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Benefits of EDI

Below are some of the key benefits of Implementing EDI with an Organization.

  • Improved order fulfillment
When EDI is implemented it helps the provides managers with access to data and process-status information, which enables them to make some more accurate and informed business decisions. EDI can also improve the analysis of pricing changes and promotional ties. Most importantly, it can maximize product availability despite shifting demand by enabling faster analysis and recognition of demand trends. The Gartner Group (1995) reports an average inventory reduction of 10% at EDI-enabled manufacturing firms

  • Administrative cost reduction
Studies suggest that implementing EDI with in an organization will significantly reduce the cost of processing an customer order manually and saves and data entry errors

  • Cycle time reduction
Cycle time refers to the amount of time necessary for a customer to receive an order after it is placed. Companies shorten order cycle time to increase competitive advantage, decrease carrying costs, decrease shrinkage costs, and improve cash flow. In a case study involving the Pfaltzgraff Company (a supplier) and Best Products (a retailer), a 50% reduction in order cycle time was achieved after implementing an EDI program. (Gartner Group, 1995).

  • Inventory reduction
EDI can reduce the expenses related to storing goods for a period of time. EDI-enabled customer-supplier relationships can provide your firm with more accurate demand forecasts, reduced cycle time, and more dependable supplier schedules. Reduction of inventory is calculated by multiplying the number of days by which order cycle-time is decreased by the amount of inventory on hand. For example, a firm might carry an eight-week supply of finished goods. If the firm became EDI enabled with its key customers and subsequently reduced cycle time by 25% from 30 days to 22.5 days, could the company reduce inventory accordingly? Because the firm could more accurately predict short-term demand with EDI, it may only be necessary to hold a six-week supply of finished goods. This would result in reduced costs including cost of goods, storage space, service, and risk (insurance). 

  • Cash flow improvement
Decreased operating expenses and improved accuracy in procurement areas are directly beneficial to a firm's financial cash flow. Electronically received orders, processed quickly and received on time by your customers, will also allow your firm to negotiate positive incentives such as more favorable payment terms, discounts, and long term contracts. For instance, many EDI enabled firms report a lower number of open account receivables. Although this area is difficult to quantify, most accounting departments can attest to the numerous benefits of improved corporate cash flow.