Electronic Data Exchange | When Planning for EDI Implementation, Weigh the Cost and Benefit Tradeoffs

To help you stay on track employing the best EDI operational strategies, X12 offers a 3-blog series explaining the essentials of automating data exchange. This second blog presents a deeper drive into the costs and benefits to carefully examine when choosing an in-house, hybrid or full cloud approach to EDI implementation from members of the X12 Business to Everything (B2X) Subcommittee.

Whether choosing to implement an EDI program internally or through a third-party EDI resource, organizations have much to consider before making the initial investment.  At the top of the list is cost, which requires a thorough understanding of a wide range of key business options to effectively and efficiently bring up an EDI platform.

When looking into the costs associated with an in-house, hosted or hybrid approach, it helps to break down the essential components to run an EDI implementation:

1. Software/Hardware/Maintenance
2. Network and Communications
3. Personnel
4. Other costs

1. Software/Hardware/Maintenance

EDI software consists of a range of components, including:

• The Data Translator transforms data to and from standardized transactions while ensuring the structure of the standard is maintained throughout the process.
• The Trading Partner Table stores your trading partners’ qualifier or identifier (e.g., EDI address) and control numbers to ensure proper document sequencing with each partner.
• The EDI Standard, loaded into the system for the Data Translator, creating (outbound) or inspecting (inbound) properly structured data.
• The Communication Layer sends and receives the data.
• Mapping Software creates the cross-reference between the standard transaction and an internal format. For example, your accounting system’s invoice export file must be converted to an X12 810 transaction format.

Additionally, the initial cost for software essentials varies greatly, from $2,000 to over $50,000, depending on many factors such as integration requirements, installation, number of trading partners, database software required ─ and especially the mapping and communications software options, which in many cases double the expense.

The ongoing maintenance of software components typically costs 15 to 20 percent annually and requires internal personnel to manage and support.

Hardware to run the software consists of the following:

• Server or (semi) dedicated computer
• Communications hardware (router/switch/firewall/etc.)
• System backups and storage for data archiving
• Maintenance (10 to 20 percent annually)

The hybrid option entails these requisites:

• If using service provider(s), you may opt to outsource some of the optional components.
• If you keep ANY of the components, you will still need hardware.
• Most hybrid models consist of translating in-house and outsourcing communications only.
• Personnel requirements will vary based on what you decide to outsource.

When considering a full cloud-based solution, if you decide to hire one or more service providers, you may opt to outsource your entire EDI program. With this decision, you would need internal personnel to manage the suppliers and service provider(s).

Terminology note: For a hybrid or full cloud option, you will be utilizing “EDI Managed Services” from your one or more providers.

2.  Network and Communications

If using an EDI value-added network (VAN), service provider or independent software vendor (ISV) reseller, consider the following:

• Costs will vary based on trading partners or by size or volume of the traffic (kilo characters/number of transactions).
• Some providers may offer a pay-as-you-go option for small or seasonal vendors (higher transaction cost, low volume).
• Be prepared for possible vendor set up, carbon copy and special file processing fees.
• Providers may also charge by connection or number of “mailboxes” or IDs that you employ.
• Note potential charges for special connections (e.g., AS2, SFTP) to your trading partners.
• Your internal personnel should only have to manage/audit the provider.

Benefits of network and communications are:

• Non-repudiation
• Hosted archiving
• Error alerting and reporting
• Trusted third-party expertise
• Depending on the service provider level and the extent of outsourcing, there is no need to engineer additional communication lines with your trading partners, as many providers offer this connectivity and VAN interconnectivity.
• You should expect more hours of outsourced support coverage compared to your internal personnel.

Employing in-house support considerations are:

• Requires SFTP and/or AS2 software (includes soft costs of certificate management); If AS2, the software costs are usually per trading partner and can be expensive.
• Requires internal personnel to manage, operate and support.
• Benefits include:
  • Traffic costs, which may or may not be reduced due to internal personnel costs.
  • The speed of implementation is determined by your internal staff.

3.  Personnel

Many levels of personnel are required to manage your EDI program in-house or as a hybrid, such as:

• EDI coordinators
• EDI managers
• EDI directors
• “EDI mappers” aka programmers who create maps in your translator
• Communications personnel
• Network and Hardware support
• Integration programmers, who are usually IT staff
• Vendor or Customer Relations personnel, the primary business contact with your trading partner

4.  Other costs

Much of the costs inherent in EDI programs are dependent on your company’s position in your industry’s supply chain process. Given this, your company’s position may influence your decision to run your program in-house, outsource some components or do both via a hybrid approach.

Some costs incurred are:

• Training and educating internal business users
• Onboarding and testing each of your vendors
• Label creation (e.g., carton labels like GS1-128)
• Integration and programming into your various systems, such as accounting, ERP, warehouse, shipping, etc.
• Problem determination and troubleshooting, including vendor and Customer Relations
• Chargebacks, if your program does not perform correctly and documents are in error
• Continual updates if you have a varied trading partner community. There are always updates to be considered in data exchange, such as:
  • Technology: EDI, alternatives like XML, API, etc.
  • Standards versions: X12/EDIFACT
  • Communications protocols:  FTP, SFTP, AS2, AS4, etc.
  • Business: Replenishment, dropship, direct-to-consumer, marketplaces, B2C, etc.

5. Important terms to know

“Hub” is where your company is the “buyer.” Some points to consider:

• Create an EDI Implementation Guide for all trading partners to access as a means of communication, direction and compliance. This guide is highly advantageous, requiring only one version of specifications and one integration of each document type with your internal systems.
• The company’s EDI Department could be placed under multiple teams due to the cross functional nature of electronic data interchange and the types of transactions involved, such as order entry, supply chain, accounting, warehouse and more.
• Your operational costs are largely driven by vendor relations, document exchange tracking, along with troubleshooting and addressing communications issues.
• Communications normally are hybrid. Often, the top 20 percent of trading partners are routed to you (AS2) and 80 percent are directed to use outside service providers such as VANs. Some VANs can outsource your AS2 connections to partners as well.

“Spoke” is where your company is the “seller.”  Some points to consider:

• Your company must conform to every trading partner’s EDI Implementation Guide, which means potentially separate data mappings for each partner, per document.
• Being regarded as the seller usually requires either a larger internal EDI mapping staff or continual consulting engagements to create your new and revised mappings.
• Because of the above requirements, many Spokes opt to outsource most EDI programs until they expand in size sufficiently capable of maintaining their own software, hardware, communications and personnel.

“Distributors/Carriers/Service Providers” is where your company sits between buyers and sellers and has to adhere to the specifications in mappings, communications, etc., of both.

The cost of EDI implementations will be impacted by the approach you take: In-house or working with the economies of scale that a third-party EDI resource brings. Before making your decision, it is also important to understand the volume and nature of your business transactions and trading partners in addition to evaluating the essential components to run an EDI implementation. That way, you can make an informed pricing model decision that best transforms your business and supply chain outcomes.