EDI – What is it, and Why Do You Need It? (Part 2)

An established business tool across the food industry, Electronic Data Interchange (EDI) is gaining traction across the wider spectrum of wholesale companies. Here, we look at some of the reasons why.The ability of EDI to help in reducing rising costs is particularly attractive, especially as it’s able to create an impact in so many different ways.

Drive cost efficiency
Overhead costs are one of the key areas. The significant reduction of human involvement with paperwork and data entry reduces FTE requirements (or frees them up for other, more value-adding activities). The decreased outlay on paper, mailing materials and courier services used to deliver key documentation can also be significant, while the space required to store and manage documentation and supplies is also decreased.

Reduce error rates
In addition to overhead costs, reduced error rates offer attractive cost reductions. Errors need to be fixed, eating up man hours that can no longer be spent on other revenue generating activities. Furthermore, eradicating issues leads to greater customer satisfaction – creating potential ambassadors for the company who are more likely to engage in repeat business.

Less capital tied up in stock
Furthermore, inventory costs can be trimmed by shortening order processing and delivery cycles. More accurate insight into the real time state of the business allows inventory levels to be managed more effectively, supporting the business in tying up less capital in stock. With goods available more quickly and with greater reliability, the purchaser can manage stock-outs more effectively – no longer needing to invest in safe stock. When you consider that in some businesses inventory costs can account for as much as 90% of total product cost, greater insight and control over the shelves can free up significant cash.

Grab bargains while they’re available
In some cases, speedier sending and receiving of electronic invoices can also allow buyers to purchase stock more cheaply. With documentation at each stage of a chain reaching the recipient within seconds of being sent, purchasers can take advantage of short term discounts. With real time communication getting the money in quicker, supporting reductions in the sellers’ DSO and strengthening their cash position, they can be more inclined to offer bargain pricing.

EDI can certainly be a powerful tool for businesses looking to minimize costs. However, it’s not the only arena in which it can offer support in the quest for a wider margin. In the next installment, we’ll discuss it’s ability to positively impavt both speed and accuracy.

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