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EDI: Some Things to Know Now

If you aren't EDI-compliant and you'd like to continue to be an automotive supplier, you'd better get moving. When EDI and associated business practices can mean a savings of $71 per vehicle manufactured by the Big Three in North America, you know that the OEMs are serious about EDI.

Do you remember that from a letter dated March 11, 1996, on Automotive Industry Action Group (AIAG) letterhead, from Chrysler, Ford, and General Motors executives indicating that electronic data interchange (EDI) is going to become a way of life in the automotive supply chain? If not, you'd better check your files and pull that letter out. All suppliers are expected to be EDI capable by the OEMs. They want the electronic supply chain to be one without weak links.

For many companies, particularly Tier 1 suppliers, this EDI requirement is nothing new.

Thomas S. Hoy, executive director of AIAG, who is on loan from GM, remarks, "What I find interesting about EDI is that it is 1997 and we've been doing it in the auto industry for 30 years. GM was doing it among its own plants in the late `60s. In the `70s the OEMs had their own proprietary systems with suppliers. In the early `80s, AIAG began work on common guidelines for EDI. Those guidelines were used in the later `80s, primarily between the OEMs and Tier 1 suppliers. It's only been within the last couple of years that work has progressed on going deeper into the supply chain.

"What mystifies me is that it has taken so long."

Time is now at a premium. EDI can save big money in processing time and inventory requirements, in the offices and on the factory floors, so the question is no longer if or when, but how.

The "attached document" referred to in the Big Three letter is the "Supply Chain EDI Requirements." It includes six items. Fundamentally, they can be categorized into two groups. One group indicates that the Tier 1 suppliers must have their EDI integrated into their business systems—enterprise resource planning (ERP) or manufacturing execution systems (MES) or what have you. The other group instructs (1) the Tier 1 suppliers to send the 830 transaction set ("Planning Schedule and Release Capability") information "electronically using EDI no less than weekly" to their Tier 2 suppliers; (2) the Tier 2 suppliers to do the same thing with Tier 3 suppliers; and (3) Tier 1 suppliers to have "the capability of sending daily ship requirements to their subcontractors."

As Daniel Wecker, manager, Automotive Global Center of Excellence, System Software Associates (Chicago), puts it, "What this is about is (1) widespread EDI implementation and (2) not just having EDI up, but having it as an integrated system."

So the least you need to know is this: Get EDI capable. This means the minimum requirement is having the communications capability—computer, modem, software—so that you can communicate either up to your customers or down to your suppliers. That's the bare bones. What you really need is a capability that goes beyond a mode wherein the EDI message is received, then someone on your staff sitting down and rekeying it in to your business system. What comes in electronically had better go right into another software system. Which means that there is going to be some translating going on, software system to software system, so the data being sent and received ought to be "clean" and formatted as required by the EDI X12 or EDIFACT standards.

What all this means is that it's probably a good idea to (1) get knowledge about EDI and (2) get knowledgeable help. So what should you do? Probably call AIAG A.S.A.P.—if not sooner. Call it at: 810/358-3570. It offers documents and training programs related to becoming EDI adept. Talk to your customers about their systems and get contacts at their software vendors. Let your customers know what you are doing so that they can start moving, too.

It is becoming necessary, not optional. Susan Strup, vice president of Electronic Commerce Services for Macola Inc. (Marion, Ohio), a supplier of accounting, distribution and manufacturing software (these are elements of the "integrated business systems" that EDI must be plugged in to), responds to the question "Is it important for companies to implement EDI?": "Sure—if they don't want to lose their biggest customer." It doesn't matter what tier you are at.

But realize that EDI is not just another requirement that you have to fulfill in order to stay in the good graces of your customers. EDI is, when implemented correctly, a powerful tool that can improve operations.

Whereas factory floor operations have been vastly improved during the past several years through the implementation of such things as computer-controlled machinery, office operations in those very same facilities have not, perhaps, done as well. EDI, through the automation of order entry, procurement, logistics, and other related tasks, can improve customer responsiveness while minimizing the need to maintain inventory on the factory floor.

 

Payback Parameters

Make no mistake. Implementing EDI is going to cost you money. How much money is largely dependent on the breadth and depth of the implementation. According to Susan Strup, a stand-alone "print-and-tear" EDI system (the non-integrated system that is becoming verboten), which is functionally not much more than a fax machine, can run from $2,000 to $10,000—which makes it an awfully expensive fax machine. The amount of money required goes up as the EDI system becomes integrated with the business systems and as the business systems become more capable and fully featured.

"People at some companies look at EDI as a necessary evil. It's like they got a letter bomb from their customer, telling them that they have to use it. But they should look at EDI as a means to improve their bottom line," says David Hough, manager, Electronic Commerce Global Center of Excellence, System Software Associates.

 

So if it is a good thing, something that can provide a payback, the question is how?

According to results from the AIAG Manufacturing Assembly Pilot (MAP) program, in which the Big Three automakers and suppliers at levels to Tier 3 created a seating supply chain that implemented EDI integrated into the companies' business systems, the following benefits can be realized:

  • Shorter lead times
  • More inventory turns
  • Reduced cost of data entry*
  • Fewer data entry errors*
  • Better scheduling
  • Faster release processing
  • Increased productivity

As Tom Hoy puts it, "You're essentially trading information for inventory." As the amount of accurate information goes up, the necessary inventory goes down. The annual savings that the entire auto industry can realize is on the order of $1.1-billion.

That's a powerful reason.

 

Terms to Know

EDI. Electronic data interchange. Computers talking to computers in a formatted way to handle shipping and receiving needs. This is not just an automotive phenomenon. Retail, and even U.S. Customs use EDI.

X12. The standard used for the electronic interchange of documents developed by the American National Standards Institute (ANSI).

EDIFACT: EDI for Administration, Commerce and Trade. This is a set of international standards developed by the United Nations. It may be the replacement for X12 in automotive at some point as (1) EDI gets widespread implementation and (2) global trading among OEMs and suppliers necessitates a single format.

Proprietary standards. "Closed" systems not "open" like X12 and EDIFACT.

Transaction set. Invoice, purchase order, or some other complete document that includes at least a minimum amount of prescribed information (prescribed by X12 or EDIFACT).

VAN. Value-added network. A communications network that includes an EDI mailbox (i.e., dial in with your computer and access the transactions sets waiting there for you).

ANX: Automotive Network Exchange. A secure network being developed by AIAG's Telecommunications Project team for communications among automotive trading partners. It is, like the public Internet, based on TCP/IP, but security and timing requirements are specified for ANX.

*David Hough of System Software Associates says that non-integrated EDI systems, the expensive fax approach, which involves rekeying of data, add cost to the process. "If you want to reduce costs," Hough says, "then EDI must be integrated into your business systems." Why? Hough answers, "Humans make mistakes," then adds, with a bit of humor, "Fifty percent of the people in companies are often there to correct the errors of the other 50%." Minimize the possibilities of errors through rekeying and in trying to chase down faxes and other paper-based transaction documents, and pretty soon it adds up to some real money on the bottom line.