EDI in not a technology but a new way of doing business. Though identifying the costs related to EDI is relatively easy, identifying the benefits of EDI, especially when a company is not using EDI is hard since most of the real benefits are strategic and intangible in nature. As such, EDI will require a different approach to cost-benefit analysis and it is essential for the success of a corporate EDI program, that management have appropriate expectations on the return on investment. Still a cost-benefit analysis is essential not so much to justify the investment in EDI but in order to prioritize applications and the allocation of information technology resources.

The costs associated with an EDI program can be broken down into the following categories: ! !

Strategy - The time spent in planning everything that goes into an EDI system.

Development - Acquisition of EDI enabling software, programming of EDI application interfaces, enhancing application software to obtain full advantage of EDI.

Education - This includes both the training of internal staff to re-adjust and take on new responsibilities in the EDI environment and more importantly education of trading partners. For the latter, there should be an estimate of the number of weeks it will take to t establish a connection with one new trading partner.

Implementation - The cost of MIS staff ensuring systems and application compatibilities internally and with new trading partners. Maintenance of the EDI interfaces.

Interchanges - The costs associated with sending and receiving data interchanges through private or public third party networks.Numerous EDI success stories have demonstrated that the greatest benefits from implementing EDI are qualitative and intangible at the start of the EDI program rather than quantitative. Nevertheless, the following areas may be analyzed to obtain the clearest possible picture on the benefits to be gained from EDI:

These are probably the most tangible benefits gained from implementing an EDI system. Estimates should be made on the number of document/line items processed per year for the document in question. Costs related to the processing of that document will include preprinted stationary, envelopes, stamps, telex, telephone/telefax and photocopying charges.

Estimates should be made for the tone spent on gathering and collecting the data, data-entry, typing, photocopying, filing and archiving, mailing and faxing and most importantly on control and error corrections per line item. The exchange of data directly from application to application will eliminate the frequent and costly errors which are inevitably produced when data is keyed in manually. The time spent should be multiplied by the average salary (including fringe benefits and overheads) of an administrative/clerical employee.

The value of redeploying staff currently involved in data-entry functions towards more value-added activities such as resolving discrepancies, preventing loss of discounts, obtaining the best rice price, etc. should also be considered.

A successful EDI system can dramatically shorten the order to delivery and invoicing to payment cycles leading eventually to reductions in inventory and account receivable, better cash flow management and a release of working capital.
Estimates should be made on the possible reduction of lead time days when trading via EDI and the percentage of inventory reduction per lead time day gained. This will enable companies to estimate the savings associated to reductions in raw material and finished goods inventory.

EDI will not only lead to a faster trading cycle but also to more secure supply chains as a result of the increased quantity and better quality of information shared between trading partners. Secure and more reliable supply chains enable the elimination of buffer or safety stock previously held in different parts of the supply chain to deal with uncertainty.

Although EDI has some clear costs and benefits, EDI is primarily a way of 3 doing business, the most important benefits being strategic. Strategic benefits include such things as greater customer satisfaction and improved supplier relations as EDI strengthens business relationships. Other strategic benefits l might include sustainable increases in market share and competitive advantage as it becomes more difficult for the competition to take over business increased staff productivity and morale, etc.

Strategic benefits are difficult to quantify but represent a response to the needs of the marketplace. Though it might be easy to demonstrate that EDI will lead to an increase in marketshare, and it is possible to quantify the value of an increase in marketshare, it will be difficult to predict by how much market share may increase through an EDI system. Although the benefits of EDI might start with sending and receiving documents electronically, the greatest benefits will come from an analysis of the whole operation and the efficiencies l EDI requires companies to make in their business flows.

Justifying an EDI investment will be easier if the changes and benefits to be gained by EDI are applied to the whole organization as opposed to only the ad, departments directly concerned by the EDI application. An electronic I invoicing and payment system might provide the greatest benefits to the accounting department but it could also provide tangible benefits to the sales l department, account managers or the treasury department.