Electronic Data Interchange (EDI) is conceived in a different way in each world region. Europe, the United States and Latin America have adopted this technology in their businesses with quite different aims. The outcome is that the uptake rates and, especially, the way EDI is perceived, vary a lot from one place to another. For some, it is an indispensable tool in the corporate arsenal; for others, a cost generator. In this post, we analyse how each implementation model has evolved.
EDI in Europe
From the outset, the aim of EDI rollout in Europe was to achieve equal optimization among all participants in the supply chain. The idea was that this tool would allow an integral, secure, reliable and agile communication flow in provisioning and distribution transactions.
This view led to the spread of EDI technology in companies. In fact, today it is a tool forming part of the culture for suppliers and retailers in their day-to-day operations.
- How does EDI work in Europe?
Unlike what happens in Latin America, in Europe each retailer has a single EDI provider and a single connection. Nevertheless, this does not mean that all their suppliers have to work with the same technology partner to be able to connect with their customers. What happens is that the distributor’s VAN communicates with the supplier’s VAN through interconnections (gateways).
As in Latin America, new suppliers can decide to work with any of the VANs approved by the retailer. However, although the distributor may acknowledge these other networks, their entire operation will be unified in a single VAN. This lowers the costs and the number of people responsible for carrying out the transactions.
Another difference is that in Europe a larger number of messages are exchanged, which enables all stakeholders involved in the supply chain to achieve benefits from EDI:
- Distributor information
- Price catalogue
- Purchase orders
- Order responses
- Order modifications
- Despatch advice
- Despatch advice responses
- Sales reports
EDI in the United States
In the United States, the perception of EDI is more akin to the European outlook. This is a mature market, traditionally driven by the retail sector, pharmaceutical industry, publishing and the automotive industry.
This technology is currently growing in the logistics area. And, as occurs in other regions, suppliers recommend their logistic operators to adopt EDI in order to lower costs and improve communication flow.
Meanwhile, small businesses largely remain outside the system. Instead of implanting EDI, they go for other intermediate technology solutions, such as web portals.
- How does EDI work in the United States?
The US market is an open one, in which each business can decide which technology partner they want to work with. Even so, companies draw up a list of recommended suppliers, which often have to be previously certified to ensure trustworthiness.
As regards the messages, unlike in Latin America, where they are more focused on tax compliance, here they seek to benefit the company. The aim is to lower costs, improve working processes and achieve the return on investment.
In recent years, the trend is leaning towards exploiting data mining to provide more information for partners about the messages, such as average payment times.
EDI in Latin America
The spread of EDI in Latin America was kick-started by retailers. In the early pilot projects in the region, the structured communication flow was one-way. In other words, the suppliers only participated passively.
This approach was largely maintained until now, so that EDI is based on benefits for the distributor, but not for the supplier. To the latter, the tool is seen as a ‘cost generator’ that their customers oblige them to accept.
In this region, Mexico stands out in the use of EDI, driven by the country’s advanced development in the area of e-invoicing. The sending and reception flows of e-invoicing are EDI flows, so the mandatory nature of the CFDI allowed businesses to extend their EDI projects into B2B, with the aim of optimizing their supply chains and making internal processes more efficient. The retail sector is one of the most developed in this country, although the logistics and automotive sectors are not far behind.
- How does EDI work in Latin America?
The most common practice is for retailers to approve the main EDI companies in the country so that they can link up with their systems to take care of transmitting orders to their suppliers. The suppliers can then choose which VANs accepted by the retailer they want to work with.
So, in this model, the entire weight of managing the connected VANS lies with the distributor. This way of working calls for an excessive workload in terms of staffing and tasks.
In Latin America, these are the three messages exchanged by EDI:
- Purchase orders
- Order modifications
What hampers EDI uptake in Latin America?
Edicom is working on the expansion of EDI in Latin America based on the European and US models. The aim is for businesses to achieve greater advantages by adopting this tool, which enhances security, reduces errors and maximizes cost savings.
However, in order to progress in this direction, it is necessary to overcome four challenges.
- Cultural aspects.
- Lack of a holistic view.
- Little interaction between supplier and retailer.
- Lack of understanding of EDI as a key tool in supply chain transactions.
Get to know more about EDI with our blog series on EDI Academy.