In an economy that requires every decision to be economically justified, every business process, application, and change to organizational function is subject to an ROI (return-on-investment) evaluation. But is there a return on investment calculation for electronic data interchange (EDI), or is ROI simply a matter of keeping or gaining a customer?
For suppliers, a decision to participate in EDI with a customer often comes down to asking whether you want to do business with that particular customer. Most retailers, and an increasing number of up-chain suppliers, will only do business with suppliers that will do business their way, which means via EDI or some other kind of electronic transaction set.
Is it realistic to commit the resources necessary to determine an ROI for EDI? This comes down to the difference between finding a return on investment and maximizing the efficiency in terms of cost for a function like EDI — two fundamentally different disciplines. Presumably, the function of ROI is part of a decision making process, one that helps an organization determine whether its efforts and expenditures are worthwhile. This is far different from exploring options that lead to decisions about which processes, tools, and methods should be used to improve functionality of a given process.
Discussions about analyzing the investment to be made on implementing EDI are neverending. But when a supplier is faced with the demands of a new or existing customer, the ROI determination generally amounts to a question of whether the supplier wants to accept orders from this customer or not. That’s not to say there is no calculus in the process, but those calculations are fairly straightforward, amounting to comparing the expected profitability of the relationship to the startup and ongoing costs of an EDI enablement. Given the wide range of options available from EDI software and services providers, there are likely to be few cases in which the costs of enablement outweigh the profitability of the partnership.
The second evaluation — that of determining the most advantageous EDI tools and facilities available for a particular company — is a much more interesting and complex exercise, and one that should be taken on later in the life of a company’s EDI experience. But at that point the valuation is based on reductions in expenses, offloading of responsibilities, replacing older and possibly more complex systems, and many other factors. These issues are normal process lifecycle issues, and while there may be some ways to judge a return on investment based on the changes being contemplated, the point of deciding whether the investment is justified has long since passed when the company decided to trade electronically with its trading partner.
Is there an ROI to EDI? For suppliers to larger manufacturers and to retailers, the question is more akin to asking whether a company needs to have a telephone. It’s unlikely that an active and growing supplier can survive and flourish without it. But there is a plethora of choices once the initial decision has been made.