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EDI hurts supply chain agility

10 September 2018

5 minute read

EDI hurts supply chain agility

Electronic Data Interchange started life as a military tool during the Second World War to manage the complex logistics of airlifts. Today, it is still considered the de facto standard in high-volume, structured data transmission between businesses, enabling suppliers to send invoice data directly from their system to a buyer’s. Its adoption has long been touted as the panacea to eliminating paper invoices and their associated costs, delays, inaccuracies and inefficiencies. It’s true that EDI integration can streamline business practices, decrease manpower and reduce costs compared to manual, paper-based processes.

 

But here’s the thing: getting locked into EDI-enabled relationships creates “sticky” suppliers, making the supply chain inherently less agile. The shifting geopolitical landscape is prompting governments in many parts of the world to become more stridently nationalistic: witness the new tariffs currently being pursued by the US, and the UK’s ongoing withdrawal from the EU, both of which are creating trade friction and supply chain disruption. For example, according to the Chartered Institute of Procurement and Supply, 40% of UK businesses with EU-based suppliers have begun to search for domestic partners in anticipation of Brexit. When risk and uncertainty prevail, agility is everything.

EDI is a big commitment

From a technical point of view, EDI is more complex than other methods of e-invoicing: it requires point-to-point connections between the systems of trading organisations – an IT integration project which makes EDI time-consuming and costly to set up. Depending on whether you opt for an internal EDI solution or outsource to a third party or value-added network, the cost of implementation can vary wildly.

An in-house solution demands initial capital investment in EDI software, communications software, mapping and translation software, and EDI and mapping specialists, plus the ongoing IT resources to support, maintain and upgrade the network regularly. Testing and approval are vital components of the integration, so you may need to weather the storm while any initial bugs are fixed. As EDI lacks a globally recognised standard format for data storage and transfer, organisations have to agree these things on a project-by-project basis. You may also have to sponsor the cost of implementation for your trading partners, to lower their barriers to adoption. This is why an internal EDI project is not something to be undertaken lightly and, as a big-ticket item, is still chiefly the preserve of large organisations.

Little wonder that most businesses choose to work with some form of third-party EDI provider who can supply the infrastructure on a pay-as-you-go or other subscription basis. Outsourcing is not without its own challenges, however: in terms of how many of your partners are already enabled on the provider’s network, whether the provider covers the geographies in which your supply chain operates, the levels of support and training they are able to provide to your business and its trading community, and whether there are hidden charges for small transactions.

100% adoption is an elusive goal

Either way, 100% supplier adoption of EDI is almost unattainable. Setting up EDI requires technical skills, time and commitment to making it happen. Only suppliers with good IT and infrastructure skills and significant transaction volumes will realistically buy in to EDI, and for those that do, on-boarding is typically painful, laborious and disruptive for both parties. This inevitably results in a “long tail” of suppliers still sending paper invoices or image-based PDFs, getting you no closer to the holy grail of 100% touchless processing.

So is your business truly wedded to EDI, or do you simply want high quality transaction data that can be automatically uploaded into your systems so you can process invoices quickly and efficiently?

PDF e-Invoicing: a simpler way to get ALL your suppliers on board

We’ll let you into a low-tech secret that eliminates the need for a big-budget IT system or project. Most emailed invoices are originated within accounting software such as QuickBooks or Sage, or an ERP system such as Oracle, SAP or Microsoft Dynamics. Unlike PDFs that are merely an image of a piece of paper, these familiar billing applications generate a machine-readable PDF that has a structured text file embedded within the document. This data layer can be copied from the document and pasted into another file – and here’s the game changer, because that process can be automated.

PDF e-Invoice sending and receiving allows this data file to be machine read, mapped and converted into a true e-invoice in the format that meets the buyer’s needs.  The invoice is transformed, validated and imported into the AP process without any human intervention in a matter of minutes. What this means is that suppliers – particularly SMEs – who can’t or won’t embrace EDI and don’t want to pay fees to an e-invoicing network, can continue to send PDF invoices as usual, without changing any of their current processes or practices, while you receive true e-invoices in your preferred format.

A win-win for suppliers and buyers

Let’s look at it from the supplier’s perspective. There’s no need for a costly, disruptive IT project. They send you the same file they do today. They don’t have to pay anything to do so. They can be confident their invoices is going directly into your approval process instead of languishing on someone’s desk. They can log into the Basware portal for free to check the status of their invoice. Because you’re processing their invoice electronically (and therefore faster), they can expect to be paid on time or even offer early payment discounts to boost their cash flow. By eliminating the practical, financial and cultural barriers to e-invoicing, it’s an easy proposition to say yes to.

From the buyer’s perspective, there’s no up-front investment, just a straightforward, pay-as-you-go service that can be up and running within a day (unlike the typical six-month project for an EDI integration), for immediate time to value. Unlike scanning and OCR, there is no compromise in data quality in the conversion of the PDF into the XML structure, reducing exception handling and associated costs. Reliable, near real-time ingestion without manual validation and faster invoice processing open up opportunities for attractive early payment discounts. It’s an ideal way to extend the value of e-invoicing to the “long tail”, even among the most recalcitrant of suppliers. And crucially, it doesn’t compromise the all-important agility of the supply chain by locking either party into a bespoke agreement.  

PDF e-Invoices are widely accepted through most of Europe, the US, Australia and many other countries worldwide, making the sending and receiving solution highly conducive to cross-border trade by rising above the patchwork landscape of national mandates relating to e-invoicing. 

The proof is in the pudding (or McFlurry)

The PDF e-invoicing solution is so simple, and the untapped potential astonishing, yet it’s already proven, avoiding the inherent risks in adopting novel technologies.

Take fast-food giant, McDonalds. In 2015, the company had 30,000 suppliers and service providers in Germany alone, inundating its AP function with thousands of paper invoices. Since piloting Basware’s touchless PDF receiving service and offering PDF e-invoicing to all its suppliers, McDonalds has brought its invoice processing cycle down from 20 days to just seven, profiting from early payment discounts. The fast food giant is now aiming for at least 90% of its total incoming invoice volume to be received and processed electronically, at which point touchless processing will be extended to franchisees, too. You can read the full story here.

Want to know how much your organisation could save with e-invoicing? Try our e-invoicing savings calculator.

Get in touch to find out how we can help you overcome the limitations of OCR and EDI with PDFs and Basware’s unique touchless invoice receiving.