EDI Outsource Services

Tutorial on Selecting EDI Outsourcing Services

Background

Prior to starting the EDI Center, our principal was the owner of an EDI Outsource service. During the 1990's we referred to the business as an EDI Service Bureau.  With over 500 clients, this service worked with all major retail trading partners. In 1998 the business was sold to QRS which later became part of Inovis. We are not in the EDI outsourcing business today but often get questions from our students and clients about selecting outsource services or dealing with problems with current EDI service providers.  This is meant to shed some light on the advantages and disadvantages of outsourcing and importantly, if you do decide to outsource, what to look for in an EDI outsourcing company.

Definitions

EDI Service Bureau - a term that was prevalent in the 1990's, used to describe a third party service for providing EDI transactions.   It was basically an outsourced service to process your EDI transactions.  Sometimes the processing was manual, in other words, purchase orders were received and transmitted to a vendor as paper documents. Similarily, invoices were sent to the EDI Service Bureau to be keyed in and transmitted electronically.  Most EDI Service Bureaus also had more advanced ability to integrate transactions with a company's business software, but these set ups could be costly.

EDI Outsource - As we moved away from the service bureau connotation, outsource was a more common way to describe the service. Basically, it means that the EDI transactions are being processed by a third party company. Oursourcing also become common in customer service as call centers were moved to other countries and in some cases the outsourcing phrase began to take on a less than quality reputation.

Software as a Service (SaaS) - As the Internet becomes more intertwined in all of our business, having applications run from a remote location and supported by the provider is becoming more prevalent.  Wait, didn't we call that time sharing in the 1970's?  In those days timesharing was a way lease applications that ran on large mainframe computers.  Today we have massive numbers of distributed servers provided by giant companies such as Google, Amazon and many others.  The Internet is a key component of delivering the application.

Cloud Computing - Today Cloud Computing is the phrase you will hear regarding hosted software and applications delivered via the Internet and also via our cellphone providers to our smart phones. Today's EDI outsource will likely be based upon cloud computing.

Why Use an EDI Outsourcing Company?

It is expensive to set up your own in-house EDI system. You might start looking at EDI software and think it's not so bad but that is one small part of your total costs.  To set up an in-house EDI system, you will need to have:

• EDI Translation Software - The low end packages are a few thousand dollars and they go up from there.
• EDI VAN Services - A few hundred dollars to set up and monthly charges based on volume.
• EDI Integration with your Business Software (Your ERP package or accounting package such as SAP, Quickbooks, whatever you run your business with). This can be expensive. Even if there is "canned" software available, some customization will probably be required to make it work in your business environment.
• EDI Technical Staff - You will need at least one technical person to set up the EDI Translation Software and integrate it with your business software. They will need to understand many aspects of your business as well as all of the EDI requirements from your trading partners and of course the computer systems and software that are involved.
• EDI Coordinator - At least one person will oversee the day to day operations of your EDI system.

So you can get the idea from the above, that there will be some significant upfront software investments and some ongoing investments in staff and operations to maintain an in-house EDI system.

If you anticipate having a small volume of EDI transactions and only one or a few trading partners, it might make more sense to outsource than to set up your own EDI software.

Why not Outsource EDI?

One of the biggest negatives of outsourcing your EDI is that you lose control. You are now dependent upon a third party to handle a very critical part of your operations. You might think, I outsource my payroll and that is not a big deal. True, payroll outsourcing has been around for a very long time and is very reliable and cost effective.  EDI outsourcing has been around for a long time too, but is not so reliable because there are so many variables in the trading partner environment.

What do I mean by loosing control?  I often hear from companies that they need a new trading partner set up and they cannot get it done in a timely fashion.  Their EDI outsource partner takes weeks to months for new trading partner implementations and in the mean time, the company is receiving chargebacks for non-compliance. The length of time to set up a new trading partner can be because the EDI outsource company is overworked or because it just takes them that long to set up something new.  Even when everything goes correctly the first time, it does take a long time to set up new trading partners.  If you have the resources in-house, you at least have more visibility into the process and better communications with your trading partners.  Some trading partners might even cut you a break on chargebacks once they know that you are actively working on their EDI set up.

The other thing that I often hear from companies, is "my EDI Outsource Company does not care when I receive chargebacks."  They care, but they don't care like you care, its not their money.  Often it seems like they do not even want to help you fight your chargebacks.  This may partly be because of their fear of taking responsibility for your chargebacks and possibly being sued.

What to look for in an EDI Outsourcing Service?

If you are considering using an EDI outsource, look at their experience, particularly in the following areas:

• Make sure they have worked in your industry with your trading partners.  You do not want to hire a company that specializes in healthcare to do your EDI in retail.  If they have retail experience, make absolutely sure they have worked with your specific trading partners.  A grocery retail environment is similar to a department store environment but it is not the same.
• Make sure that your EDI service provider sets you up with a private mailbox for your EDI transactions. Some outsource companies share mailboxes to save money. DO NOT let them share your mailbox and demand that you have full online access to your account. This becomes important for two reasons: 1) for day to day operations, your staff will need to be able to view transmissions and verify acknowledgments. 2) If you decide at some point to change service providers, it will be easier to make the change if you have your own mailbox.
• Make sure that the outsource company has successfully integrated with your business software.  If you are integrating with Quickbooks, as an example, ask to see a real live client in retail with a Quickbooks EDI integration.
• Find out how they process the advance ship notice transaction.  REALLY find out, do not let them gloss over this critical function. Have them show you the whole process at a real company with an environment similar to yours. As you watch the process, try to envision how it will affect your operations. Are you going to have to make major changes in your warehouse and staff to implement EDI?
• Finally, really talk to some of their existing clients and find out how satisfied they are with the service.

If after checking out all of the above items, you are satisfied that they can do the job, then you might find that EDI Outsourcing can be very cost effective.  If however you pick the wrong company and end up with mis-managed operations and loads of chargebacks, this could be a very costly process.

I hope I haven't scared you off totally.  EDI that is implemented properly can be a great tool for efficiency within the company and the supply chain.

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