How to Calculate your True Cost for EDI

If you find yourself vetting EDI solutions, price is certainly an important metric to most organizations. There are variety of EDI solutions available, and each have different pricing models – all claiming to be less expensive than the rest. So, how do you navigate the tricky landscape and determine the most cost effective solution for your business? Let’s learn how to calculate your true cost for EDI by breaking down the pricing structures:

• Charging per purchase order: Charging per purchase order is likely the easiest structure to understand and predict the monthly cost. Each time you send or receive a purchase order, that will count as one order. All other documents are tied to the PO and result in one order deducted from your monthly allotment. Logicbroker uses this model to provide comprehensive pricing for our clients
• Charge per document: Charging per document is essentially the opposite of charging per purchase order. While charging per purchase order combines all required documents as one purchase order, charging per document counts each document separately. This method is a bit more difficult to calculate because each trading partner requires different documents. While a purchase order and invoice are standard, many companies require purchase order acknowledgements, advance shipment notices, and functional acknowledgements. In addition, you would need to pay for catalog uploads and inventory feeds.
• Charge per line item: When EDI providers charge per line item, they charge you for every item on the purchase order you are shipping. The bigger the order, the more charges you will have. For B2C businesses, this can be manageable, but for B2B businesses that sell to big box retailers, this is likely to be a large expense.
• Charge by Inventory files: At the very least, inventory files will be sent to trading partners once a day with updated inventory reflecting how many goods were sold. Since inventory files are likely to be your largest file, these charges can add up quickly.

Here is an example of how documents can quickly add up: when you receive an EDI order from RadioShack, the purchase order will contain the individual store or DC details. If the order has 1000 different stores, you will generate 1000 individual ASN documents and 1000 individual invoice documents. In addition, functional acknowledgements are included on every transaction.

Logicbroker would count this scenario as one order, whereas companies that price by document would count this as over 3,000 documents. As you can see, orders can add up quickly and unexpectedly when every document is being charged. Logicbroker reduces this variable cost by having a predictable monthly fee.

It is worth noting that some providers have hidden charges. Before selecting a company and signing with them, be sure to thoroughly read your agreement/contact. One such hidden fee is the VAN (value added network) fee. Some users enjoy the traditional VAN model’s “pay-as-you-go” pricing at first.  Your pricing is based on volume of data sent/received you figure into a tier and paid that rate.  But as the types of documents traded in various relationships increase, so does your invoice. An alternate to utilizing a VAN is to transmit information via AS2. Be aware that some companies will charge you a one-time fee for AS2, while others will not.

When selecting an EDI provider, it is important to examine how your trading partners expect you to do business—especially if you are selling to big box retailers. Some companies may find charging by line item will be the most cost effective, while others would benefit more by selecting a model that charges per PO. In addition to analyzing and selecting the right pricing model for your business, it is important to be aware of hidden fees. These fees can add up quickly and upset your estimated cost. Choosing to do business with a third party EDI provider is more cost effective than building an in-house system and allows you to leverage the knowledge of a team of EDI experts. However, because of the lasting popularity of EDI, there are many providers to choose from. To find a satisfying solution that will give you excellent service and a predictable cost will take some research, but once you are fully automated and enjoying the benefits of EDI, it will have all been worth it.