How does EDI reduce costs? 5 proven methods

Is your growing business facing a complex, lengthy, and confusing order-to-cash process? Are your trading partners already using EDI integrations and requesting you to do the same? If so, it’s time to consider B2B/EDI integration—a standard way to communicate various types of information in a common format.

Despite its reputation for complexity, EDIEDI stands for Electronic Data Interchange. It is a standardized method for exchanging business documents electronically between different computer systems in a structured format. EDI enables the automated exchange of documents such as purchase orders, invoices, and shipping notices between trading partners, helping to streamline and automate business processes. (Electronic Data Interchange) can significantly save time and money in business-to-business communication. But how do you quantify these benefits?

This article won’t provide an exact calculation of EDI’s benefits for your business, as each business is unique. Instead, it aims to give you an idea of what EDI does well and where to identify value drivers.

Let’s get to it.

The time you spend on order-to-cash process

Think about how long you or your employees spend each day entering in purchase ordersORDERS (Purchase Order): The ORDERS message is used to convey a request for goods or services from a buyer to a seller. It includes information about the items requested, quantities, pricing, delivery details, and any other relevant terms and conditions. The ORDERS message serves as an official document for initiating the purchase process. or sales orders and invoices… or keying in warehouse or transport movements, consignment notes, etc?

With EDI, you will usually have one person to handle purchasing and other tasks. This reduction in bureaucracy frees up your team to focus on real business activities.

What else could your employees be doing with this extra time? They are the creative masterminds of your business, capable of driving innovation and growth. After all, there’s not much creativity in manually creating a purchase order, right?

The potential to increase sales or reduce lost opportunities by being EDI enabled

Being set up with EDI makes it easier to onboard large new retailers: many won’t even discuss pricing until you are EDI-capable. This is a clear source of value, as you can immediately gauge the potential size of their orders.

With EDI, you can easily add new partners and increase sales from existing ones simply because your order-to-cash process is fast and efficient. Additionally, EDI enables your customers to carry your entire catalog online, which means more extensive product listings and higher potential sales.

The potential to increase margins by improving your supply chain efficiency

Anything that increases margins is great. For instance, switching from wholesale bulk sales to offering drop ship automation through EDI can boost your revenue by an additional 10-25% of the retail value per item sold to online sellers. This shift not only enhances your control over the sales channel but also increases overall profitability.

You can also conduct a cost-to-serve analysis on your most valuable customers, estimate profit margins for each one, and optimize your operational costs with EDI. For example, automating order processing and inventory management can significantly reduce expenses, streamline operations, and improve overall efficiency.

Improved data accuracy is saving you money in many ways

Anyone who has shipped products to a major retailer and been financially penalized knows that entering the wrong information into your system can have expensive ramifications if an error happens. So, avoiding manually keying orders by using EDI actually reduces risk of penalties and credits.

Data accuracy helps in inventory management too. A business using EDI for inventory management can check their stocks daily or even hourly, providing real-time updates on stock movement. This speeds up order processing and allows for faster delivery to customers by optimizing delivery routes. Also, it drastically reduces the time needed for mandatory yearly inventory audit.

Paper and document storage savings

You really don’t want to rely on paper-based trading processes in the 21st century. Businesses that do so have to cover costs like printing forms, postage, administrative overhead for filing and retrieval, data entry, and manual validationValidation refers to the process of checking or confirming the accuracy, integrity, and compliance of data, documents, or systems against predefined rules, standards, or requirements. It ensures that the data or system meets the specified criteria and is fit for its intended purpose. Validation can involve various checks, such as format validation, data type validation, business rule validation, or regulatory compliance validation. of information. Additionally, there are headaches like purchase order or payment disputes and invoice reconciliation due to errors such as illegible handwriting and manual data entry. Stop these outdated processes and calculate how much you could save with EDI.

Also, with EDI, there’s no need for physical or additional document storage. This makes document retrieval much easier and faster than dealing with traditional paper documents or those stored in various folders and systems.

Final thoughts

If you want to quantify the cost savings from an EDI integration platform, you need to conduct a study specific to your business. What are you aiming to achieve? Do you intend to utilize EDI for material ordering, customer order processing, forecasting, or large file transfers? Or everything that has been said? Examine the time and costs of what the EDI system will replace.

If your business is growing and you are receiving 10+ orders per week, an EDI integration solution is likely the right choice.