The areas of an organisation that would most benefit from EDI deployment will vary by organisation. Many large companies have started implementing EDI within their purchasing departments as a way to decrease the costs of processing purchase orders received from suppliers. Manufacturers have found that materials release documents make a good starting point for EDI, as they can use EDI to support just in time manufacturing strategies. Conversely supplying companies have often found that sales order processing is the initial area of EDI focus because their major customers want to send purchase orders electronically. Accounts payable is also a profitable area of EDI focus for organisations that receive or send large amounts of invoices.

In order to select a specific area, the EDI steering committee may direct the EDI co-ordinator to conduct an EDI survey of the organisation’s customers and suppliers. It is of little use building an EDI system in an area that cannot be supported by either large number of trading partners or a small number of high volume trading partners. Companies in the buying position often have the clout to require EDI of their trading partners as a condition of doing business, which is why purchasing is often the first focus of large organisation’s EDI efforts.

Undertaking an EDI Survey or Cost / Benefit Analysis

The EDI co-ordinator is also responsible for undertaking a cost benefit analysis for EDI. The cost benefit analysis further identifies the most likely corporate applications for EDI deployment and defines their priority for development. However the cost benefit analysis should be short enough to maintain momentum towards EDI completion. The analysis includes a description of the present systems in each functional area and a determination of the likely ways EDI can improve those systems. The issue and receipt of each type of business document is based on a system of human and machine procedures, all of which should be documented and analysed in terms of EDI efficiencies. Consultants often recommend that organisations undertake an EDI study with an eye towards improving existing processes, not just automating them. This may make an EDI system more expensive, particularly in terms of system development and employee training, but it also provides greater financial return in the long run.

In order to determine the prospective areas within an organisation to begin EDI, one should consider the following;

• The number of vendors or customers involved in a particular business cycle
• The amount of paperwork associated with a business cycle
• The amount of time it takes to complete a business cycle

The term business cycle refers to the entire set of processes and documents required to complete a transaction. A typical business cycle includes purchase order receipt, purchase order acknowledgement, producing the picking list, sending the shipping notice and invoice and finally receipt of payment. Further questions need to also be considered :

• Can EDI eliminate redundant steps in the business cycle?
• Can it eliminate redundant entry of data?
• Can it reduce clerical effort?
• Can it reduce the need to carry inventory?
• Can EDI improve relationships with trading partners?
• Can it improve customer service by speeding the delivery of goods?
• Can EDI support larger business strategies, such as just-in-time manufacturing?

Positive answers to such questions will help to highlight strong EDI opportunities within the business.

Conducting an effective cost benefit analysis requires a thorough understanding of EDI and how it works. It is often advisable for an organisation to call in an EDI consultant. A good EDI consultant should have experience with more types of EDI systems than even the most experienced EDI co-ordinators. This knowledge and experience can be invaluable in making sure an organisation gets the most value from its EDI investment. Only when EDI is deployed as a stop gap measure, to retain a customer for example, is EDI a trivial investment. Wise managers will not budget EDI as such. A solid analysis of a large organisations’ EDI opportunities and payback may cost up to $100k for a large and sophisticated system. An EDI pilot program may cost a large company between $1Million and $2Million for computer and telecommunications hardware, EDI software, integration staff time, training and outside consulting. Moving from a pilot phase to production phase can cost another $1Million to $2Million.

Smaller organisations that can use EDI software running on PCs can expect a much smaller investment. Recent internet based e-Commerce systems may be cost effective. Hardware, software, and installation of a VAN-based system on a PC runs about $3K to $5K for standalone EDI. Such systems may keep a customer, but they provide no more operational improvements than a fax machine. If the PC system is integrated into a much larger computer system, investment increases by at least another $5K however you begin to open up the system to further uses within the company. For example the inbound transactions, such as purchase orders move directly into the in-house system.

Few EDI systems pay for themselves because of savings in postage, paper documents, and fewer clerical personnel. Reductions in inventory and increases in working capital add to the main financial benefits of implementing an EDI system. Other benefits include faster order cycles, fewer returns resulting from more accurate orders, increased staff productivity and improved relations with trading partners. These benefits are discussed further in the Benefits of EDI section of this Microsite. The EDI team asks the accounting department to help develop an accurate projection over a three to five year time period.

Summary of EDI Survey

The EDI co-ordinator’s report on the EDI analysis should provide the basis for a final decision on EDI, its best immediate uses within the organisation and the best means of deploying the technology. The report should be financially oriented and allow management to make an informed decision. Like most system audits, the report should include the following elements;

• Scope of the project
• Description of strengths and weaknesses of existing systems
• Recommended system alternative and its capability to strengthen the company
• Reference to alternatives considered but not selected
• Financial data on recommended and rejected approaches
• Timing of system development and funds needed
• List of personnel required to develop and implement the system
• Implementation schedule

For a smaller or reactive organisation, such information may not be required.

High Level Systems Analysis

In terms of information systems , the EDI analysis must consider existing requirements and EDI needs, this may consider:

• The type of data that the current system requires
• Which data is required by the trading partners but unavailable from the existing system
• The data required by EDI standards

If the existing information system does not contain all of the data required by the trading partners, for instance the cost of modifying the system to include that data, must be included in the analysis.

The organisation’s existing telecommunications environment must also be evaluated. Many organisations opt to transmit EDI data through third party value added networks (VANs) rather than construct their own data networks for EDI. The internet also offers a cost effective and viable alternative. Document capacities gathered during the analysis phase of business processes should be stated in terms of required network capacities.

Once system capacities and needs have been determined, the analysis can examine different system options.

• Does the volume of anticipated EDI traffic require a mainframe approach or will a PC system suffice?
• Can the internal network handle EDI traffic?
• Will it be more cost effective to manage network connections with individual trading partners or to make a single connection with a VAN?
• How much programming is required to ensure that internal systems contain the data required by trading partners and EDI standards?
• How much programming work is required to integrate the EDI system with internal applications?

The answers to these types of questions lead to a number of different system specifications being derived.