Throughout the world, companies large and small alike are increasingly adding, expanding, and modernizing their electronic data interchange (EDI) communications. If you need to meet partner EDI mandates or wish to capture the many benefits afforded by EDI connectivity with more of your partners, you can take several approaches to EDI. Two of the most popular include value-added networks (VANs) and direct EDI (typically via AS2).
If you're new to EDI, you may be wondering what these options entail and which is right for your business. If you've been operating EDI for some time, you may be considering whether now is the time to switch. Let's dive in and explore the advantages and disadvantages of direct EDI with AS2 vs. VANs.
What is an EDI VAN?
You can think of a VAN as a provider of EDI as a Service. An EDI VAN is a secure, outsourced network that enables you to exchange EDI documents with your business partners. VANs simplify EDI setup and communication by reducing the number of parties you have to work with. Instead of learning and adhering to each partner's document exchange standards individually, you simply deal with a single VAN, which acts as a translator. You can often manually submit your documents to VANs via a web portal or set up a connection using the protocol of your choice (typically AS2).
Of course, EDI VANs have different business models. Some handle all of the EDI translation of documents for you, in addition to transmitting the files to your trading partner. Others require you to generate the documents and will stick to simply transmitting files. Many VANs offer some form of web EDI, in which you manually enter EDI data into a web form, eliminating the need to integrate EDI data into your backend systems off the bat. In addition, many will also provide hands-on guidance to walk you through the process of setup — for a cost.
What is Direct EDI?
As its name implies, direct EDI software solutions enable EDI connections set up with no middle-man or service costs, using AS2 and other protocols, to establish a secure line with many business partners. Direct EDI and AS2 solutions are designed for everything from relatively small to highly robust use cases involving complex EDI mapping and translation as well as the actual file transfer. They provide total ownership of the operation.
VAN Pros and Cons
Pros:
- Ease of Setup: VANs ease your start to EDI. Many VANs set up connections for you, letting you skip learning the details of trading with each of your EDI partners.
- Low Initial Costs: VANs have low setup costs and then charge fees per document or per line item, with costs around 30 cents per document or line item. If you have a low volume of transactions and use EDI sparingly, costs may remain low.
Cons:
- High Costs for Large Volumes: As your transaction volume increases, so too your EDI costs. Many VANs also tack on fees for exceeding specified transaction volumes.
- Manual Data Entry: VANs offer web portals where you can manually enter information for EDI documents, such as invoices, or view incoming documents from partners. If you need to integrate EDI data into backend ERP systems, you'd need to manually reenter it into your ERP. For many companies, this manual data entry quickly turns tedious, time-consuming, and error-prone.
- Inflexibility and Slow Onboarding: You're at the mercy of the VAN vendor's support. Depending on the provider, it can often take three to six months to onboard new trading partners with a VAN. If you have an issue or problem, moreover, you must wait for the VAN to open a ticket and resolve the issue; often leaving you with no visibility and control over the process.
- Costly Transitions: While the upfront costs may initially appear low, VANs can often come with high switching costs to capture profits in the future as your organization scales, leaving you paying transaction fees on a high volume of EDI exchanges
Direct EDI (Direct AS2) Pros and Cons
The advantages and disadvantages of Direct EDI include the following.
Pros:
- Cost Savings: Direct EDI solutions are significantly less expensive for larger numbers of transactions. We've seen companies reduce their costs by as much as 90 percent using direct EDI and AS2.
- Control and Speed: With Direct EDI, you have full control because these solutions empower you to make changes yourself. As a result, companies often onboard partners in days or weeks with the right solution, instead of months with a VAN service.
- Broad Partner Support: Direct EDI solutions typically support all the major standards that partners use to send and receive documents via a full range of messaging protocols (such as AS2) and formats (e.g. X12, CSVs, XML).
- Greater Automation: Direct EDI solutions allow you to integrate with your backend systems, such as your ERP, CRM, and accounting tools. Once these integrations are complete, you can automatically move data between the EDI system and your applications, eliminating manual data re-entry and the error-prone processes that come with it.
Cons:
- IT Investment: With Direct EDI, you'll face more upfront work. You'll need to understand the details of your partner connection requirements and set up the connections yourself. This job involves performing file transfer and translation, building and parsing EDI documents, and integrating documents with backend systems, such as CRM, ERP or accounting systems. This can be alleviated if you can find an EDI integration consultant — a quality EDI software solutions provider will be able to put you in touch with an EDI expert who can help, as well as provide direct product support.
Common Approaches and Strategies
Many companies that embark on EDI follow a familiar path:
- They'll initiate their first EDI transactions with one or two partners using a VAN.
- As they reach a certain volume, many simply outgrow VAN providers, finding the combination of manual EDI and transaction fees onerous.
- They select an EDI software solution to facilitate direct EDI with each partner.
- After implementing EDI with a software solution for one or two partners, they find they've slashed their EDI costs and migrate more partners to the EDI software solution.
Companies that begin with VANs and transition to direct EDI will sometimes retain the initial VAN provider for special cases, such as for partners who use EDI sparingly, with low transaction volumes.
But for most companies that have even some IT resources or a champion for EDI initiatives, it is often advantageous to select an EDI solution that allows them to start at a relatively low-cost and then scale up, with tiers for additional features and connections, or integrations.
Understanding EDI Solutions
Adopting an EDI solution provides many capabilities to simplify EDI mapping & translation.
Upon researching EDI software, many organizations are increasingly turning to unified solutions for secure EDI file transfer & MFT, which offer bundled integration with backend systems and applications. Unified EDI solutions are more flexible than multi-solution integrations as they provide a common translation layer, rather than requiring to customize the translation for every specific backend system.