Photo appears courtesy of Jonathan Oakley. Measuring your return on investment (ROI) for EDI is no easy feat and there are no hard and fast rules. With so many variables, all too often EDI solutions end up with so much duct tape, companies forget why they implemented EDI in the first place. It's easy to say, "Well, how much do I want this customer's business?" Because for many companies, this is the bottom line. The problem with this attitude is that it's reactionary. Instead, figure out just HOW BIG of a return on EDI investment is possible in the long term and set yourself up for maximum dividends. Read on...
If you're going to be new to EDI, you are probably seeking to do business with a customer who is requiring it. This seems simple, compare your profitability with this customer to the cost of setting up EDI. But to take it a step further, conduct a trading partner survey of who else is doing EDI (both suppliers and customers) and create a timeline for adding each trading partner. The more trading partners, the higher the ROI.
You need to figure out how much your administrative expenses will decrease in an EDI environment. How much time will be saved in that $40k accounts receivable salary? How much money will be saved in paper and ink? I've seen figures ranging from $120 per order down to $20 per order so for the sake of argument, let's say that it costs a company $20 to manually process a paper order. In an EDI environment, that number drops to under $1. What could your company do with 19 extra dollars in profit from EACH order? The more orders processed via EDI, the bigger the ROI.
Those two ugly words all of our customers hate: charge backs. Will doing EDI get you out of paying charge backs? Not so fast. Doing EDI well might. Again, being proactive instead of reactive will get you a lot of mileage here. Set up error alerts, keep up to date on trading partners' EDI guidelines and make sure you have reliable communication. Fewer charge backs means higher ROI.
Implementing EDI speeds up the order-to-cash process, increasing the amount of available capital on any given day. Figuring your ROI is as simple as asking yourself, "How much cash was on hand on average before EDI and after EDI?" Taking this a step further, what can you do with the extra capital? How about a brand new marketing position?Or a sales incentive? Using newly uncovered resources wisely equals maximum ROI.
Would you consider securing new customer relationships a return on your investment? I certainly hope so. How much will your profits increase by adding new customers? Implementing EDI makes you more competitive in the marketplace. You are cheaper and more efficient to do business with when you are EDI capable. I challenge you to implement EDI and see how many new customers you have one year later. This is perhaps the most simple and obvious way to calculate ROI for EDI.
One last thing, don't forget there is a difference between doing EDI and doing it well. Doing it well will get you a maximum return. Scott Koegler wrote in his EC-BP.com blog that, "In my view, there is a difference between finding a return on investment and maximizing the efficiency in terms of cost for a function like EDI." Mr. Koegler's assessment is correct. Again, your EDI solution should be about automating processes, increasing your bottom line, and remaining competitive, rather than just reacting to a new customer mandate.
GraceBlood LLC specializes in EDI implementation and data integration solutions. For more information, please contact Shandra Locken, at slocken@graceblood.com.