Report assessing the impacts of EDI on a company operating within the food retail industry.
1Introduction to EDI
Electronic Data Interchange can be defined as:
“The transfer of electronic data from one organisations computer system to another’s, the data being structured in a commonly agreed format…” (Curtis and Cobham 2007) The purpose of EDI is to enable a company to directly exchange business documents, such as purchase orders and invoices, with its suppliers and/or customers. The data is transmitted between computers over a leased line or a Value Added Network (VAN). The receiving trading partner's EDI system then translates the standardized document so data can be directly input into its business systems. (McGahee 1999) In order to use Traditional Electronic Data Interchange there are a number of requirements: 1)Communications Standards: Both computers must speak the same computer language. 2)Legal agreement to trade electronically: Due to inability to obtain signatures, you must have contractual arrangement in place between supplier and buyer. 3)Market specific document standards: To eliminate the need to have documentations for each retailer/supplier UN/EDIFACT produced standards, known as EDIFACT for electronic transmission of data in relation to commerce in goods and services. (Curtis and Cobham 2007) 4)Use of high telecommunications infrastructure: Usually in the form of Value added networks (networks specially designed and operated for EDI) which guarantee speed and security. EDI can be used to support different elements of a business. This report will focus on the use of EDI in the food retail industry, for the transfer of business documents between a retailer and its supplier. It is important to establish the impacts EDI will have on both parties, as this will affect their relationship.
EDI provides both operational and strategic benefits. Operational benefits usually consist of cost reductions; enhancement of data accuracy and help in accounting/ billing. EDI strategic benefits take different forms, such as EDI-supported process reengineering (e.g. application of Just-In-Time delivery methods) and the enhancement of firm competitiveness and customer service. (Agi et al 2005). In the food retail industry the documents transferred between a retailer and a food supplier are usually high in volume and highly repetitive. Therefore any benefits to be made from introducing EDI in this context, should result in a noticeable overall improvement in the organisation’s performance. Although there are benefits to be had by both suppliers and retailers it is generally the retailers who initiate the implementation of EDI. Small suppliers cannot afford the high upfront costs, or the annual license and support charges (Dresner 2003). Evidence suggests large organizations proactively adopt EDI and required their suppliers to adopt EDI in order to continue doing business with them. Suppliers who are dependent on the large organizations have to adopt EDI in a reactive mode regardless of whether adoption of EDI was consistent with their strategies or not. (Ahmad and Schroeder 2001). Therefore the use of EDI is becoming increasingly important in the retail industry as suppliers are looking to miss out if they do not implement EDI. However the impacts of introducing this technology into an organisation can vary depending on whether it was introduced pro-actively or reactively. In order to review the impacts they are split into financial implications, operational implications, employee impacts, Security impacts and impacts on trading partner relationships.
“Electronic data interchange (EDI) could be called the Atkins diet for the accounts payable department” (Koegler 2005). One of the major advantages of implementing an EDI system is the variety of cost reductions you can occur, both through cost savings and...