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All content following this page was uploaded by Rhonda Lummus on 23 November 2015.
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
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
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.