If there’s anything certain about the future of EDI software, it’s that its future isn’t certain at all. Electronic data interchange technology has been around for decades, and in that time, numerous authorities have declared it’s imminent end. But EDI has remained a staple in the B2B communications realm all these years. However, throughout 2020 and as new technologies develop, it’s important to reassess EDI’s place in the supply chain. To better understand what’s on the horizon for this long-standing software, we asked several experts their thoughts on the future of EDI software trends for 2020 and the years to come.
- Large companies move to in-house EDI processing
- Small businesses continue to deal with supplier demands as new tech proliferates
- An estimated 95% of EDI is custom, leading to high maintenance costs and a movement towards API
- EDI market is expected to reach $5.9 billion by the year 2025 but is aging rapidly, leading to an IT skills shortage
- Up to 41% of companies don’t use EDI, but PEPPOL protocol could change that
Large Companies Shift Back to In-House Processing
In the past, smaller companies would integrate EDI through in-house processing. But as some companies grow very large, they’re finding this isn’t the best way of doing business. We spoke to Jim Gonzalez, Owner of EDI Support LLC, for his thoughts on the subject. “In the future, what I see is a lot more people bringing it back to in-house processing.”
He goes on to discuss why third-party EDI processing isn’t cutting it for many businesses. “Anytime they get a PO, they pay a couple cents. But as their business grows they realize that those cents start to add up … When you’re paying 10-15 cents per PO and you maybe only get 10 of those a week, that’s okay. But now they’re doing a thousand of them — or two thousand of them — because we’re becoming more of a drop ship type world. That’s when they start to see the value of having their process in-house.”
Some EDI companies are already attempting to combat this shift. Many vendors are trying to change how EDI is traditionally priced, charging per relationship rather than per transaction. However, payment structure isn’t the only reason companies are moving back to in-house.
Gonzalez explains, “The big trend is less and less EDI companies out there for clients or consultants to choose from. You have companies like OpenText purchasing EDI Translation companies like Liaison, Cleo purchasing Extol and IBM buying Sterling Commerce. There are EDI VANs like GXS being acquired by OpenText. Things are happening to reduce the playing field, which makes it harder for smaller organizations to grab the attention of new clients. Who suffers ultimately? The business looking for an EDI solution that doesn’t treat them as a number and can truly reduce their order processing costs.”
He advises that companies in this situation find an EDI consultant to help them navigate the market in the coming years.
Demands on Smaller Companies Grow
However, an in-house system shouldn’t be the go-to solution for all businesses says Jeff Douglas, Solutions Manager at Babelway. He says, “I think what we’re seeing now is a burst of new iPaaS vendors that are saying that this technology can be put back into the hands of the companies. They’re saying that it’s not complicated and you can empower your business by doing this yourself without a third-party. And you kind of beat some of the extra cost and frustrations … Seeing that trend of SaaS in the EDI world gives companies more power and more control which I think is good for their business.”
This is especially true for small- to mid-sized businesses looking to grow. He discusses the tension in the relationships between large and small companies. For instance, a large company like Walmart has the leverage to dictate what kind of B2B communications it wants to use.
But then on “the other end of it, you have these small companies that are met with all these demands from their larger partners. They’re burdened with supporting all the standards and technologies out there in order to do their business in the world of electronic exchange. Unfortunately, the demand to support multiple things is not going to go away for them … If you want to grow your business, you’re going to have to accommodate these demands.”
With that in mind, it makes a lot more sense for smaller companies heavily focused on growth to turn to these iPaaS providers rather than integrate EDI in-house. However, this doesn’t mean large companies won’t also benefit from iPaaS, especially if they plan on integrating some of the newer technologies replacing EDI.
EDI Replaced by API in the Next 10 Years
This wouldn’t be an EDI trends article if we didn’t talk about the infamous end of EDI. Jan Arendtsz, founder and CEO of Celigo sums up this topic for us: “It’s an annual ritual to predict the demise of EDI. Competing standards, web services and modern APIs — all have been forecast to end EDI at one time or another. But EDI is here to stay for now as it still works well for many users,”
But he said for companies that find EDI non-accessible (whether it’s due to a lack of expertise, technical resources or infrastructure), there are still options.
“For many companies, using a cloud-based integration platform (iPaaS) accelerates the process and reduces the time to complete EDI integrations. Modern iPaaS is intuitive enough for business users yet robust enough for the needs of IT. A next-generation iPaaS platform will enable API enhancements and drive B2B process improvement — with or without the help of IT.”
APIs are often touted as being cheaper, faster and more flexible than EDI. But when will API finally replace EDI? Erik Kiser, Founder and CEO of Orderful says it could be much sooner than we think. “Our vision is to get both sides of the supply chain communicating through our API and then completely eliminating EDI altogether. I think that the evolution of that is very real, but it’ll take some time. Maybe five or 10 years to get enough momentum in the market to get API to API communication going.”
Kiser cites one of the biggest reasons companies want to switch is the high cost of EDI maintenance. He estimates that around 95% of EDI software is custom built, increasing the need for consultants and other costly resources. But that doesn’t mean API is without its own difficulties.
Kiser says, “The challenge to this is going to be the friction as companies shift to communicate with APIs.” He explains that, for many companies, hiring engineers and developers is a major economic challenge, especially for suppliers. “Developers typically want to go work for startups, or they want to go work for software companies. So the friction of getting an API connected to their ERP or system of record is really the hard part about this.”
IT Skills Shortage
Whether companies choose API or EDI, they’re going to have a difficult time staffing their operations. But according to Jett McCandless, Co-Founder and CEO of project44, staffing an EDI project will definitely be the bigger challenge. McCandless states, “No one that graduated with a computer science degree in the last 10 years has been trained on EDI. That isn’t because they forgot to train them. There are better technologies to accomplish today’s goals. In today’s world, companies are competing for the best software engineers. The best software engineers don’t want to use EDI. Companies that continue to use EDI have access to less software engineering talent.”
McCandless then goes on to discuss why he thinks EDI is on its way out. He declares, “Unless companies want to run like they did yesterday, continuing to invest in EDI is wasteful. The technology is old and will soon be antiquated. EDI is only capable of automating 10% of the workflow for transportation and logistics. It’s also slow, inflexible and expensive to maintain.”
Wayne Marshall, VP of Professional Services and ISO at EDI Staffing also believes companies should be concerned about the lack of EDI expertise. However, he’s not so sure EDI is going anywhere anytime soon. He says, “EDI continues to grow even after 40 years. EDI is especially prevalent in the healthcare and logistics industries these days.”
These industries are a significant part of why such old technology is expected to see continued growth by many in the coming years. Grand View Research expects the global EDI market to be worth nearly six billion dollars by 2025 with a CAGR of 9.4%. The research firm also credits the healthcare industry and HIPAA regulations as a source of EDI’s growth. While this growth is recognized, it’s not nearly as large as the growth experienced by other software markets. For instance, the ERP market is set to reach almost $42 billion five years sooner.
Marshall then goes on about the needs of businesses who use EDI tech and how it might be difficult for them to find the labor needed. “While many companies have chosen to outsource their EDI to third parties, many others continue with in-house programs, and we find new companies coming on board frequently. There’s a great demand for EDI/B2B implementation services, as good EDI resources are not always easy to find.”
Possible EDI Resurgence
We’ve talked at length on how EDI could lose its current status. But if the market really is set for growth in the coming years, what will continue to support it? One trend taking off in Europe is the Pan European Public Procurement Online (PEPPOL) EDI protocol. Jeff Douglas had some thoughts on this topic as well. He says, “PEPPOL is a really interesting movement lead by Europe’s government entities … It seeks to facilitate EDI connectivity the same way a VAN would, but in a standard way.” Companies sign up to become PEPPOL participants, which basically means they’re signaling to other companies they’re ready to receive data in accordance with this protocol.
“And neither trading partner needs to talk to each other about it. It eliminates this lengthy setup process that’s standard with traditional EDI.” Douglass continues, “If you’re a participant, your partners can send and receive information with just the flip of a switch, leading to a very low cost of entry … It’s exciting; it’s the closest thing I’ve seen that can have a widespread adoption because of the low cost of set up.”
EDI is pretty popular in the supply chain industry, with somewhere between 59 and 85% of companies adopting the technology. But this still means up to 41% of companies are using manual processes. PEPPOL might be the way these companies move into EDI, strengthening the technology’s presence. Or, they might choose APIs, causing a swift takedown of EDI.
To Sum it Up
Unfortunately, there’s no clear future for EDI. Decades after its inception, we’re still hearing both sides of the argument. However, the idea that EDI will soon be on the decline seems to be more prevalent these days than in the past. Furthermore, the presence of the internet is stronger now than it’s ever been, and businesses are becoming more tech-savvy every day. There’s also an abundance of resources, often in the form of iPaaS providers, which allow companies to move away from EDI in a way we haven’t seen before.
However, what EDI really comes down to is what businesses choose to invest in. So far, EDI has been the reigning choice because it gets the job done, but more importantly, because everyone else is using it. One way we might see a major shift away from EDI is if all the major players in the supply chain like Walmart and Amazon moved away from it first. This would force smaller companies to follow suit. But we could also see mass adoption of API technology by smaller companies with the help of iPaaS vendors, which could then lead the larger companies to join in.
Long story short, there’s a lot of interesting potential for the electronic exchange market coming in the next few years. What’s your opinion when it comes to the future of EDI? Let us know your thoughts in the comments below!
Contributing Thought Leaders
Jim’s main focus has been working with Sage 100/500 utilizing EDI and other file formats for over 19 years and still going strong. He strives to see his clients and their co-workers reach their goals with his assistance. Jim has trained clients that had no knowledge of EDI to then be able to run EDI systems without any assistance.
As Solutions Manager at Babelway, Jeff helps IT leaders in small- to mid-sized companies across industries implement strategies and tools that moves beyond daily maintenance of network infrastructure, hardware, and key systems (TMS, ERP, etc). He strongly believes the success of a company resides in the empowerment of its employees.
Jan Arendtsz is the CEO of Celigo and a veteran of the software industry with more than 20 years of experience in development, product management, client services and sales roles. He founded Celigo in 2006 with the goal of simplifying the integration of cloud-based applications. He is responsible for overseeing all company operations.
As CEO, Erik founded Orderful with a core belief that we can improve the archaic EDI and B2B data trading practices of the world. Orderful helps companies trade EDI and B2B data the smarter way. His goal is to improve the way the world trades by consolidating technology, accelerating B2B trading enablement and reducing costs.
Jett is CEO and co-founder of project44. A recognized thought leader with a track record of innovation and success, Jett’s leadership has guided startups from ideation stages through expansion. His insights and expertise have been included in publications such as Forbes, Entrepreneur, Wall Street Journal, Retail Wire, Logistics Management, and Crain’s Chicago Business, and he has given keynote addresses about technology, innovation, and entrepreneurship at major industry events.
Wayne Marshall is the Vice President of Professional Services at EDI Staffing. His responsibilities include strategy development, new business development, sales, marketing, consulting, contract management, general regulatory compliance, managing of technical resources and projects, and most recently, HIPAA compliance as the Information Security Officer.