EDI (Electronic Data Interchange) is a document standard that is typically used in supply chain for exchanging purchase orders, order confirmations and invoices. Another field is logistics, for example third party logistics providers (3PL) and transportation.
Despite of this wide usage, quite often during last decade it has been predicted that EDI will die. To be more specific - EDIFACT will die and XML based EDI standard will take its place. What are the trends and expected changes in the EDI-world? Is EDI a fenix in disquise? Itella Information shares their experience and predictions.
Past of EDI: developments and accomplishments
In early days, business partners made direct connections within each other. That was the time before internet, using modems or VAN providers. Internet definitely opened the world and put old VAN providers in tough position. Integration Brokers (also known as managed EDI service providers) started to offer EDI transport and transformation services taking the burden of setting up partner connections by utilizing internet. So companies could outsource the partner connection setup to Information Brokers who managed the file transfer and transformations needed. Comparing point-to-point EDI connections and networked model of exchanging e-invoices it is clear that the networked model is more efficient and less expensive to end users.
From financial automation point of view the benefit of using EDI in purchasing is the ability to match the incoming invoice against the order. That enables to automate the payments. Also, if the ERP is managed automatically, it will result in fewer errors in orders, plus customer knows when to expect the goods to arrive if dispatch message is used. Suppliers benefit from EDI as well - receiving orders directly to the ERP significantly reduces the cost of sales process.
Present of EDI: era of Onboarding
Even though EDI is beneficial and widely used, there is still one glitch: implementation. It is considered that EDI projects are typically heavy and time consuming containing a lot of manual work. First there has to be an agreement that EDI is to be used. Then - message type and format, transport protocols and even message guidelines should be agreed. And finally, testing must be done before production can start. Of course Information Broker can take responsibility in many of those tasks, but it reduces overall time and effort only by some extent.
One way of streamlining the implementation is to use onboarding tools, such as Itella Information’s “onboarding program” that is developed for boosting customer’s partner implementations by automating the communication and information collection of new business partner integrations. With onboarding, the Information Broker sends EDI invitation letter to partners containing link to set of EDI questions. By answering to the questions, partner provides all necessary details so that implementation can commence. But still, the set-up is a point-to-point model to each individual partner.
What about the future?
Good old UN/EDIFACT is still widely accepted in Europe and EDIFACT message volumes hold considerably high percentage of all EDI message exchange. Yet it is predicted that new XML based EDI standards will take over of EDIFACT. XML is nice and there is a lot of competence around but the problem is that there are also many XML based standards to choose from, e.g. UBL, UN/CEFACT. This wide variety and wanting to please everyone usually makes things more complicated.
Outsourcing service offerings are developing in the direction of covering more and more business processes: financial outsourcing services for order-to-cash and purchase-to-pay combining procurement, invoicing and payment and accounting services. EDI is still playing an important role there regardless of the technology being used.
From the technology point of view the most convenient way of exchanging EDI messages would be using one message standard specification which also contains the message transport. Surprisingly there is one good candidate - PEPPOL (Pan European Public Procurement Online, http://www.peppol.eu/about_peppol). Right now PEPPOL is used for only exchanging invoices but there is support for procurement process as well (catalogue, order, order response, invoice, and credit note). PEPPOL is an especially hot topic in Norway due to a strong support from The Norwegian Agency for Public Management and eGovernment. Future will tell us if PEPPOL will breakthrough in Europe.
Prediction
However, prediction is that we still continue living in this mixed environment for a while. And the longer this period lasts, the more important it is that companies have Integration Brokers to choose if their own resources are limited. As Gartner 2012 analysis states: in 2012 companies spent around $1.5 billion on Information Broker services globally and five year compound annual growth rate (CAGR) 2011-2016 is double digit rate. Because one thing is sure - the automation level of procurement will increase which requires more integration and provides potential cost savings to organizations.
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