Tutorial on Selecting EDI Outsourcing Services
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.
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
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
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
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
- 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.
Consider signing up an