Total Cost of Ownership and Cloud EDI

If you are using a Cloud EDI solution you should consider your total costs of ownership. All the direct and indirect costs might be adding up and it may be time to consider moving to an integrated solution.

Like many businesses you probably faced the requirement to do EDI with one of your customers at some point.  At the time you were probably looking for a “cheap and cheerful” solution with low-up front setup costs and minimal on-going rates to keep the total costs of doing business with that customer as low as possible.  Makes sense.  If this sounds familiar, you probably went with an on-line or ‘Cloud EDI’ solution.  Using a Cloud EDI system, you login to a web application to retrieve your orders, create shipment notices, key in invoices, print reports and trade any other documents your customer has asked for.

In talking to our customers we have found that businesses often make this choice initially and then never revisit it.  Who’s got the time look into such a small thing and “if it isn’t broken, don’t fix it”, right? If you look a little closer at it you will probably find that over time your business with that first EDI customer has grown.  You’re receiving many more orders than you originally were, you’re invoicing them regularly, and maybe you’ve even had other customers start up with EDI.  If so, it’s probably time to start thinking about the ‘total cost of ownership’ for the solution you are using.

 

What is “Total Cost of Ownership”?

It’s an accounting concept that looks at all of the direct and indirect costs of a product or system.  For a Cloud EDI solution, direct costs would include a monthly account or access fee, any transaction charges, support fees, etc.  All of those line items that show up on your monthly bill.  Indirect costs are everything else that costs you time and/or money to use and support the system.  That means all of the time spent logging into a web application, printing out orders, building the shipment document and creating the invoices.  Plus any time your staff spends on the phone or emailing the provider to resolve issues as well as any time spent dealing with rejections from your customer or missing transactions.

When you start accounting for all of those things, the expense and related pain of what was once a “cheap and cheerful” solution can really start adding up.  For most businesses in this situation, ‘doing EDI’ results in a replication of work which further compounds the costs.  You already have an accounting system or an order management system that you have to deal with in order to manage your internal supply chain procedures.  So now you’re not just processing an order once, but twice.  You’re not creating an invoice once, but twice.  More than just a waste of time, this increases the chance of human error, and creates the need to reconcile and manage the two systems.

With one customer on EDI and only a handful of orders, these indirect costs aren’t significant.  As your business grows these costs start to impact your bottom line.  They also distract from business development activities.

Is there a better way to do EDI?

There is.  You see, EDI was designed as a common language between machines.  Its supposed to be automated so that one system can talk directly with another.  For example, your customer’s ERP talking to your accounting or order management system (or both), without any human intervention.   That means it’s not supposed to be you, or your staff, logging into a Cloud EDI system to print out your orders or create your invoices.  

In a better system, your orders come in and are fed directly into your business system.  No printing it, no keying it in, they are just there!  There is a lower risk of human error, faster processing speeds, and fewer delays.  You are  afforded the convenience of creating the shipment information  and invoices that should be sent out to your customer without needing to separately create the EDI documents. 

How would that work?

With an integrated solution.  An integrated solution will feed orders directly into your system, whatever that system may be.   Ensuring you’ve got all of the details you need to fulfill and ship that order.  It will take a copy of your shipment details and convert it into the EDI documents that your customer wants.  It will do the same with your invoices.  The reports you need will be delivered to you automatically via email or in another format, so that you don’t need to go find it.

Going Integrated will give you the tools you need to track your documents in real time and access to reports that will help you reconcile your documents as well without the need to rely on your EDI provider or customers for verification. Simple and easy right?

It will cut out all the duplication of work that a Could EDI solution creates.  This means it will bring down the total cost of ownership and free up time so you can get back to focusing on your business.

 

Author: Meagan Ralph

Meagan Ralph is a fervent believer in the ability of B2B ecommerce solutions to deliver value to companies of all sizes in all parts of the supply chain. She is a collaborative leader, highly focused on client experience and delivering value. Meagan spent summers through high school and university doing EDI data entry and customer support before starting her professional career at Commport in 2005. Meagan has an undergraduate degree from the University of Western Ontario, and a Master of Business Administration from York University.