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EDI and Sustainability in Supply Chain

Four decades after the idea of protecting the environment became popularized in the United States, integrating a philosophy of environmental sustainability with business practices has become a vital consideration for companies around the world. From primary manufacturers to global retailers, transportation providers to warehousing services, sustainability is a consideration that must be addressed by any serious business plan, budget, or purchasing policy created today.

In this time of increased interest in the responsible use of natural resources, efforts to reduce waste and pollution by improving the efficiency of existing processes are encouraged, and sometimes mandated, by forward-thinking businesses. For example: 78 companies listed in the Fortune 500 – including Google, Apple, Cisco Systems, Microsoft, Intel and Kohl’s Department Stores - have partnered with the Environmental Protection Agency to become “Green Power Partners”, a designation reserved for companies that use more than 13 billion kilowatt hours of green energy annually.

As well, major corporations including PepsiCo, Coca-Cola, General Electric, Nike and Starbucks have all taken concrete steps to improve the sustainability of their operations.

While these companies have taken the lead, they are not the only organizations that can benefit by integrating sustainability policies with existing business models. Retailers and suppliers can positively affect their bottom lines - and the environment - by using proven EDI technology to streamline supply chain operations, reduce overall spend and make doing business more efficient.

How Does EDI Contribute To Sustainability?

Using EDI for business communications supports environmentally sustainable practices in several ways. Studies show that the use of EDI reduces errors during the ordering process, resulting in improved order accuracy and a reduced number of reorders and returns that must be processed. Fewer returns and reorders in turn lead to reductions in fuel use, which means fewer harmful emissions during shipping.

Retailer compliance and better product distribution are also major benefits for suppliers who use EDI. Because EDI is a proven, reliable and secure technology used by major companies worldwide, producers of sustainably-sourced goods can adopt EDI to become compliant with larger retailers, increasing the distribution reach of their products.

Another major environmental contribution that EDI promotes is reduced reliance on paper. Invoices, PO’s, ship notices, functional acknowledgements, and other frequently used business documents, if they are not electronically automated, require not only the use of administrative resources but also large quantities of paper. By adopting EDI for the exchange of business documents, your company automatically reduces the use of paper during business processes.

Leveraging EDI to Benefit the Environment… And the Bottom Line

Despite the widespread use of EDI among top organizations, many smaller companies have not yet integrated EDI with their existing ERP, CRM and accounting systems. A lack of EDI functionality prevents suppliers and retailers from maximizing the efficiency and profitability of their businesses, and also inhibits businesses from benefitting from the powerful automation features delivered by EDI. These include the ability to integrate and translate business documents from any system to any other system, making it simple to align electronic request for proposal and customer relationship management software systems with other EDI-enabled businesses.

Retailers and suppliers have every reason to adopt the technology. The quantifiable improvements in order accuracy that the automating of documents provides is reason enough to implement EDI, but the cost savings and sustainability improvements that EDI delivers are also compelling: A 2008 study published by Aberdeen Group showed that the cost of processing a purchase order manually is 35% higher than the cost of processing a PO using EDI. This reduction in processing costs is a clear incentive for businesses to adopt EDI.

Further, a 2010 study conducted by Gartner highlighted even bigger cost savings for companies that adopt EDI - a reduction of between 70% and 90% in the cost of every invoice processed. Other research compiled by Aberdeen Group in the 2009 study “E-Payables: Invoice Receipt and Workflow” reached a similar conclusion, showing that companies classified as best-in-class for electronic invoicing achieved 83% lower processing costs than competitors classified as industry average or laggard.

Shortening the Order-to-Shipment Cycle

EDI also benefits businesses by contributing to reducing order-to-shipment times. In the 2013 research paper “EDI: Workhorse of the Value Chain” published by Supply Chain Insights LLC, comprehensive adoption of EDI that resulted in hands-free order processing was shown to shorten the order-to-shipment cycle by 50%.

Among major manufacturers, retailers and distributors, the use of EDI and XML contributes to a significant reduction of the order-to-shipment cycle: on average, companies with full integration of EDI/XML enjoy a cycle length of three days, while companies with partial integration that require some manual intervention have an average cycle time of 7 days.

Conclusion

For over a century, the production of consumer goods has steadily increased, improving living conditions for many while simultaneously sowing the seeds of a global environmental crisis. It is well understood by governments, corporations and citizens around the world that industrial pollution of the planet’s waterways, atmosphere and soil is a critical problem, an unintended consequence of industrialization, and that we must improve the way we do business in order to effectively address these issues.

The silver lining of the modern pollution crisis is that it is driving the adoption of sustainable business practices – practices that take into account the finite natural resources that we all ultimately depend on for survival. While the intertwined problems of inefficiency and pollution may seem insurmountably large from a distance, once business practices are examined at a granular level, it becomes clear that the solution to these problems lies in the adoption of environmentally-conscious practices at the small scale. For all players within a supply chain, the adoption of EDI is an excellent first step towards developing business practices that recognize long-term sustainability as a crucial metric of success.

Nathan Munn | InterTrade.com

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