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Electronic data interchange (EDI) emerged as a new class of technology to replace the manual processes impeding business transactions in the 1960s.
It all but erased the need to manually exchange B2B transaction paperwork, from shipping notifications to purchase orders (POs). By sending critical trade documents digitally in standardized formats, EDI helped unlock efficient, low-friction trade.
Today, EDI remains a staple of business data transfer, facilitating a remarkable 78.4%—or $7.00 trillion–of electronic B2B payments—annually.
As EDI has evolved in the modern era, the options available for accessing the technology have also expanded.
Managed EDI is one such option, enabling businesses to access the technology via an external team of experts. This has the potential to slash costs, reduce human error, boost security, and accelerate transaction cycles.
Read on to learn more about managed EDI, how it works, and who it can benefit.
Why Agile Companies are Choosing Managed EDI
EDI emerged from the modernization of logistics in the 60s and 70s, aiming to replace paper-based systems with electronic alternatives.
Initially, EDI systems were typically hosted on-premises, requiring substantial investment in infrastructure and skilled personnel.
In the early 2000s, improvements in cloud computing made it possible to outsource EDI functions to external providers, eliminating the need to invest in internal teams and technology.
There are several driving forces behind the conception and use of managed EDI:
Increasing Complexity of Global Supply Chains
As global supply chains have grown in complexity, new EDI standards have been developed to suit the requirements of different industries and jurisdictions.
For example, ANSI X12 is a predominantly North American EDI standard, whereas EDIFACT is primarily used across the EU and Asia. In addition to varying standards, there are multiple protocols for data transfers, such as virtual private networks (VPNs), AS2, FTP, sFTP, or FTPs.
Managed services can handle different standards and protocols with ease.
Speed and Efficiency
Expanding businesses often learn they need to adopt EDI to trade with larger entities.
As Joe Cicman, senior analyst at Forrester Research, describes, “When I look at the spread of EDI, I look at the power map in a supply chain. The buyers like Walmart and Ford have the power. They mandate that their suppliers adopt EDI. That’s how it spreads.”
Managed EDI enables businesses to adopt the technology rapidly when requested.
Rapid Business Scalability
Companies must be able to scale their transaction functions up or down in response to market demand.
Managed EDI services decrease the capital investment and lead time for expanding transaction handling and management.
Expense of On-Premises EDI
Cloud computing has decreased the need for on-site technology.
Maintaining legacy systems, which may include those that support EDI, leeches some 60 to 80% of a company’s IT budget, according to one survey. Outsourcing EDI negates these costs.
Need for Enhanced Data Security
With increasing cyber threats and stringent data protection laws, transaction security has never been more critical.
Managed EDI services invest in robust security measures and compliance protocols, ensuring data exchanges meet the highest security standards.
Integration with Other Business Systems and Analytics
EDI can integrate with other business systems, such as enterprise resource planning (ERP), customer relationship management (CRM), and warehouse management software (WMS).
For instance, EDI inventory software integrations connect EDI to WMS to integrate stock data.
Similarly, EDI order processing software integrations automate actions such as POs.
Managed services can support complex integrations without the need to hire developers in-house.
Managed vs. Self-Service EDI Software
One of the primary alternatives to managed EDI is adopting self-service or in-house solutions.
Bringing EDI in-house doesn’t necessarily mean investing in on-premises technology, as you can access cloud-based EDI solutions through web-based platforms. However, it still requires an IT team to operate the platform and take responsibility.
Let’s disentangle the differences between managed and self-service EDI.
Managed EDI Services: For Growth and Complex EDI
- Complex Transactions: For businesses maintaining large volumes of complex B2B transactions, outsourcing EDI can increase efficiency and decrease human error. Businesses with complex supply chains can benefit from outsourcing the entire function, redirecting internal expertise to growth-critical strategies.
- Ease of Integration: Managed services provide the tools and support to integrate with the complex EDI systems of larger businesses. This helps expanding companies transact with industry leaders without prohibitive upfront investments.
- Expertise on Demand: Managed EDI comes with a team of experts who can rapidly implement new standards and protocols. This can accelerate business cycles and onboarding new partners.
- Focus on Core Business: By offloading the technicalities of EDI to a managed service, businesses can focus on their core operations, leaving EDI compliance, scaling, and maintenance to the experts.
- Scalability: Managed services are designed to scale with the business. They can handle increasing transaction volumes without putting pressure on your internal teams.
Self-Service EDI: Maintaining In-House Control
Conversely, self-service EDI systems grant the business complete control over its EDI processes. This approach can be suitable for businesses that have:
- Specific Customisation Needs: Businesses with unique processes or requirements may opt for self-service EDI to tailor the system precisely to their needs.
- Technical Expertise: Companies with mature IT systems may find that self-service EDI allows them to leverage their in-house skills effectively.
- Data Control: An in-house system offers complete business control, prioritizing direct oversight for security or privacy concerns.
Ultimately, there are no hard and fast rules for when in-house EDI is recommended over a managed service or vice-versa.
Choosing between self-service and managed EDI software depends on business size, industry, transaction volume, IT resources, and growth trajectory.
While well-established businesses with large transaction volumes, significant IT resources, and well-integrated internal systems are more likely to embed EDI in their existing stacks, the benefits of outsourcing – as with so many other business functions – are strong.
How to Choose a Managed EDI Service
Managed EDI services are not all built the same. Trust, performance, and support are paramount when you’re granting control of your B2B transactions to a third party.
Choosing a provider that offers support for all trading partners with rock-solid security and value-added features is essential.
Consider the following:
- EDI Trading Partner Management: Managed EDI handles the technical details required for interacting with each trading partner and ensures that communication standards and protocols are met.
- Reliable Communications Infrastructure: Managed services handle all forms of communication, whether through a Value-Added Network (VAN), secure FTP, or AS2 protocol, providing a single point of contact for B2B transactions.
- Scalable and Robust Architecture: Cloud-based infrastructure allows seamless data flow between trading partners. This ensures that the service can adapt as the volume of transactions increases or decreases.
- Document Visibility and Control: Despite the outsourced nature of the service, companies maintain visibility and control over their EDI documents through cloud-based portals. This can provide insights and accessibility to documents, ensuring transparency.
- Integration with Business Processes: If necessary, managed services should integrate with other business tools and platforms, such as ERPs.
- Analytics: Managed services often include analytics and reporting tools. These provide insights into transactional data, enabling businesses to optimize supply chains and respond to market trends.
- Comprehensive Support: Managed EDI solutions should provide 24/7 EDI support, including meeting any technical requirements set out by your trading partners.
When implemented correctly, managed EDI should handle the heavy lifting of B2B transactions while maintaining transparency.
On-demand support for all parties in a transaction is critical, including notifications for common issues such as late advanced shipping notices (ASNs).
The goal is to increase transaction speed and security, reduce staff and technology costs, and maximize trading partner compliance.
Summing Up
Managed EDI software is a key innovation in B2B data interchange, allowing businesses to outsource this critical function to experts. Managed EDI offers access to cutting-edge EDI tools and expertise without the need to maintain in-house teams and processes.
While there are pros and cons to weigh up against bringing EDI functions in-house, managed services slot into the modern logistics ecosystem and are set to become more popular in the forthcoming years. If you require professional handling of B2B transactions and dedicated 24/7 support, managed EDI could be the answer you’ve been looking for.
