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EDI in Manufacturing 


PART I. 

 

The objective of this paper is to foster an awareness of the competitive advantages available through Electronic Data Inter­change (EDI). EDI has been talked about in the press for many years, but until the late 1980s many companies had not even considered the use of EDI with their suppliers or customers. Now it's the 1990s and many manufacturers and retailers are requiring the use of EDI as a way of doing business. Some companies still view EDI as simply a vendor requirement or method to automate the flow of paper (e.g., purchase orders, invoices) between companies. Other companies realize the benefits of EDI, but are still focused on the cost-reduction side of the equation. This paper focuses on helping companies view EDI from a different perspec­tive—as an offensive weapon in winning the business war.

EDI as a Business Strategy

Electronic Data Interchange is defined as the intercompany com-puter-to-computer communication of standard business transac­tions in a standard format. Many articles have been published presenting the concepts of EDI and the technical issues associated with its implementation. Based on this information many compa­nies have now successfully implemented some form of EDI. However, in many cases this definition has led executives to the conclusion that EDI is just a technical issue to be delegated to the Information Systems (IS) department. True, there are many technical issues to be resolved in successfully implementing EDI, but with the advent of ANSI standards and improved EDI software these should not be preventing companies from taking full advan­tage of the benefits EDI can bring to a company. The key to the successful use of EDI is to view it as a weapon that is part of your information system's arsenal that can help in achieving your business goals and objectives.

Today, companies that have begun to use EDI for competitive advantage are taking a big-picture view of how to effectively utilize their information systems to interface with customers and vendors. The Gartner Group refers to this as Inter-Enterprise Systems (IBS), of which EDI is one of the technologies to allow sharing of information between companies. These IES technolo­gies fit within a larger umbrella referred to as Electronic Com­merce (EC). EC is a business strategy for using tools such as EDI to extend the enterprise and add value to the organization. It involves not just automating the manual activities associated with sending and receiving intercompany documents, but redesigning business processes, changing organizational relationships and improving the ability to capture external information for use throughout the enterprise. Those companies that have successfully transitioned from viewing EDI as only a technical issue to part of an overall business strategy are in the best position to achieve the greatest business benefits.

Extending the Enterprise

If we examine the history of information systems within most companies they have progressed from processing paper-based documents in a batch mode to the on-line entry of information utilizing extensive edit and error-checking routines. The best companies have also developed fully integrated systems to make

this information available throughout the company. However, despite these internal improvements little effort has been focused on the handling of intercompany transactions. Many companies must still enter this information manually through on-line screens, which tends to be labor intensive, slow and in some cases error prone. EDI was supposed to solve these problems by transmitting information electronically between computers, but many compa­nies lost sight of this objective and stopped short of integrating it with their business applications. A recent study indicated that 85 percent of EDI documents still need to be rekeyed at least once by the sender or receiver in order to process the transaction. This eliminates any of the benefits to be gained from EDI and usually results in costing companies money.

By integrating your business applications with EDI you will be extending the enterprise through your customers and suppliers, resulting not only in reduced operating costs, but more timely and accurate information to make business decisions. By developing these inter-enterprise links companies will have an almost contin­uous flow of information from their customers, which will allow them to be better aligned and more responsive. The key to utilizing EDI for competitive advantage is making effective use of this information throughout the organization. For example, with the correct information companies can eliminate the three-way match­ing process (purchase order, receiver and invoice), issue pay­ments electronically, obtain timely demand information for scheduling manufacturing, analyze sales information to identify customer purchasing patterns and identify specific geographic locations for marketing efforts. The result is not just reduced overhead costs through more efficient business processes, but the opportunity to increase revenue and provide value-added services through the use of inter-enterprise information.

To be Continued


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