In-house EDI vs outsourced EDI
Options, costs, resources and what you need to know before you invest in an EDI solution.
Getting started with EDI
So one of your retail partners has asked you to start using EDI. What does that mean, and where do you start?
If you’re new to EDI, you can either outsource to an EDI provider or invest in your own on-premise EDI system. We’ll list some important information about each of these options below, but first let’s review some terminology.
What is EDI?
EDI is an acronym for electronic data interchange. In the retail industry, EDI is used to automate orders, invoices and dispatch notes. EDI replaces paper-based fulfillment processes.
EDI consists of two main components: Translation and communication. During translation, a business document is changed into a standardized EDI format (ex: ANSI X12 or EDIFACT). Each retail partner has its own set of EDI requirements and specifications.
The translated information is then sent (or communicated) securely to the recipient. There are a number of communication standards and protocols required to do EDI with major retailers and brands.
Due to the complexity, security risk and highly technical nature of EDI, many retail partners opt to outsource these operations to a specialized EDI provider.
What is outsourced EDI?
The term “outsourced EDI” refers to any type of EDI solution where a provider handles the translation, communication and technology for you. This includes software, hardware, infrastructure and ongoing changes to EDI specs or maps.
You provide your order fulfillment information, either via a web-based portal or through direct integration with your ERP or business system. Then your EDI provider handles the rest and ensures that your retail partners receive the information electronically and in the proper format.
Outsourced EDI is sometimes referred to as cloud EDI or managed service EDI.
Outsourced EDI solutions may vary in complexity, depending on your business size and business needs. EDI outsourcing is a solution for every segment of retail, including retailers, vendors/suppliers, manufacturers, distributors, grocers, and logistics.
What are the costs of doing EDI?
For those companies opting for in-house EDI, the main costs will be:
- Software (mapping and translation)
- Licensing (must be purchased annually for each EDI format or standard)
- Hardware (servers, backups, etc.)
- Communication services and transmission-related costs (ex: ftp, AS2, VAN, exchange certificates)
- Ongoing technical resources to configure and maintain EDI systems
Companies new to EDI (and especially small and midsize companies) should be prepared for a large initial investment to set up an in-house EDI system.
Also the ongoing costs of doing in-house EDI should not be an overlooked factor when calculating operating costs and pricing. We’ve heard many vendors express regret that they did not figure in accurate EDI costs when determining margins. This is especially relevant for drop ship suppliers and retailers who face challenges in order to profitably send one package at a time.
When outsourcing EDI, the main costs will be:
- Setup fees (generally small)
- Monthly or annual subscription fee
Some providers use a pay-as-you-go model, while others use monthly or annual subscription. These costs will depend on volume (usually measured in kilo-characters contained in your EDI transactions), number of retail partners and level of support.
Even if your company has an existing EDI platform, outsourcing is an option worth considering due to potential cost savings. Your company can reduce IT costs 30% or more by eliminating software, hardware and resources for ongoing maintenance.
In-house EDIYou manage the EDI operations
- Hosted on your own servers and hardware
- Can cost between $100,000 and $500,000 to set up
- Ongoing costs for licensing, technology, security even during times of low volume
- Manual data entry still required
- Requires IT resources
- Total control of own system
- Prone to human error
- Manage EDI portals for each partner
- Difficult to scale and add retail partners
- Ongoing maintenance
Outsourced EDIYour provider manages EDI operations
- Cloud-based technology
- Small set-up fees
- Pay only for what you use and scale up or down based on business demands
- Reduced manual data entry
- Reduced IT costs
- Lower total cost of ownership
- Human errors are eliminated
- Access one EDI portals versus many
- Integrate once to connect with anyone in the network
- EDI provider handles the ongoing maintenance, including upgrades, map changes and retailer requirement changes