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Manufacturers and wholesalers that need to digitize their sales process can be confused by the options. Just because something is called a “solution” doesn’t mean it will solve your problem. We’ve previously looked at eProcurement and punchout catalog solutions to see how they differ from eCommerce systems for B2B companies. Today, we conclude with a comparison of EDI and B2B eCommerce systems.

What is EDI?

Electronic Data Interchange (EDI) is a way for computers to transfer documents by using predetermined formats and digital rules. It is a direct data transfer between the sending and receiving company.  No translators or extra processing is needed.

EDI arose as a way of solving the problem of transferring documents between businesses. If the Company A wants to buy or offer their customer widgets from Blue Widget Express, both companies are going to create documents that must be shared. Company A will prepare a Purchase Order (PO) to send to Blue Widget Express; Blue Widget Express must then create a Sales Order and Invoice. When humans create documents, errors are bound to occur; if computer programs create the document, the chances for error are dramatically decreased. Besides, computer-to-computer information exchange is much more cost-effective than handling paper documents. There’ve been studies that showed manual processing of paper-based order costs can go as high as $70 while computer processing costs are less than $1.
But, computers can only talk to each other when they have an agreeable format. This is where EDI comes into play.

How Does It Work?

Businesses that want to share documents using EDI must first agree on one of several EDI standards. These include ANSI, EDIFACT, TRADACOMS and ebXML to name a few. These standards provide a predetermined format for the information in the document. The larger business usually sets the standards and is unwilling to modify their EDI terms. This means the smaller business has to conform to these standards in order to do business. However, there are times when an EDI relationship can be highly custom with different pricing, fulfillment terms, and protocols.

So, let us provide a sample use case. From the example above, a Company A employee would prepare a PO using the agreed-upon standard and then electronically send it to Blue Widget Express. Blue Widget Express would receive the PO and it would be automatically entered as an order. Because Blue Widget Express isn’t manually entering the order, order entry and other human errors are eliminated. The order can be filled – with the sales order and invoice generated – and these documents are sent back electronically to Company A using the same predetermined format. Company A and Blue Widget Express no longer need to use the same software, as long as they agree on an EDI standard for sharing documents.

Is EDI Different from eCommerce?

EDI is a way of conducting commerce and it is electronic, so technically it is eCommerce. But it is more about transmitting documents and less about what actually goes into the buying and selling process. EDI is a means of placing orders, eCommerce is a way of not only accepting orders but providing buyers with a complete shopping experience including a front-end store. For example, if a buyer at Company A knows they need to buy 600 Tiny Aqua Widget SKU 148439 from Blue Widget Express, EDI is a perfect way to place the order. However, if the buyer isn’t sure what widget they need, or if they need specs on the Tiny Aqua Widget, or if they need to compare the Widget to another widget, EDI won’t be of much help. Let’s look at EDI and eCommerce side-by-side.

 

Main benefits

EDI

eCommerce

  • Electronic ordering
  • Electronic ordering
  • Eliminates manual order entry
  • Eliminates manual order entry
  • Perfect for repeat orders
  • Perfect for researching products and brand promotion  (although it supports repeat orders as well)
  • Doesn’t include product information
  • Contains complete product information
  • Excellent for automating orders based on inventory levels
  • Provides cross-selling & upselling opportunities

Use Cases

EDI

eCommerce

  • Manufacturer ordering/reordering raw materials
  • Manufacturer ordering supplies
  • Wholesaler ordering regular inventory
  • Wholesaler selling to distributors
  • Distributor ordering regular inventory
  • Distributors selling to retailers
  • Automated ordering based on inventory levels
  • Manufacturers/wholesalers selling direct

Which Option is Better?

As a B2B seller, EDI is simply another way to accept orders from your existing customers. A sales rep doesn’t need to be available by phone to take the order, customers can order at any hour, it streamlines getting an order into your system and you don’t need to invest in the technological integration necessary for punchout catalogs. EDI is highly-efficient for the customer that knows what they want. eCommerce is built for reaching new markets and expanding sales with existing customers. With eCommerce you can easily upsell and cross-sell to existing customers. You can provide detailed product information for an improved buyer experience. In addition, product catalogs can be indexed by popular search engines where new buyers can be made aware of your offerings. eCommerce can process new RFQs when EDI works with already established agreements. While EDI and eCommerce both streamline the ordering process, only eCommerce has the ability to expand your customer base, penetrate new markets, and showcase your brand.

What Strategy is Right for You?

The right strategy is usually a blend of digital solutions. If your existing customers rely heavily on their e-procurement systems, it’s possible that EDI or punchout catalogs could simplify the ordering and approval process. But you can’t simply rely on those solutions alone.

To build new business and expand an existing business, eCommerce gives B2B buyers the online shopping experience that customers want. And to support the back-office, the right sales portal does more than handle sales orders. It can be used for support, marketing, and customer service.

For more information about finding the right digital solution to grow your business, talk to Oro.

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