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"Will financial EDI (FEDI) save me money?"
This question is often asked by those who attend the numerous electronic data interchange/electronic funds transfer (EDI/EFT) seminars and conferences that seem to dot today's calendars. Paper checks, the questioners reason, do not cost that much to process anyway. So how can FEDI possibly be worth the investment?
As with most answers to complex problems, we can safely say, "It depends. What exactly do you mean by "FEDI?" Are you just replacing a check, or are you replacing a large chunk of the payables or receivables process in your organization? Will you implement FEDI on a small scale or with most of your banks and trading partners? Will this be a "toe dip" effort or a full scale emersion? But we run ahead of ourselves. We will examine some global economic trends affecting EDI and show specifically what they portend for your organization. We will conclude by venturing some ballpark estimates of FEDI benefits, based on the scope of implementation.
Some Cautions About Quantifying Costs and Benefits
While EDI (and hence, FEDI/EFT) is a simple technology, it is actually complex to implement. Since EDI implies exchange of data between two parties, man issues arise, such as: compatible format standards, communication protocols, and agreements about legal, audit and security matters. EDI also affects each party's internal information flows, control, audibility and potentially changed responsibilities.
With any complex technology, it is difficult to directly measure costs and benefits. EDI has often been called an enabling technology in that it makes possible other changes in an organization's processes. For example, EDI enables firms to do just-in-time (JIT) inventory management. In measuring the benefits of EDI, what JIT benefits should be assigned to EDI and what should be attributed to a change in materials management procedures? One final warning about costs and benefits--costs are mostly incurred upfront. These include expenses for software and system modifications, education, trading partner recruitment, hardware and setting up an EDI task force. On the other hand, the benefits are usually down the road after a significant volume of EDI transactions has been attained. It is generally easier to measure near-term costs than distant benefits.
The Business Case for Using EDI
Several significant cost trends in the...