Over the years of doing EDI consulting, we have found that many otherwise successful companies find themselves facing great difficulties conducting electronic data exchange with vendors and customers. We estimate that many companies blindly lose 10 to 30 percent of their revenue to penalties, loss of sales, etc.
Story 1: The Cash Flow Disaster
A mid-sized retail company found themselves conducting a big part of their business via EDI. Customer demand was high; shipments were up. They began to notice that more and more invoices were not paid, and accounts receivable was growing. Discussions with customers revealed that the invoices were not being paid because they contained EDI syntax errors and needed to be corrected. The EDI group within the organization was contacted, and at first, they denied that a problem existed at all. After going back and forth between the customers and their EDI group, management confirmed issues with EDI, which continued to affect new invoices. The customers refused to switch to manual paper invoices, and the company found that correcting EDI data manually was a very time-consuming process, highly prone to errors. In addition to the unpaid invoices, the penalties for errors continued to grow, damaging realized revenue even more. AR was over six months overdue on many invoices.
Management finally tried looking for external help, but it was too late; despite a healthy order book, they were forced to close the business due to insufficient cash flow.
Story 2: The Costly Discovery
A record company was happily filling orders for their CDs to be sent to a major retail store chain. The company was happy to have such a high-volume customer. The AR Department found that several invoices were not being paid, with most in the six-month-overdue category.
Investigation showed that the invoices were being rejected by the customer, and many EDI notifications had been sent to the company. The messages were not being processed by the record company’s system with the same scrutiny as other transactions, so no one in the EDI group noticed.
After a great many hours and many meetings, most of the six million dollars overdue was recovered. This was an accidental interest-free loan for their customers, which cost over $150,000 in lost interest. The greater loss was the need to negotiate at a disadvantage with a large customer because of the record company’s EDI system shortfalls. Their service image is still under repair.
Story 3: Outsmarting Yourself – The EDI Game
A mid-sized manufacturing company felt they had finally ‘beaten’ EDI problems by circumventing their technology. They intensively trained Order Entry personnel so that each employee could understand, and be able to read, raw EDI data and compare it to data imported into their SAP system.
Despite the considerable time and labor costs of entering orders, management felt that the approach could considerably reduce overall costs. They were very proud of the work they had accomplished, and to their credit, the company performed better than many of their competitors in EDI data flow with their customers.
Unfortunately, a close analysis revealed that they were not without problems. In one instance, they received a blanket purchase order for a considerable amount of goods from a large retail chain. The order came in November with the first delivery due in May and was large enough to require complex planning and additional investment to complete.
On the day when the first trucks were due to arrive, many of the other orders had been rescheduled or moved to a later time. The warehouse floor was full of prepackaged goods for quick loading. But no truck came. The trucking company, when called, explained that no truck had been requested by their customer.
After a few calls to the retailer, it turned out the order had been canceled just before midnight the day before via an electronic message. This message was automatically accepted by the EDI system. The employees who manually review all EDI transactions had ignored it. Because the warehouse had unknowingly accepted the cancellation request, the customer had no responsibility for the order.
Story 4: Order Cancellation — What You Don’t Know Will Hurt You
While conducting a review of EDI-process performance for a distribution company, we noticed many ‘lost’ orders. It is common practice for customers to put a deadline for fulfilling an order. Missed shipment or acknowledgment results in the order being considered canceled. Almost 30% of all orders were canceled this way. Senior management was aware that some orders were being canceled but did not realize the magnitude of the percentage. Adding insult to injury, the customer often verbally requested increased quantities, which were not reflected on the invoices.
Story 5: Who Do You Believe?
Several senior managers for medium-sized companies all had a similar concern. They did not know whom to trust, their internal staff, or their customer. Before negotiation meetings with the customer, management would arm themselves with facts and arguments related to EDI. However, from the customer’s perspective, the picture was quite different. And the customer’s word was backed up by comprehensive reporting from the customer’s systems.
Story 6: The Penalty Box
While conducting a review of an EDI department for a mid-size manufacturer, we uncovered problems with the EDI invoices. Invoices being produced by their PeopleSoft system failed acceptance by their customer’s EDI process. Each time, a penalty of 50 to 80 dollars was applied, and the invoice was rejected. The EDI staff noticed the problem and tried correcting the issue by re-sending the invoice. But they did not increase the control number (counter). The invoice is rejected again, and another penalty is applied. After an unsuccessful third attempt with a third penalty charge, the EDI group gives up, and the invoice is not paid. Unfortunately, this was not an isolated event.