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The evolution to electronic data interchange: are there benefits at


all stages of implementation?

Article  in  Hospital materiel management quarterly · June 1997


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Rhonda Lummus
Indiana University Bloomington
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The Evolution to Electronic Data The Evolution to EDI 79

Interchange: Are There Benefits at


All Stages of Implementation?

Many companies implement electronic data exchange (EDI) as part of their customer–supplier
partnerships. Both the customers and suppliers expect to gain operational and competitive
benefits. This article describes why a midsize midwestern supplier company received only minimal
benefits from its EDI installation. Key words: customer–supplier partnerships, EDI

Rhonda R. Lummus, CPIM, CIRM


Associate Professor of Operations
Management
M ANY COMPANIES implement elec-
tronic data interchange (EDI) as
part of their customer-supplier partner-
Central Missouri State University ships. Both the customers and suppliers
Warrensburg, Missouri expect to gain operational and competitive
benefits. A midsize midwestern supplier
company received minimal benefits from
its EDI installation. A review of its imple-
mentation issues might aid other suppliers
as they investigate EDI. The benefits com-
panies expect to receive from EDI should
be evaluated against other companies’
experiences.
A link exists between the level of imple-
mentation of EDI and the associated ben-
efits. Benefits from EDI for a supplier com-
pany appear limited unless the company
reaches an advanced stage of EDI imple-
mentation. This stage has the customers
and supplier openly sharing information
on demand patterns, inventory levels, and
planned production. Issues of trust and
power must be resolved from both the cus-
tomer and supplier perspective. Achieving
this level of implementation is a significant

Hosp Materiel Manage Q, 1997, 18(4), 79–83


Reprinted with permission from APICS—The Educational
Society for Resource Management Conference Proceedings.
© 1995 by APICS
79
80 HOSPITAL MATERIEL MANAGEMENT QUARTERLY /MAY 1997

challenge for those manufacturing profes- the company’s MRP system. A materiel
sionals involved in EDI installations! coordinator compares the requirement data
to current schedules and enters any
IMPLEMENTING EDI AT A changes, exactly as is done for all other
SUPPLIER COMPANY customers.
ABC is in various stages of implementa-
ABC is a midsize midwestern manufac- tion of EDI with three other customers. One
turing company with approximately 800 sends requirement information weekly
employees. ABC produces cast metal prod- through EDI but does not receive informa-
ucts for much larger “original equipment” tion from ABC. One receives information
manufacturers. It began EDI implementa- from ABC on shipments but does not send
tion by linking with a single large cus- requirement information. The last company
tomer. The large customer “strongly sug- is studying the feasibility of implementing
gested” ABC implement an EDI system if it EDI. None of the customers can inquire into
wanted to continue to remain a supplier. ABC’s planning system to determine inven-
The transactions currently exchanged tory status or other planning information,
through EDI are the typical purchasing, and ABC does not plan to implement that
transportation, and invoicing transactions capability at this time. ABC has discussed
between a buyer and seller. Purchase or- using EDI with one supplier but has not
ders, inventory advice, material release, actively pursued implementation.
and shipping schedules are transmitted
from the customer; while advance shipping BENEFITS OF EDI FOR
notices are sent from the supplier. A pay- SUPPLIERS
on-receipt policy based on the advanced
shipping notice has eliminated invoices. Large firms, buying from multiple sup-
Transactions are batched through trans- pliers with a high volume of transactions,
lation/mapping software and the use of a receive substantial benefits with EDI, but
value-added network (VAN). ABC uses an ABC identified only a limited number of
IBM AS400 computer system and an inte- benefits it received. The information sys-
grated manufacturing and accounting plan- tems manager summarized the benefits as
ning system. Production requirements are “improvements in the transaction process.”
received twice weekly from the customer, EDI reduced the number of transaction
and shipment notices are transmitted daily. errors, reduced paperwork, improved the
The customer continues to send a fax trans- quality of transactions, and reduced the
mission of the exact quantities to load on time needed to trace errors. Purchase or-
specific trucks two days prior to the ship der and requirement information is re-
date. ceived the same day, improving the timeli-
Few changes have occurred in ABC’s ness of the information. However, hard
procedures. Requirement and purchase copies of purchase orders are created and
order information is printed through trans- manually keyed into the MRP system.
lation software and manually keyed into These benefits have had a minimal impact
The Evolution to EDI 81

on the firm’s operations due to the slow staff responsibilities have increased because
integration of other customers. of the required changes in the company’s
Other customer service benefits are more information system and the continued
difficult to quantify, but the managers be- manual input of some EDI transactions.
lieve they exist. The use of EDI gives the
company a higher service rating in one LINKING BENEFITS WITH
customer’s supplier rating program. The IMPLEMENTATION LEVEL
exchange of information required during
EDI installation and the ongoing changes The study of one EDI implementation
required with the system have increased could lead to the conclusion that EDI has
the personal contact between ABC and its few benefits for small manufacturing firms
customers. Daily telephone calls and fax and is not cost effective. Discussions with
transmissions have been eliminated and ABC and other EDI users indicate there
replaced by more planning and strategic are several levels of EDI implementation
business discussions. at supplier companies. Benefits from using
EDI increase as the degree or depth of the
PROBLEMS WITH EDI FOR EDI implementation increases. The imple-
SUPPLIERS mentation stages for supplier companies
using EDI include the following.
ABC identified several problems with us- Stage 1. EDI is used for a small number
ing EDI. One problem involves translating of transactions with one trading partner.
customer files directly into the MRP system. Some business documents are handled elec-
System changes are necessary to receive tronically, while all others are completed
customer information directly into the sys- manually. Electronic documents are manu-
tem. The changes must include a process for ally entered into the MRP planning system.
evaluating customer information since hu- Stage 2. EDI is used with two or more
man intervention is often required to deter- customers for a small number of transac-
mine the feasibility of meeting demand. tions. The extent of implementation re-
A second problem stems from installing lates to the volume of business transacted
EDI connections with multiple customers. through EDI.
Each customer may have different require-
ments, possibly including individual file
development. Required changes are as spe- The number of staff positions
cific as the characteristics of certain fields. has not decreased at ABC as a
The company is currently working with its result of EDI. In fact, staff
MRP software supplier to resolve the sys- responsibilities have increased
tem problems. The connection of multiple because of the changes in the
VANs has also presented some difficulties company’s information system
and added cost. and the continued manual input
The number of staff positions has not of some EDI transactions.
decreased at ABC as a result of EDI. In fact,
82 HOSPITAL MATERIEL MANAGEMENT QUARTERLY /MAY 1997

Stage 3. EDI technology is integrated Group 3 benefits (competitive ben-


into the MRP planning system to update efits at stages 5 and 6). The additional
transaction-driven information without benefits include cost savings from reduc-
additional data entry. tions in personnel and efficient business
Stage 4. EDI is used to transact busi- operations, effective use of personnel as-
ness with the firm’s suppliers in addition to signed to new tasks, and time-based com-
its customers. petition enhancement.
Stage 5. EDI is integrated with custom- For a supplying firm, the benefits from
ers to the extent that the firm can inquire EDI implementation increase with each
into a customer’s database for information level of implementation. The full benefits
such as inventory status and shipments. of EDI are not realized until the company
Stage 6. EDI is integrated throughout is sharing information with its customers
the firm. EDI transactions are found in all and suppliers and has linked other func-
functions of the business organization (qual- tions of the business, such as quality, prod-
ity control, engineering, manufacturing, uct design, and product engineering.
marketing, and accounting).
The identification of EDI implementation CONCLUSIONS
stages is important because of the relation-
ship between implementation and benefits. A midsize manufacturing firm linked to
ABC, a supplier company, realized minor its customers through EDI received mini-
benefits from EDI. Further benefits are lim- mal benefits from installing EDI. Most of
ited, unless the company proceeds with link- the benefits were due to changes in the
ing EDI to its manufacturing planning sys- transaction process. Fewer errors were
tem and expands the implementation to encountered, requirement information from
more customers and to suppliers. customers was received promptly, and cus-
The benefits associated with EDI can be tomer service improved. Further benefits
grouped by their association with an imple- are limited without linking the manufac-
mentation level. The following groups sum- turing planning system and other custom-
marize the potential benefits of EDI. ers and suppliers.
Group 1 benefits (transaction ben- Supplier companies may be at various
efits at stages 1 and 2). The benefits stages of EDI implementation. The imple-
include reductions in paperwork, reduc- mentation level affects the benefits compa-
tions in time spent sorting and filing mailed nies can expect from installing EDI. At early
documents, reductions in input errors, im- stages of implementation, companies can
proved pay cycle, faster response time, and expect only those benefits that result from
standardized information. improvements in the transaction process (as
Group 2 benefits (information-shar- with ABC). As planning systems are linked,
ing benefits at stages 3 and 4). The companies can expect improvements in lead
additional benefits include reductions in time, reductions in inventory, and other
inventory, reductions in lead time, and benefits derived from sharing information
improved customer relations. with their customers and suppliers.
The Evolution to EDI 83

An implementation level where the sup- for materiel planning and information sys-
plier is considered an extension of the tems personnel. Data from customers must
customer’s factory can result in cost benefits be integrated into the planning system with
due to reductions in personnel and improved minimal human intervention to eliminate
operations and strategic time-based com- duplicate transactions. At the final stage of
petitive advantage. Suppliers must absorb implementation, total inventory can be man-
the cost of EDI technology unless they reach aged as if there were only one inventory.
this level of implementation. Reaching this level of implementation will
The linkage of two companies’ planning represent a challenge for those professionals
systems presents a unique set of problems charged with implementing EDI.

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