September 2, 2009

The Case for Using EDI

Source: Thomas & Betts EDI Initiative Program by Woody Savage, Director of eCommerce, Thomas & Betts

Electronic data interchange (EDI) is not a new subject—it is not even a timely subject. Thomas & Betts (T&B), a leading designer and manufacturer of electrical components used in industrial, commercial, communications and utility markets, has been processing EDI orders with some of their distributors since 1989. However, the fact is, while almost every major distributor entity is EDI capable today, not all are taking full advantage of it. T&B put together a case for using EDI and distributed it to their customers in an effort to increase electronic activity across the board. Take a look at some of the findings from their recent report.

In comparison to the retail sales channel, the electrical distribution industry has a way to go. The retail industry (i.e. Walmart, Home Depot, Lowes, etc.) tends to focus more on streamlining their business processes and reducing transaction costs associated with order processing, shipping, receiving, invoicing and payments. The chart below shows a comparison for these two sales channels as it relates to order lines sent via EDI to Thomas & Betts – 99% for retail versus 61+% for electrical distribution.

Like most situations, there are exceptions to the rule. Some electrical distributors are more aggressively trying to reduce their transaction costs than others. The chart below depicts 12 major distributor organizations and/or buying groups and how they compare relative to one another (this chart is based on order entry lines sent to T&B via EDI).

Several important facts can be ascertained from this chart:

  • Some distributors are very serious about making EDI a priority within their organizations (see bars 6-12) while still others are not yet on board.
  • In order to have a high percentage of EDI participation, you must also have a majority of your distributor branches/members actively using EDI.
  • The fact that several electrical distributors have achieved 80-90% levels disputes the notion that many electrical items cannot be ordered via EDI because they are “special” or they have a “different price” or they need to “ship right away”, etc.
  • Essentially every major distributor today has the capability of using EDI whether they actively do or not.

Cost Effective Industry Solution for Transmitting EDI – IDX

One advantage we all enjoy in the electrical industry is the ability to use the Industry Data Exchange (IDX) network for transmitting our EDI transactions. This Internet-based communications hub enables trading partners to exchange business documents. It was developed by IDEA expressly for this purpose. IDX maintains a near 100% reliability record and users of this system (both manufacturers and distributors) save an estimated 30%-40% over other traditional commercial service providers.

The benefits of using eCommerce are accumulative – not just a one-time savings. The sooner you start, the greater your benefits will be and the more they will grow (see chart below for T&B’s growth over the years).

Why then, when given a choice between using EDI and sending a fax, do distributors tend to fall into the trap of sending fax orders to their vendors only to have them manually re-key these same orders into their system?

It is apparent from T&B’s data that most major distributors have a cost effective EDI capability in place, but many individual locations still tend to push the fax button instead of the EDI button when they go to transmit their daily orders to manufacturers.

It appears that manufacturers have failed to communicate the benefits of EDI versus fax and other manual methods to distributor partners effectively (at least at the branch level). Hopefully, the information that follows will help explain the underlying value of choosing EDI over fax for manufacturers, distributors and the end customers.

Advantages of Using EDI versus Manual Entry

Faster order fulfillment – The chart below shows actual order lines received by T&B over the course of a week (Note: T&B processes EDI orders 24 hours a day, seven days a week). In fact, T&B picks up EDI orders from IDX every five minutes and converts them into TOPS (T&B Order Processing System) within seconds of receipt. Customer service representatives, on the other hand, work from about 7 AM to 6 PM five days a week – they eat lunch, take breaks, etc. Manual orders may take as long as 4-8 hours on average to be processed whereas the EDI process seldom has any downtime.

Order accuracy – Reading illegible or truncated fax pages, misinterpreting quantities or catalog numbers leads to additional errors. A study of all order lines received YTD at T&B shows that EDI order lines had over 40% fewer order resolution errors than fax orders that were manually entered (see chart below).

Better user experience – 99% of EDI orders go into the T&B system without human intervention within seconds of receipt. Items allocate instantly so distributors won’t miss cut-off times for regularly scheduled shipments. EDI air orders are instantly available for pick, pack and ship to the destination.

Order follow-up is more dependable – EDI orders display almost instantly in T&B Access. No need to wonder when or if the order has been entered – you can readily view the shipping status (backordered items, allocated, in shipping, carrier tracking status, etc.) at your convenience 24 hours a day, seven days a week. EDI also provides distributors with an automatic functional acknowledgment that T&B received the order in their system – something a fax transmission cannot do.

Order Flexibility – T&B’s EDI process is programmed to support virtually all types of order conditions including:

  • Drop Ship Orders to end users
  • Rush/emergency orders for air shipment
  • Made-to-order items as well as stock items
  • Future dated orders or orders with multiple request dates at the line level
  • Quotations and Promos at the header/line level
  • Ordering of non-stock items by the distributor without carton lot rounding
  • Entry of items by Catalog number, UPC number and/or Customer Part Number
  • The T&B system even checks for and eliminates duplicate purchase orders entered via EDI

Unique Benefits – T&B can “store and playback” the distributor’s customer PO line numbers and customer part numbers on various documents, labels and electronic transaction sets so the distributor can more easily match up items shipped or billed to them. They can even print stock bin locations on full case labels to aid warehouse personnel in receiving and putting away T&B items.

The bottom line is that distributors who do not take advantage of EDI and/or web order entry are putting themselves at a competitive disadvantage compared to other distributors and/or other sales channels.

Over 80% of T&B’s Order Lines are received via EDI and Web

This accomplishment has enabled T&B’s dedicated customer service teams to devote more of their time to service support needs. Now instead of spending a lot of time manually re-keying orders, they can spend more time and effort handling exception expedites, resolving order resolution issues, working with returns and other service issues critical to a trading partner business relationship.

Contact your account manager at IDEA to find out ways you can increase electronic activity with your key trading partners closer to 100%.

We’d like to thank Thomas & Betts for helping IDEA promote the benefits of eCommerce to drive costs out of the electrical supply chain. If you have an eCommerce initiative or success story you’d like to share with the industry, please email a copy to Amanda Johnson.