At a time as costs increase and margins are squeezed here are my thoughts on what you need to discuss and or consider when in discussion with your Electronic Data Integration (EDI) Managed Service Provider (MSP) in terms of their pricing structure.
When you are looking to employ an EDI MSP there will be charges raised to support the following activity:
The hardware to supports the file format mapping software
The software that supports the file format software
The communications connectivity software including security
The support of the hardware and software 24/7
In my time I have worked with an In-House EDI solutions as well as EDI MSP’s. Both options come at a price however I am an advocate for using an EDI MSP as I can guarantee that you do not have all the knowledge you need in house.
I have discussed using EDI MSP’s in the following blogs: https://www.southwestdataintegration.co.uk/post/when-should-i-use-an-edi-manged-service
There are costs that you also need to consider when you are signing or renewing the contract with the EDI MSP.
Kilo Character charges
When sending and receiving data some EDI MSP’s charge a fee considering the amount of Kilo Characters (KC) processed. KC charges are based on the size of the file being processed
From my experience these charges are normally associated to the Value-Added Networks or VAN’s that support EDI file formats such as EDIFACT, Tradacoms etc.
When an EDI MSP connects to your trading partners on a Point to Point (P2P) basis there is no need for an EDI VAN and so the costs of processing the data are removed.
Where possible you can save costs by agreeing to connect on a P2P basis if your trading partner supports this connectivity method.
KC charges and file formats
When EDI was first conceived the process was built around infrastructure that might be less reliable than it is today.
EDI file formats contain the base information required to support the transaction as well as validate that the file format structure is correct. Whereas the newer file formats that you now see have not been built around this older infrastructure that charged per KC.
XML or JSON file formats are larger as the segment tags etc. are fully described making it easier to read by eye.
EDI was designed to be read by a computer and so used short codes and as such is a little trickier to read by eye.
For example, in an EDIFACT message the address data is prefixed with a segment code of NAD. In an XML file you might see this as Name And Address. The XML segment header could therefore contain and extra 13 characters that could be chargeable.
Trading partner connectivity
To set up a connection to your trading partners the EDI MSP needs to configure the agreed mapping and set up the communication.
Some EDI MSP’s charge for any new connection.
Some EDI MSP’s do not charge and cover the cost in an agreed flat fee.
When setting up the map that will support the agreed trading partner file format you might get charged.
This charge might be grouped with the overall trading partner connection set up.
However, if you make a mistake and need to make changes to the agreed map the EDI MSP might charge.
It will be worth your time discussing how the EDI MSP supports mapping changes.
EDI MSP connectivity via other third-party systems
Will the EDI MSP connect directly to all your trading partners, or will they use another third-party solution provider?
For example, you can connect to Amazon Seller Central directly using an API connection via your EDI MSP.
Or the EDI MSP can connect to an additional solution provider that then connects to Amazon Seller Central. This additional solution provider might then raise additional charges to support the connection with the charge passed back to the business.
EDI Invoice storage
If you are to send out your invoices via EDI there are HMRC requirements that need to be followed here in the UK. I have written about this in my blog: https://www.southwestdataintegration.co.uk/post/edi-invoicing
The EDI MSP’s need to have a process that supports these HMRC requirements and as such might charge to store your EDI Invoice files.
Again, there are some EDI MSP’s that do not charge to store your EDI Invoice files and cover this in the agreed flat fee.
By increasing the term of you contract you might receive a more competitive pricing structure.
It is worth discussing with your EDI MSP.
Define your EDI strategy
To ensure you get the best out of your EDI MSP it is important that you understand how you might want to trade and how you might want to use your EDI MSP.
If your strategy is not defined you might find that the costs of trading via your EDI MSP spiral if you sign up to contract that charges per connection or charges by KC.
As you can see there are all sorts of costs that you need to consider when discussing your requirements and I hope this blog helps your understanding.
More importantly don’t feel that you are trapped with your incumbent EDI MSP if you feel that your costs are too great and eating into your margins. Migrating to a new solution provider is easy.
My thoughts have been built around a small or medium sized business that does not have the in house skills to support the various different communications options that are now available.