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Benefits of Electronic Data Interchange (EDI) | Fundamentals of E-Commerce

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Benefits of EDIBenefits of Electronic Data Interchange (EDI),
Fundamentals of E-commerce Notes | Sixth Semester,
BSc.CSIT | Tribhuvan University (TU)

Benefits of Electronic Data Interchange (EDI)
EDI can be a cost- and time-saving system, for many reasons. The automatic transfer of information from computer to computer reduces the need to re key information and as such reduces costly errors to near zero. EDI transactions produce acknowledgments of receipt of data. Many firms are now finding that this acknowledgment can make the invoice obsolete and save many efforts now devoted to acquiring, receiving, and paying for goods.

For companies dealing with thousands of suppliers and tens of thousands of purchase orders a year, the savings from EDI are significant. For example, RJR Nabisco figures that purchase orders that previously cost between $75 and $125 to process now cost 93 cents. Companies can also pay each other through “automated receipts settlement” or financial EDI, whereby electronic purchase order acknowledgments and shipping notices provide the data necessary for payment, further reducing paper.

Savings also accrue from the following improvements:

1) Reduced paper-based systems:- Electronic Data Interchange can impact the effort and expense a company devotes to maintaining records, paper-related supplies, and to the personnel required to maintain all of these systems. Electronic transactions takeover most of the functions of paper forms and through automation drastically reduce the time spent to process them. EDI can also reduce postage bills because of the amounts of paper that no longer need be sent.

2) Improved problem resolution and customer service:- EDI can minimize the time companies spend to identify and resolve inter business problems. Many such problems come from data-entry errors somewhere along the way, and EDI can eliminate many of them. EDI can improve customer service by enabling the quick transfer of business documents and a marked decrease in errors land so can fill orders faster/ and by providing an automatic audit trail that frees accounting staff for more productive activities.

An example of problem resolution and customer service facilitated by EDI is the Vendor Stock Replenishment (VSR) initiated by retailers such as Wal Mart. This program requires that vendors maintain appropriate inventory levels in all stores. With VSR, stores do not run out of a product while suppliers or distributors wait for a purchase order from the headquarters. Suppliers and distributors send stock as soon as the store EDI system reports it is necessary and automatically bill the client. It cuts days, even weeks, from the order fulfillment cycle and ensures that the product is always on the shelf. The time savings come from not having to copy and fax/mail copies of invoices or purchase orders.

3) Expanded customer/supplier base:- Many large manufacturers and retailers with the necessary clout are ordering their suppliers to institute an EDI program. Today, when evaluating a new product to carry or a new supplier to use, the ability to implement EDI is a big plus in their eyes. These same companies tend to stop doing business with suppliers who do not comply with EDI.

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