Did you know that the origin of Electronic Data Interchange (EDI) was in the 1960s when computers could first exchange data with each other? In 1975, the first set of EDI standards was published. Over the years, EDI technology has transformed the supply chain industry and is implemented through an integrated or non-integrated method.
What is EDI?
EDI is the exchange of information between computers in a standardized format. This information exchange can happen within the organization or between an organization and its trading partners.
EDI replaces the practice of sending out paper-based documents that were earlier sent out by post, fax, and/or email. The use of EDI streamlines the communication process with the use of a standardized format.
What is the need for EDI?
Problems such as delays and inaccuracies are rampant with paper-dependent business transactions. With an increasing number of businesses moving to a digital platform, they demand instant interchange of information with increased security. Manual paper-based transactions cannot meet this demand, but EDI can. EDI has truly revolutionized how businesses process their purchase orders and invoices.
Now, let's understand what the terms integrated and non-integrated EDI mean.
What is EDI Integration?
EDI integration refers to the integration of your EDI software with your ERP system. However, EDI integration also sometimes means the integration of EDI with other internal enterprise systems such as accounting software.
What is Non-Integrated or Stand-Alone EDI?
Non-integrated or stand-alone EDI is an isolated EDI portal that is not connected to your ERP or other systems in your organization. In other terms, without EDI integration, you are left with islands of technology that are not connected.
Now that you understand EDI and EDI integration let us compare integrated EDI and non-integrated EDI.
Integrated EDI vs. Non-Integrated EDI
Speed of the Process Cycle
Purchase order processing is long and tedious, and involves multiple departments of your organization. The pace of this process cycle will, in turn, determine the time of your supplier payments. Hence, companies need to shorten their purchase order process cycles to make vendor payments on time.
A non-integrated or stand-alone EDI doesn't operate in sync with the ERP system. Hence, it would involve more manual handling than an integrated EDI, which automatically extends the work cycle on purchase orders.
Integrated EDI helps you effectively connect with other internal ERP systems and automates the end-to-end purchase order process cycle, which hastens invoice processing.
Winner: Integrated EDI
Responsiveness of the System
Ever-evolving technology has linked multiple internal and external business parties to channel commerce. While this interlinking has made communication and processes transparent, it has increased the complexity of the process. An efficient EDI solution can adapt to your fast-paced business growth.
A stand-alone EDI may not work well with other integral ERP systems, making it challenging for it to keep up with the speed of buying and selling on a large scale and respond actively.
On the other hand, integrated ERP enables responsiveness as it can easily handle numerous trading partners and payments simultaneously with little human intervention.
Winner: Integrated EDI
Process Accuracy
An error in processing a purchase order can cost a company lots of money. Moreover, the error may have a negative domino effect on other business processes and, in turn, hurt your company's vendor relationship and reputation.
As it still involves considerable manual processing, a stand-alone EDI is error-prone. Besides, it may not communicate well with other ERP applications, leading to the loss of crucial data.
Integrated EDI enhances the accuracy of the purchase order process. It manages the data efficiently as it can talk to other ERP processes without any hindrance.
Winner: Integrated EDI
Process and Staff Productivity
The productivity of the process and staff will have a direct impact on the profitability of your business. Any company would want its EDI software to improve the productivity of the process and team.
Non-integrated EDI would need your staff to monitor a few aspects of the purchase order process. As the integrated EDI can automate the process to a large extent, your team can focus on other essential tasks. Hence, integrated EDI would increase the productivity of your staff. Also, the volume of purchase orders a non-integrated EDI can process is less when compared to the integrated EDI.
Winner: Integrated EDI
Processing Costs
Purchase order processing involves a lot of expenses. While a few of those expenses cannot be eliminated or reduced, other costs can be decreased through process improvements and efficiency.
Integrated EDI minimizes manual effort. Hence, you can save a lot on labor costs. By cutting short the payment cycles, integrated EDI can help you make vendor payments on time. Thus, you can not only save your company from chargebacks but sometimes also avail vendor discounts for early payment. Stand-alone EDI may not be that efficient when it comes to reducing processing costs.
Winner: Integrated EDI
Implementation
The duration of the implementation process and the complexity of the procedure would determine the cost of your EDI implementation. This process would also need you to do some legwork on all the prerequisites for the implementation.
Integrated EDI is a sophisticated software connected to numerous internal and external applications. It would also need a lot of prerequisite software applications in your organization for successful implementation. Thus, it might take more time and money to implement than a non-integrated EDI application. Integrated EDI implementation is not free from challenges.
Winner: Non-Integrated EDI
How to Decide?
Though integrated EDI may initially cost more and take longer to implement, it has long-term benefits that non-integrated EDI cannot match. Integrated EDI would be more adaptable to your organization's growth. Also, the type of EDI you need would depend on your business size and the number of trading partners you have. If the size of your company is small and it has only one or two trading partners, a non-integrated EDI would also work for your requirements. However, EDI integration is a must-have for companies that deal with more than two trading partners.
Next Steps
If you use Microsoft Dynamics 365 Finance & Supply Chain Management as your core ERP and would like more information on how integrated EDI can help your business, we recommend downloading our eBook 'How to Streamline Electronic Data Interchange (EDI) in Dynamics 365' from the link shared below.
Jerry Caous
