How Volumes Affect EDI Requirements

EDI users face one of three scenarios:

  • They are experiencing rapid growth—by adding new customers, selling more to existing customers—or both
  • They are growing steadily—minding costs and performance to maximize profitability
  • Or they must manage seasonality, with swings in orders and need to handle high peak demand

Rapid Growth Example

One of our customers blew away its growth estimates, largely on the success of a single product line. Just five years ago annual sales were $2.5 million and they expect to top $600 million in 2015.

They did this without changing ERP or EDI solution, having chosen well the systems that could expand with them. Here were the important factors in those choices:

  • Onboarding new customers quickly, as their salesforce landed more and more retailers and distributors.
  • Expanding without killing margins.
  • Investing in production and distribution capacity.

Steady Growth Example

The majority of RedTail’s customers are in this category. One in particular had done a great job of establishing their equipment and clothing lines in retailers nationwide. They changed ERP systems to one that would accommodate bigger volumes, and needed EDI continuity during the process. These were their key issues:

  • Maintaining EDI dependability as transaction levels grew
  • Increasing functionality to keep a lid on costs – particularly automation of advanced shipping notices and tie-in to third party logistics providers.
  • Concentrating spending on marketing and fulfillment excellence

Seasonality Example

A classic example of seasonal demand is a supplier that sells to retailers with large October-to-December holiday peaks. One such customer was doing fine with their long-term ERP system choice, but needed EDI that would accommodate peak loads. Their parameters included:

  • Managing their fulfillment high water mark.
  • Automating the creation and sending of ASNs to avoid excessively temporary labor.
  • Keeping key employees happy by avoiding crushing workloads.
  • Minimizing fixed cost that would hurt profits during the slower seasons.

Common Threads

Three big cost components vary with volumes in all of these examples.

  • Labor for EDI data entry, setup, test and implementation of EDI connections.
  • IT expense for platforms, software, services, and communications.
  • Capacity planning – investing in headroom for growth.

Labor is, by far, the largest cost component associated with EDI commerce. Surprising, maybe, but people costs equal or exceed all other expenses combined – technology, chargebacks, and all. That makes labor savings the key variable in evaluating EDI choices.

Labor costs are high because special knowledge is required, and people that have it are in short supply. A quick check through hiring resources will show that pay is high and candidate pools are shrinking. (When is the last time you heard a college student say, “I’ve always dreamt of starting a career in EDI?”)

Computers, software, transaction processing services must be considered. Is isn’t unusual to have the entire focus of evaluating EDI alternatives center on these expenses, even though they are typically less than half the total cost of operation.

Communications – often involving a subscription to a value-added network – may be a separate charge of bundled with the chosen EDI solution.

All EDI users must be ready for long-term success by choosing platforms thoughtfully. Servers or datacenters need the appropriate level of scalability and reliability that will make sure their order-to-cash lifeblood stays flowing. Likewise, the software or cloud systems chosen must be up to the task. High-volume users need enterprise-grade engines to ensure reliable growth. The future must also be accommodated without overspending in the present.

Especially important is the availability and quality of integration across that last, critical mile into and out of the ERP system. Most volume-sensitive EDI users choose providers who own and support that crucial link.

Fulfillment Application Integration

Volumes determine the need for integrating sales order entry, warehouse management, barcode scanning, shipping, and other fulfillment add-ons to ERP like these examples. Smart EDI users look at quality of integration and capacity to handle growth just as carefully for these applications.

John Matera About John Matera

John Matera is VP of Marketing for RedTail Solutions

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