Third Party Consolidation: How Retailers Can Deflect the Cost of EDI
Posted by Bill Hale on Mon, Dec 26, 2011 @ 08:00 AM
The broad concept of technology has a great influence on the world today. From lithium batteries to iPhones, 3DTV’s to solar panels – technology is considered by many as the greatest product of science and engineering. Within the supply chain industry, in particular, technology is not only represented by the end-product, but the processes to which raw materials are transformed into finished products, and transported from manufacturer to retail distribution.
For big box retail distribution, like Wal-Mart, EDI (Electronic Data Exchange) has established itself as a competitive force for efficient and continuous replenishment. For smaller companies, however, the benefits of EDI and the ability to have big box retail as a customer can be outweighed by the high costs of software implementation.
To be brief, EDI is defined as the framework for which big box retail handle transactions with their suppliers, and their suppliers’ suppliers. In other words, it’s a direct computer transmission of orders and transactional information between an entire supply chains. For larger firms, this equates to improved productivity, enhanced data accuracy, and ultimately, cost savings.
In practice, Wal-Mart is one of the largest users of EDI technology and hence, expects compliance amongst its suppliers. In doing so, this allows Wal-Mart to accurately predict when products should be stocked and streamlines the replenishment process. This increased efficiency, in turn, allows them to improve customer service, lower expenses, and ultimately, ensure an “Everyday Low Price.”
For smaller companies wishing to do business with Wal-Mart, the benefits of EDI are typically outweighed by the high costs of software acquisition and implementation. Furthermore, the annual costs of licensing fees and monthly mailbox VAN (Value Added Network) fees serve as additional cost barriers.
To counter this challenge, small retailers must consider Third Party Consolidation as a viable solution. As discussed in, “Third Party Consolidation: Minimize Risks and Maximize Rewards,” 3PL’s can provide in-house EDI capabilities without the costly investment in infrastructure. Furthermore, in the big box retail-sector, a consolidation strategy allows manufacturers to reduce logistics spending by forgoing the costs of carrying excess inventory while ensuring compliance with Wal-Mart’s MABD (Must Arrive by Date) and vendor compliance demands.
In this economy, when cost-savings is an utmost priority, Third Party Consolidation is a viable solution to deflect to cost of EDI Implementation and maintain healthy relationships with big box retail.
Refer to "MADB Compliance: 3 Internal Considerations to Combat Penalties" for a listing of three strategic considerations prior to adapting a consolidation strategy, and an illustrative look at Third Party Consolidation.
