Direct and Indirect EDI: Pros & Cons to Consider
Electronic Data Interchange (EDI) has become a mandate to maintain trading partner relationships. It maintains digital connectivity that is key to attain a higher level of productivity and agility in this competitive era. Companies across the world, be it large, medium, or small, are looking forward to adding, modernizing, and expanding their EDI communication and software. There is a lot to consider and a lot of decisions to make when adopting EDI transactions in an enterprise.
To meet partner compliance requirements and reap maximum benefits from EDI connectivity, you must choose the right approach and the best EDI format. Yes, there are many options for EDI solutions are available but selecting the one that aligns with your business needs and partners’ EDI system is crucial. The two most fundamental and popular EDI formats are Direct EDI and EDI VAN (Value Added Network). Each offers different opportunities and challenges for businesses and supply chains throughout the EDI communication.
So, being new to EDI if you are also wondering which one is the best for you, then we are here to solve this confusion once and for all. We have listed the pros and cons of Direct and Indirect EDI below along with other basic information to help you pick the right EDI approach. Take a read:
What Is Direct EDI?
As the name suggests, Direct EDI services set up a connection between a business and a trading partner with no middle man. Also known as point-to-point EDI, it doesn’t require service costs and uses AS2 and other protocols to build a secure line with various partners. Cloud solutions or on-premise EDI is utilized to provide direct EDI and is designed to meet all communication needs, including highly robust cases with complex EDI mapping, file transfer, and translations. It can scale from a small number of partners and a low volume of transactions to a comparatively highly demanding workflow done on an enterprise level. The business can build an individual connection with each organization it wants to establish as an EDI trading partner.
After setting up the connections, the involved parties establish EDI protocols and start trading. It is quite common in large enterprises, such as Walmart that trade and deal with their partners frequently. Direct EDI provides total ownership of the operation and more control. Although it is the most secure option for communications, it can get a bit complex as different partners use separate EDI protocols or languages so businesses must support each of them. However, there is no accrued financial cost per document like EDI VAN. There is only an initial mapping fee, hardware resources, translation software, and basic maintenance cost.
Pros & Cons of Direct EDI
Improved Quality & Speed: Direct EDI connection gives you full control as you can make the changes in-house or with the help of a cloud service provider. With a comprehensive EDI cloud solution, you also get an iPaas option. Hence, the company can onboard new partners within days or weeks with the right solution.
Reduced Costs: If you compare the cost, then you can find that the direct EDI model is less expensive than other options for a large number of transactions. In fact, some businesses have reduced the cost by 90% using AS2 and Direct EDI. Impressive, isn’t it?
Automated & Flexibility: You can integrate this modern EDI solution with backend systems, such as ERP, CRM, and accounting tools. This automates the system and data moves between the EDI software and other applications. Thereby eliminating the chances of data re-entry and errors in the processes. It can also integrate with Managed File Transfer, APIs, IoT/Industry 4.0, etc., and can be used as a hybrid integration platform.
Better Partner Support: Another advantage of direct EDI is that it supports all major EDI formats and communication standards that partners use to share business documents. Considering the current hyper-connected world and the rise of Industry 4.0, direct EDI will only get popular.
High IT Investment: This connection demands more upfront work as you will have to understand every detail of your partners’ connection requirement along with setting up the connection yourself. You will also have to deal with building EDI documents, performing file transfer and translation, and integrating documents with the backend system, including ERP, CRM, and accounting software. To overcome these challenges and focus on other core tasks, prefer seeking help from a professional IT consultant for EDI integration.
What Is Indirect EDI? (EDI VAN)
EDI VAN is a provider for connections as a service with a secure and outsourced network that allows you to exchange EDI documents with trading partners. It simplifies EDI setup and communication by reducing the number of parties involved directly. Even today, the majority of EDI occurs through EDI via VAN that uses a third-party called Value Added Network. No matter which protocol is used for information exchange, if the two business entities are using the same EDI VAN, then communication is easily possible. There is no need to lean and adhere to each partner’s document standards, you only have to manage a single VAN instead that acts as a translator. You can either submit the documents manually to VANs using a web portal or by setting up a connection using any protocol of your choice.
VANs use electronic mailboxes that need polling regularly to check new messages. There are different business models offered by VAN. Some handle all translations for you along with transmitting the files to trading partners. While others require you to generate documents and help in transmitting files and some deal with mapping EDI data structures. Many also offer hands-on guidance to assist you throughout the process of setup. Although there are various benefits of VAN, there is also recurring financial cost.
Pros & Cons of EDI VAN
Easy to Set Up: If you are looking for an easy and simple way to start with EDI, then VAN is the best choice. VANs set up connections automatically for you so you don’t have to learn the details of trading with each partner.
Low Initial Costs: You need to invest low initial cost and it charges a fee per document or per line item which ranges around 30 cents. So, for low volume transactions and rare EDI use, the cost is significantly low.
Manual Data Entry: The web portals on VAN need you to enter data manually for EDI documents, such as invoices or other incoming files from trading partners. For integrating EDI data into the backend ERP system, you will have to reenter it which is tedious, time-consuming, and prone to errors. Also, onboarding and implementation are manual which gets problematic and challenging in the case of multiple new partners when you have to copy data from spreadsheets one by one. For EDI mapping, this gets even cumbersome.
Operational Challenges: There are also operational issues to deal with that affect visibility during communication. There is a need for feedback status by the store-and-forward principle which is non-existent and makes it unclear when the partner can retrieve the files. VAN also lacks a management and tracking tool which is important for communication exchange. The problem gets more serious when partners use different VANs with costly interconnects.
Maintenance and Reliability: If VAN fails, then there is a risk of SLA fines, loss of revenue with the Trading Partner Community, and chargebacks. For maintenance, there are plenty of efforts required as configurations change over time.
Which Is Right For You?
Yes, Direct EDI offers more benefits and most businesses that begin with VAN gradually move to Direct EDI. However, the truth is that the final decision about the right EDI format for your organization depends on your preferences, goals, and other factors. You must also check the format used by your trading partners for communication as it will make the decision easier. Make sure that you compare all the pros and cons of both the options meticulously.
Before EDI implementation, reach
out to a trusted and reliable EDI service provider to gain better knowledge and
understanding of all EDI software available. Put forward all your queries,
evaluate every detail, and then pick the best one. A3logics is one such
authentic company that has helped varied global clients choose the best EDI
solution and implement it in the most efficient way. So, connect with us now
and we will help you with all our might.