers and suppliers expect to gain operational and competitive
benefits. This article describes why a midsize midwestern supplier company received only minimal
benefits from its EDI installation. Key words: customer–supplier partnerships, EDI
Rhonda R. Lummus, CPIM, CIRM
Associate Professor of Operations
Management
Central Missouri State University
Warrensburg, Missouri
M
ANY COMPANIES implement electronic
data interchange (EDI) as
part of their customer-supplier partnerships.
Both the customers and suppliers
expect to gain operational and competitive
benefits. A midsize midwestern supplier
company received minimal benefits from
its EDI installation. A review of its implementation
issues might aid other suppliers
as they investigate EDI. The benefits companies
expect to receive from EDI should
be evaluated against other companies’
experiences.
A link exists between the level of implementation
of EDI and the associated benefits.
Benefits from EDI for a supplier company
appear limited unless the company
reaches an advanced stage of EDI implementation.
This stage has the customers
and supplier openly sharing information
on demand patterns, inventory levels, and
planned production. Issues of trust and
power must be resolved from both the customer
and supplier perspective. Achieving
this level of implementation is a significant
Hosp Materiel Manage Q, 1997, 18(4), 79–83
Reprinted with permission from APICS—The Educational
Society for Resource Management Conference Proceedings.
© 1995 by APICS
79

80 HOSPITAL MATERIEL MANAGEMENT QUARTERLY/MAY 1997
challenge for those manufacturing professionals
involved in EDI installations!
IMPLEMENTING EDI AT A
SUPPLIER COMPANY
ABC is a midsize midwestern manufacturing
company with approximately 800
employees. ABC produces cast metal products
for much larger “original equipment”
manufacturers. It began EDI implementation
by linking with a single large customer.
The large customer “strongly suggested”
ABC implement an EDI system if it
wanted to continue to remain a supplier.
The transactions currently exchanged
through EDI are the typical purchasing,
transportation, and invoicing transactions
between a buyer and seller. Purchase orders,
inventory advice, material release,
and shipping schedules are transmitted
from the customer; while advance shipping
notices are sent from the supplier. A payon-receipt
policy based on the advanced
shipping notice has eliminated invoices.
Transactions are batched through translation/mapping
software and the use of a
value-added network (VAN). ABC uses an
IBM AS400 computer system and an integrated
manufacturing and accounting planning
system. Production requirements are
received twice weekly from the customer,
and shipment notices are transmitted daily.
The customer continues to send a fax transmission
of the exact quantities to load on
specific trucks two days prior to the ship
date.
Few changes have occurred in ABC’s
procedures. Requirement and purchase
order information is printed through translation
software and manually keyed into
the company’s MRP system. A materiel
coordinator compares the requirement data
to current schedules and enters any
changes, exactly as is done for all other
customers.
ABC is in various stages of implementation
of EDI with three other customers. One
sends requirement information weekly
through EDI but does not receive information
from ABC. One receives information
from ABC on shipments but does not send
requirement information. The last company
is studying the feasibility of implementing
EDI. None of the customers can inquire into
ABC’s planning system to determine inventory
status or other planning information,
and ABC does not plan to implement that
capability at this time. ABC has discussed
using EDI with one supplier but has not
actively pursued implementation.
BENEFITS OF EDI FOR
SUPPLIERS
Large firms, buying from multiple suppliers
with a high volume of transactions,
receive substantial benefits with EDI, but
ABC identified only a limited number of
benefits it received. The information systems
manager summarized the benefits as
“improvements in the transaction process.”
EDI reduced the number of transaction
errors, reduced paperwork, improved the
quality of transactions, and reduced the
time needed to trace errors. Purchase order
and requirement information is received
the same day, improving the timeliness
of the information. However, hard
copies of purchase orders are created and
manually keyed into the MRP system.
These benefits have had a minimal impact

The Evolution to EDI 81
on the firm’s operations due to the slow
integration of other customers.
Other customer service benefits are more
difficult to quantify, but the managers believe
they exist. The use of EDI gives the
company a higher service rating in one
customer’s supplier rating program. The
exchange of information required during
EDI installation and the ongoing changes
required with the system have increased
the personal contact between ABC and its
customers. Daily telephone calls and fax
transmissions have been eliminated and
replaced by more planning and strategic
business discussions.
PROBLEMS WITH EDI FOR
SUPPLIERS
ABC identified several problems with using
EDI. One problem involves translating
customer files directly into the MRP system.
System changes are necessary to receive
customer information directly into the system.
The changes must include a process for
evaluating customer information since human
intervention is often required to determine
the feasibility of meeting demand.
A second problem stems from installing
EDI connections with multiple customers.
Each customer may have different requirements,
possibly including individual file
development. Required changes are as specific
as the characteristics of certain fields.
The company is currently working with its
MRP software supplier to resolve the system
problems. The connection of multiple
VANs has also presented some difficulties
and added cost.
The number of staff positions has not
decreased at ABC as a result of EDI. In fact,
staff responsibilities have increased because
of the required changes in the company’s
information system and the continued
manual input of some EDI transactions.
LINKING BENEFITS WITH
IMPLEMENTATION LEVEL
The study of one EDI implementation
could lead to the conclusion that EDI has
few benefits for small manufacturing firms
and is not cost effective. Discussions with
ABC and other EDI users indicate there
are several levels of EDI implementation
at supplier companies. Benefits from using
EDI increase as the degree or depth of the
EDI implementation increases. The implementation
stages for supplier companies
using EDI include the following.
Stage 1. EDI is used for a small number
of transactions with one trading partner.
Some business documents are handled electronically,
while all others are completed
manually. Electronic documents are manually
entered into the MRP planning system.
Stage 2. EDI is used with two or more
customers for a small number of transactions.
The extent of implementation relates
to the volume of business transacted
through EDI.
The number of staff positions
has not decreased at ABC as a
result of EDI. In fact, staff
responsibilities have increased
because of the changes in the
company’s information system
and the continued manual input
of some EDI transactions.

82 HOSPITAL MATERIEL MANAGEMENT QUARTERLY/MAY 1997
Stage 3. EDI technology is integrated
into the MRP planning system to update
transaction-driven information without
additional data entry.
Stage 4. EDI is used to transact business
with the firm’s suppliers in addition to
its customers.
Stage 5. EDI is integrated with customers
to the extent that the firm can inquire
into a customer’s database for information
such as inventory status and shipments.
Stage 6. EDI is integrated throughout
the firm. EDI transactions are found in all
functions of the business organization (quality
control, engineering, manufacturing,
marketing, and accounting).
The identification of EDI implementation
stages is important because of the relationship
between implementation and benefits.
ABC, a supplier company, realized minor
benefits from EDI. Further benefits are limited,
unless the company proceeds with linking
EDI to its manufacturing planning system
and expands the implementation to
more customers and to suppliers.
The benefits associated with EDI can be
grouped by their association with an implementation
level. The following groups summarize
the potential benefits of EDI.
Group 1 benefits (transaction benefits
at stages 1 and 2). The benefits
include reductions in paperwork, reductions
in time spent sorting and filing mailed
documents, reductions in input errors, improved
pay cycle, faster response time, and
standardized information.
Group 2 benefits (information-sharing
benefits at stages 3 and 4). The
additional benefits include reductions in
inventory, reductions in lead time, and
improved customer relations.
Group 3 benefits (competitive benefits
at stages 5 and 6). The additional
benefits include cost savings from reductions
in personnel and efficient business
operations, effective use of personnel assigned
to new tasks, and time-based competition
enhancement.
For a supplying firm, the benefits from
EDI implementation increase with each
level of implementation. The full benefits
of EDI are not realized until the company
is sharing information with its customers
and suppliers and has linked other functions
of the business, such as quality, product
design, and product engineering.
CONCLUSIONS
A midsize manufacturing firm linked to
its customers through EDI received minimal
benefits from installing EDI. Most of
the benefits were due to changes in the
transaction process. Fewer errors were
encountered, requirement information from
customers was received promptly, and customer
service improved. Further benefits
are limited without linking the manufacturing
planning system and other customers
and suppliers.
Supplier companies may be at various
stages of EDI implementation. The implementation
level affects the benefits companies
can expect from installing EDI. At early
stages of implementation, companies can
expect only those benefits that result from
improvements in the transaction process (as
with ABC). As planning systems are linked,
companies can expect improvements in lead
time, reductions in inventory, and other
benefits derived from sharing information
with their customers and suppliers.

The Evolution to EDI 83
An implementation level where the supplier
is considered an extension of the
customer’s factory can result in cost benefits
due to reductions in personnel and improved
operations and strategic time-based competitive
advantage. Suppliers must absorb
the cost of EDI technology unless they reach
this level of implementation.
The linkage of two companies’ planning
systems presents a unique set of problems
for materiel planning and information systems
personnel. Data from customers must
be integrated into the planning system with
minimal human intervention to eliminate
duplicate transactions. At the final stage of
implementation, total inventory can be managed
as if there were only one inventory.
Reaching this level of implementation will
represent a challenge for those professionals
charged with implementing EDI.