EDI and Supply Chain Communication Cost – A primer
AIAG-Automotive Industry Action Group recently conducted an event on cutting supply chain communication costs. EDI, as one of the key component of supply chain communication, figured in the initiative.
Automotive industry is perhaps one of the largest adapters of EDI in the world. Multiple tiers of suppliers, movement towards assembled components and control of inventory through JIT, have made supply chain communication a key requirement. However, with the ever increasing pressure to reduce cost, supply chain communication has become a focus area.
Ironically, EDI has been an enabler of cost reduction. It has changed the landscape of business and redefined the supply chain operations. EDI saved considerable amount of money through streamlined operations by enabling consistent information flow with reduced errors.
Why is the traditional EDI under fire now?
Typical EDI implementation primarily consists of –
- Business Documents from Transaction System (ERP or Legacy).
- EDI Data formatting Standards like ANSI X12, EDIFACT.
- EDI Translators that converts Business Document Data into EDI Standards Format.
- Communication Channel to send/receive EDI Messages like Direct Link Networks, Private or Propriety Networks, Third-party Value-Added Network.
Traditional EDI
The Cost of procuring and setting up EDI Translator and enabling the Transaction System is mostly one-time. While there could be maintenance cost in the form of setting up / enabling new trading partners, new documents etc.
Communication Channel used in Traditional EDI is mostly closed networks which are protected from outside world. Most widely used communication channel is Third-party Value-Added Networks (VANs). VAN Services typically consists of installation fee, recurring per-transaction fee, monthly subscription and maintenance fee for mailbox/accounts. Given, Monthly maintenance charge and per-document transaction fees of VAN, can accumulate to huge amount of cost. This cost forms substantial part of the EDI cost of ownership. High cost of ownerships prevents small automotive suppliers to embrace EDI and thereby reduces the supplier base for OEMs.
In the next blogs, let look at:
- Cost aspects of traditional EDI
- Emergence of Web EDI
- Using Internet as a communication channel
- Comparison and conclusion
