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EDI Transforming Business Models

For most of us, EDI is a communication system to exchange formatted data between disparate applications, however it is time to realize that the technology has potential to deliver much beyond than what it was intended to. Since early 20th century commerce had seen industries leveraging the opportunities provided by Express mail and Telefax to grow network. Healthy and far-reached network implies smart way of handling goods and providing services, optimization of cost and labor, efficient processes and customer delight. Business growth, technological advancement, and ever changing customer needs demanded for more swift and complex information exchanging networks.

The growing concern was addressed by UN recommended EDIFACT and ANSI recommended X12 EDI standards that set to establish uniformity in business transactions defined for each industry or operation segment. The principal vision was to establish standardization and integrity of the business documents being exchanged amongst trading partners. However EDI proved to be a state of art technology in many areas starting from finance to processes. Following is an attempt to understand the way EDI has contributed to the evolution of many processes, creation of opportunities, and efficient management of resources in a supply chain.


A.    Cost saving and Visibility

In a supply chain as the goods traverse from origin to destination information gets generated at the occurrence of each event such as consolidation, cross-docking, warehousing etc. Since world has moved from traditional 1PL (1st Party Logistics) to 3PL (3rd Party Logistics), current supply chain models have more number of events in a shipment life cycle. Thus the information volume has surged abruptly. In such a scenario exchanging information through electronic means has made it possible for industries to transact millions of business documents in a day that would efficiently facilitate movement of goods and continuity of services. Now imagine effort required in handling same volume of transaction in a day through paper and the time it would take to make the information available? Clearly eliminating paper has restricted industries from procuring it as a raw material for printing and expenditure on manual labor cost for handling it. Customer queries on shipment status and tracking in these days are better managed through shipment status update portals, feed to which is supplied through EDI.

Inference: Logistics is gradually moving towards a value chain that provides door-door visibility dynamically to appropriate stakeholders at right time through EDI.

B.    Growth Orientation

Over years EDI has been pivotal to accuracy in information, timely response, and establishment of reliable network. Thus stakeholders like warehouse and manufacturers subscribing to EDI have been able to optimize their inventory levels, follow Just-in-Time technique for assembling raw materials, and reduce lead times. This has provided industries buffer time to focus and invest on customer value additions and business expansion.

Inference: EDI is now a technology being harvested to gain competitive advantage over competitors for growth.

C.    Risk Management

3PL industries continuously need to improvise on the business models, bring innovations, and grow network to sustain in the competitive logistics market. To address these problems industries need to identify bottlenecks in the supply chain models, research on market trends, and understand customer needs. In my opinion, analysis of large volume of EDI transactions can help 3PL service providers to focus on right areas for risk control. For instance, analysis of monthly volume trend of EDI transacted for a year will provide insight on the system load variation. This information should be helpful to 3PL industries to schedule system maintenance during lean seasons to minimize impact. Similarly monthly analysis of EDI order messages (X12 850) transacted can be helpful to forecast demand.

Inference: Industries can be increasingly dependent on EDI to better manage their business.

D.    Operational Efficiency

Carriers have moved from transporting break bulk cargo in packages to containerization, freight forwarders have moved from just being sender of shipments to door-door service provider through multimodal transportation, and logistics service providers have moved from dealing with a fragmented supply chain to a collaborative network. A closer look at these current operational models will reveal that each entity such as shipper, carrier, equipment, customer etc. are connecting with each other through EDI to an extent that provides them real time information to execute processes. For example a load port can send EDI to discharge port with information regarding the stowage position of vessel loaded container cargos that can be used automatically by cranes to unload.

Inference: Harnessing EDI is fundamental to evolution of swift and efficient operational models. 

E.    Customs Services

Customs compliance and clearance have always been a concern area for importers and exporters across the globe as non-compliance could lead to heavy fines and delay in movement of goods.  However EDI has been successful in providing a swift operational mechanism for both regulatory bodies and business that would ensure security, compliance, and efficiency.  For example, in contrast to the traditional method of verifying manifest and manual inspection of inventories on arrival of goods at the port of entry, Customs is now able to instantly verify manifest and acknowledge the cargos before it leaves the origin.

Inference: EDI is now a trusted entity for regulatory bodies to assist in establishing security and regulations.


In broader prospect, EDI continues to revolutionize many other sectors such as Banking, Health care, Automobile etc. I strongly believe for business models to evolve it is important to harness EDI in right manner.


Very Informative ...

Nice article...keep posting

Nice one.

Really EDI (Electronic data interchange) is one of the most popular technology in the world. It is transforming different types of business. It plays an important role in online shopping business. You can share your electronic data through EDI system.

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