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7.08 - EDI – Methodologies

Business Applications for Electronic Data Interchange (EDI)

EDI involves the use of computers and telecommunications to transmit and receive standard electronic massages in place of paper documents. The partners become computer systems instead of individuals, and the areas of application include commercial transactions such as purchase order acceptance and invoice payments. Other applications include manufacturing and product engineering information transfer relating to specifications, designs and manufacturing processes.

The major reason for introducing EDI into a business must be to gain competitive advantage. Therefore the implementation must result in gains that significantly outweigh its cost in terms of additional procedures, computing resource and IT staff. The effective introduction depends upon two important elements:-

  • The matching of an information system architecture to a natural group organisation and business architecture to ensure the appropriate degree of ownership and control
  • The adoption of some enabling standards such as ODETTE or EDIFACT to smooth the matching process for hardware and software subsystems and for unifying the formats of messages and technical information transmitted into a neutral format for conversion on receipt.

To achieve the first means education involving a wide range of functions and managers across a company in the development of EDI. The second requires co-operation across company and international boundaries and, since equipment suppliers could be regarded as having a vested interest in monopolising a set of standards, this co-operation has to be facilitated via the actions of Governments and national bodies, supported by commercial organisations.

Achieving Competitive Advantage via the Application of EDI

Competitive Advantage can be gained through the flowing two main categories:-

Cost Reduction Advantage

A proposed cost reduction advantage should appear directly as a lower cost product and hence a lower selling price or a higher profit. It is necessary to take care that the benefits of EDI procedures are not obscured by a growth in overhead support staff in IT and a growth in procedural complexity. The way to safeguard the situation is to scrutinise app EDI proposals by examining the whole process involved by drawing or modelling the existing and proposed process flows to separate the value added and the no-valued added activities resulting from the proposals.

Value Advantage

The value advantage is something perceived by the customer to be special by way of a service, such as reduced lead time, that is not obtainable elsewhere.

One important way of ensuring that the cost advantages are not eroded by systems complexity is to carefully align the information systems to natural groups in the organisation who will own the necessary systems, databases, authorities and procedures etc.

It is very important that the legal and commercial implications of the introduction of EDI are assessed and procedures defined at the outset to protect the interests of the participating business partners.

Typical Applications of EDI and related competitive advantage:-



Value Advantage

Cost Advantage

The Commercial Office

Enquiries, Price lists, orders, acknowledge-ments, invoices, schedules, statements, remittance advices, etc.

Faster, smarter response to customer, particularly customer service and the after market, fewer queries and misunderstandings to resolve.

More on-time payments, fewer people and lower costs in administration, including reduced paperwork.

The Manufacturing Office

Kanban, delivery call-off, delivery advice, supply chain stock location and movements, NC files, process FMEA, SPC and process flow data.

Closer coupling of information along the supply chain.

Potential for reduced lead times, improved product availability to customer, improved design for manufacture (could be designed by your customer in collaboration with your staff). There is potential for improved component design with your suppliers.

The Business Development Office

Marketing databases, technical design, processing data, group technology, design FMEA and DFMA, etc

More accurate definition and understanding of customer requirements through closer collaboration, higher quality products etc.

Reduced product development costs, potential for lower cost products, better manufacturing process control, etc.

Further Reading