Electronic Data Interchange: Does Its Adoption Change Purchasing Policies and Procedures
Sriram, Ven, Banerjee, Snehamay, International Journal of Purchasing and Materials Management
Electronic data interchange (EDI) needs little introduction today to most of the business community. The basic idea behind EDI is to replace the paper documents associated with routine business transactions--purchase orders, acceptances, and invoices--with electronic communication of such documents in a standardized format. EDI, therefore, is the movement of business documents electronically between or within firms in a structured, machine-retrievable, data format that permits data to be transferred, without re-keying, from a business application in one location to a business application in another location. In a fully developed EDI environment, a computer can use directly the data sent by other computers in electronic form.
Some researchers predict that by modifying an organization's structure and work processes, EDI can improve the way the firm does business, and subsequently it will become an essential technology for the firm. Some argue that the economics of EDI are so compelling that no firm today can ignore the competitive opportunity.|1~
Different firms have implemented EDI using different degrees of automation. Even in its simplest form, however, EDI offers some obvious advantages. Experience indicates that effective use of EDI can reduce inventory levels, improve cash flow and streamline a company's operations, and increase the speed and accuracy of information transmission.|2~ EDI is also believed to help create closer ties between buyers and suppliers. Quick response to customers creates a real advantage for EDI users.|3~ Under certain manufacturing conditions that require frequent deliveries, EDI can help reduce costs and monitor the transactions.|4~
Potential shortcomings of EDI include the difficulty of establishing an audit trail, absence of signatures on documents, and the unavailability of hard copies of documents.|5~ Other potential problems may include the lack of data integrity and a perceived loss of control due to supplier initiation of some transactions.|6~
One of the functional areas that typically has a direct involvement with EDI is purchasing. Most EDI studies have evaluated the impact, benefits, and potential impediments of its adoption on the purchasing organization or its impact on the buyer-supplier relationship.|7~ A 1985 study of EDI in purchasing predicted that "most purchasing departments of 1990 will look different from the typical purchasing departments of 1985"--because of the use of electronic communication of standard documents.|8~ Another study predicted that EDI would improve the productivity of purchasing but would not significantly change the purchasing process--that is, the manner in which purchasing decisions are made and how the procedures are performed.|9~
While there have been several additional studies dealing with the impact of EDI on purchasing, it is useful at this time to assess the nature of this impact now that sufficient time has elapsed after initial EDI adoption by many firms during the mid-1980s. It is necessary to understand the subsequent impact of EDI on purchasing, along with the changes created in purchasing policies and procedures, to facilitate the development of future EDI operations. In view of the potential importance of EDI, this study was conducted to investigate the changes caused by EDI in purchasing policies and procedures and in the organization in general.
The sample for this study was drawn from a partial membership list of the National Association of Purchasing Management (NAPM).(*) This list, broken down by SIC codes, contained approximately 5,500 names, with 1,463 from chemical and allied products (SIC Code 28), 748 from health services (SIC Code 80), 241 from transportation (SIC Codes 40, 42, 47), and 121 from retailing (SIC Codes 53 and 54). A proportionate sample was drawn from each SIC Code on the list, producing a total sample size of 2,000 purchasing professionals. …