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Small Business EDI Integration
1. Small Business EDI Integration
Integrating EDI for users of small business accounting and ERP software
The promise of EDI integration has always been alluring,
but financially out of reach for the small business owner.
With over 80% of data integration projects failing, small
businesses have had reason to shy away - until now.
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2. Introduction The need for
EDI to ERP integra- integration
EDI adoption often happens in stages. The vast majority
of small businesses are forced into adopting EDI by a large tion is vital As a small business,
retailer. This “mandate” brings the small business into an Over 50% of medium-sized understanding why inte-
often confusing and technically difficult world where the businesses will have ERP gration makes sense
promised financial benefits of “paper-less” transactions systems in-house by the is the first step. EDI
can be difficult to quantify and even more difficult to real- end of this year. With key- integration has been
ize. This is phase one of EDI adoption and is often char- ing errors responsible for successfully implement-
acterized by manual processes. As the business grows, it thousands of dollars in costs, ed in large, Fortune 500
invariably enters Phase 2 of EDI adoption. In this “growth integrating ERP and EDI is organizations for many
phase” the small business begins to process more and mission critical. years with concrete,
more EDI transactions and begins to realize that a critical measurable returns on
deficiency exists in the receiving of EDI data from custom- investment. The surpris-
ers, printing that EDI data in the form of reports and re- ing part for most small
keying that EDI data into the in-house accounting or ERP businesses is that EDI integration can make a significant
system by employees dedicated to this task. positive impact even at low revenue numbers. This is due
to two key factors that every small business that does not
use integration must deal with every day.
SCM ENTERPRISE 1. Human beings
Expanded
make mistakes
Can your software
Integration scale? One of the biggest chal-
lenges associated with
Expansion SMB Any EDI integration solution doing business with
must give you the flexibility a large retailer is the
Mandated EDI to grow from the afford- concept of chargebacks.
able requirements you have Large retailers will
today to the high transac- charge their vendors for
Figure 1: The 5 Phases of EDI Adoption tion requirements you will mistakes in shipments
have in the future. received by the retailer.
At Phase 3 of EDI adoption the question of data integra-
These mistakes are most
tion, specifically EDI integration, becomes a key goal of the
often a direct result of
small business. Data integration is a brave new world of
poor data entry and can run into the tens of thousands
ultimate efficiency: increased inventory turns and reduced
of dollars per year for a business with an even modest
labor costs that every business aspires to achieve. The
amount of transaction volume. In addition, there are usually
cost savings can be dramatic even for a modest operation
financial penalties imposed on small businesses by their
that would ordinarily never consider a data integration solu-
larger trading partners – these can run into thousands of
tion. Realizing this utopia of paperless transaction process-
dollars each year.
ing, however, is fraught with dangers and has traditionally
been costly and reserved for the financially wealthy busi-
nesses of the world. What’s a small business to do?
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3. 2. Data entry is expensive transactions per day (2,600 per year) manual data entry
can quickly add up to large costs in time of people being
Manual data entry of orders received by EDI has a direct
used for manual tasks that could just as easily be handled
impact on the bottom line in the form of hourly wages
by an effective data integration system. At this point the
spent on data entry that could otherwise be re-purposed.
small business begins to enter the perilous Phase 3 of EDI
At what level does a data entry clerk become unproduc-
adoption: data integration. Done properly this stage can
CATEGORY COST help the small business grow and achieve incredible effi-
Annual Labor Cost $55,000 ciencies, reductions in costs, and improvements in revenue
and inventory turns; done badly it can lead to disaster.
Daily Labor Cost $211.53
Percentage of day 12.5% (assuming 5 minutes per transaction Integrating EDI can lead to disaster
required to process 10 in an 8 hour day)
transactions You’ve been sold on the concept of integrating your EDI
Figure 2 data into your in-house accounting system. You’ve asked
your IT staff to research available solutions, and then
tive due to the volume of orders being received? Figure
comes the shock: the realization that even if you can mus-
2 above shows a typical example of the costs associated
ter the exorbitant fees to purchase the necessary software
with manual data entry. Calculating the baseline cost per
to realize your integration needs, your lack of in-house
transaction is relatively straightforward, assuming a data
expertise might cause the entire project to fail from the
entry clerk requires 5 minutes to process each transaction
very beginning. In fact you are not alone: a 2003 report by
and that their annual “burdened” labor cost is $55,000.
the Standish Group found that over 88% of data integra-
Using the above data we can then calculate the annual
tion projects fail, with over half of those being completed
cost of manually processing EDI based on the number of
a full 170% over the original budgeted time. These dismal
transactions per year as seen in the graph below. Looking
performance figures for data integration are attributable
at the associated costs of just entering EDI data manu-
to key deficiencies from which all business suffer. Small
ally it becomes obvious that even with as few as ten
Despite clear cost benefits to integrating EDI, most small business don't integrate
70,000 $68,750
EDI Transactions per year
52,500 Manual Data Entry Costs per year
$34,375
35,000
26,000
$20,625
17,500
13,000
$6,875 7,800
2,600
0
2004 2005 2006 2007
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