ERP / EDI INTEGRATION METHODOLOGIES

In-House versus Hosted

A White Paper
October 2007

Prepared by John Simmons

ERP / EDI INTEGRATION METHODOLOGIES
- In-House versus Hosted

PREFACE ............................................................................................................3
OVERVIEW ........................................................................................................3
SELECTING A MODEL .....................................................................................4
A STUDY OF MODEL ADVANTAGES AND COST COMPARISONS .........5
THE FUNDAMENTALS OF IN-HOUSE SOLUTIONS................................................6
In-House Solution Key Components............................................................6
THE FUNDAMENTALS OF HOSTED SOLUTIONS...................................................8
Hosted Solution Key Components ...............................................................9
SELECTING A HOSTED SERVICES PROVIDER .....................................................11
Key Selection Criteria ................................................................................11
Cost Comparisons ......................................................................................12
Pricing Examples........................................................................................13
CONCLUSION ..................................................................................................13
ABOUT THE AUTHOR....................................................................................14
ATTACHMENT 1: Startup and Non-Recurring Costs Calculator....................16
ATTACHMENT 2: Recurring and Operations Costs Calculator......................17

Page 2
 ERP / EDI INTEGRATION METHODOLOGIES
- In-House versus Hosted

PREFACE

You’re the CIO of a growing company. Required internal business

applications are growing rapidly and you also have to maintain external
EDI compliance to keep the revenue flowing. You know it’s time to move
to an ERP but do you keep your EDI program localized or move to the
outsourced model? The right decisions in implementing your EDI
solution will yield cost-efficiencies and greater functionality and can
help pay for the upgrade to the ERP solution.

OVERVIEW

Designing or re-engineering ERP solutions to incorporate EDI-based

Supply Chain Management is never a simple task. At the outset,
investigation of EDI integration strategies will reveal two basic
approaches, each being vociferously advocated by those representing a
methodology while simultaneously depreciating the value of the other
approach. The rub is that they cannot all be right or all be wrong.

The shift from proprietary EDI So what is the “best” solution? Is it possible that a best solution even
solutions to Internet-based or even exists? How can you determine what is best for your enterprise?
Web-based infrastructures is
inevitable.
Selecting the “best” strategy for your enterprise need not be a daunting
-Dr. Jacques Hale task. Challenges will vary among companies but there are some basic,
“From EDI to Web Services – the common factors that can be applied to aid in choosing an approach.
Evolution of E-Commerce”
It is important to remember why your company adopted EDI for B2B
commerce in the first place. It was primarily to reduce costs. Certainly
there are many other benefits that appropriately could be listed along
with trading partner requirements. The bottom line remains cost
reduction or, inversely, margin increase.

Accordingly, any competent new or re-engineered solution must first be

held accountable to the simple test of its effect in terms of acquisition
and operation costs. An expanded view is that any new EDI strategy
must reduce costs while simultaneously adding capabilities, increasing
accuracy, reducing charge backs, expanding the trading community and
decreasing the time required to add/revise documents or add new trading
partners.

Generally, a company has two strategic implementation options:

• Establish and maintain and in-house EDI solution

• Engage a hosted EDI service provider

Page 3
 SELECTING A MODEL

In considering implementation of an in-house or hosted EDI solution

businesses must evaluate the alternatives and their associated
implications in order to intelligently choose the method that most
appropriately aligns with their unique needs.

The benefits of EDI are clearly tied A good starting place is to consider some basic factors that likely
to levels of EDI integration, even
represent the key indicators to what path is most closely aligned with
for small and medium-sized
manufacturers. While many your ERP and IT operations.
companies have some form of
integration, those existing levels Perhaps the most fundamental of the following questions relate to your
are minimal. Therefore, solutions core competencies and where you want to invest resources.
are needed to help move companies
from states of lesser to greater
integration. • Does it make sense for you to invest capital in the required hardware,
software, staffing, and management of an IT “service” that is not a
- Industrial Technology Institute critical part of your core business mission?
Center for Electronic Commerce

• Does it make sense to outsource this “service” to an expert

.
organization whose core business is providing the EDI “service”?

• Would outsourcing allow you to redeploy resources that had been

directed to the in-house EDI operation while simultaneously
enabling you to meet or improve the efficiency and accuracy of your
EDI transaction processing -- and at a cost savings?

• Does it make sense to simplify the interconnection with your trading

partners to make it easy for them to do business with you?

If it is too hard to integrate with trading partners, a business may

lose customers or be forced to abandon suppliers

• Which method offers the lower total cost of ownership (TCO)?

A due diligence approach suggests that one would at least explore a

TCO comparison between the in-house and outsource models. Often
TCO is not fully understood and according to reports from numerous
EDI service providers regarding real-world analyses it is not
infrequent for the in-house solution TCO to actually be more than
twice that of a hosted alternative.

Page 4
 • Do you want to provide and support a 24x7 EDI service operation?

Since trading partners often cross time zones, have varying business
Many businesses consider practices, and don’t always observe the same holidays it is essential
only the cost of that the EDI services be on-line and available at all times. The key
acquiring/licensing an EDI point being that it is common practice that transaction
software application and
fail to calculate the costs acknowledgements must be sent within time limits in accordance
associated with with the trading partner agreement in order to avoid charge backs
implementing and or, worse yet, cancellation of an order. This demands that the
maintaining that service be monitored on a 24x7 basis and that problems be identified
application.
and resolved in real-time. Providing these capabilities for in-house
- EDI Center for Training systems may be challenging while hosted EDI service providers offer
it as part of their core capabilities.

• Do you want to bear the cost of acquiring and maintaining the

hardware and software to support the EDI application service?

Items such as networking equipment, servers, operating systems,

licenses, maintenance contracts and the staffing costs of personnel to
maintain them are part of the hosted EDI service model.

A STUDY OF MODEL ADVANTAGES AND COST COMPARISONS

Traditionally companies have elected to implement mission-critical

applications like EDI utilizing in-house resources. Typically, the
approach is to license a core do-it-yourself solution and to invest
additional resources into customizing and integrating that solution into a
new or existing licensed ERP environment.

The in-house approach may create a sense of control over the EDI
operations. For certain it creates an expense that includes licensed
The decision to outsource is often software maintenance and upgrade fees, networking and server hardware
made in the interest of reducing
costs, redirecting or conserving
costs, staffing costs for development and maintenance, and ongoing
energy directed at the competencies monitoring resources to detect and resolve real-time problems.
of a particular business, or to make
more efficient use of labor, capital, Add to that the cost of staff development and dealing with employee
technology and resources. turnover in skilled positions that are not consistent with your core
business applications. The net is often a difficult and expensive solution
that provides a “service” outside of your core business mission.

Hosted EDI services have emerged as a mainstream solution and joined

hosted CRM and accounting applications that have been enthusiastically
and successfully accepted by large enterprises. This acceptance is, in
part, based upon recognition that EDI service providers are application
experts and provide highly skilled resources along with security, backup,
support and monitoring services that exceed those that can be
economically implemented in-house. Hosted solutions frequently

Page 5
 provide more functionality and benefits than licensed EDI software and
with significantly less expenses.

Hosted solutions allow a company to integrate the EDI process into their
internal Accounting or ERP systems and have the hosting provider
operate and manage the EDI process. Hosted EDI allows for an
integrated EDI environment without the upfront expense of EDI
software, development, training and support.

THE FUNDAMENTALS OF IN-HOUSE SOLUTIONS

On the surface, it may seem a simple matter to purchase/license an “EDI

solution” to integrate with your ERP solution. A larger view reveals that,
at minimum, a number of products and capabilities are required to get an
in-house EDI system configured and implemented.

An in-house EDI implementation includes several integral parts.

In-House Solution Key Components

1. Communication/Connectivity Services: the transport media that

enable you to connect with your trading partners.

Typically included are VANs, Internet for AS1/2, and ftp. Each
unique connection method requires investment involving both
upfront and recurring charges along with staff to implement and
maintain these networked services.

2. EDI Translator: the software needed to convert electronic

documents to and from an EDI Standards format.

Requirements include server hardware and software, EDI translator

software, licensing and maintenance fees as well as staffing
resources for implementation, customization, and maintenance.

3. Mapping: the software needed to reconcile EDI document layouts

with your trading partners. Even though EDI is a standards-based
solution it is almost certain that documents will be slightly different
for each trading partner since processes vary among businesses.
Accordingly, partners will require mapping of their data into your

Page 6
 format for each document type exchanged in the trading relationship.
The required number of maps can be extensive and the maintenance
development required to accommodate changes or to add a new
document type can be quite daunting and expensive. And remember
that 3PLs, freight carriers/consolidators, warehouse/DCs and other
Problems can be classified by members of your supply chain are part of your EDI trading
size according to the time it
takes to fully understand how community and their EDI documents must be supported.
to solve them– the more
complex the larger the size. Requirements include server hardware and software, Mapping tool
The difficulty to actually solve software, licensing and maintenance fees as well as staffing
them is a function of the
problem size.
resources for implementation, customization, and maintenance.

4. EDI Integration Software: the middleware to connect your ERP or

accounting solution with the EDI and to move data between them.
There are software development kits and adapters that may reduce
the development time but they all require customization and on-
going maintenance for each unique business environment.

Required are the ERP integration development tool kits or adapters

5. IT Technical Staff: at least one EDI-literate programmer analyst is

required to install, configure, implement and maintain the integrated
EDI solution. In addition to the required IT skills, they must
understand your business/industry, EDI standards, and be able to
communicate with your partners regarding the technical aspects of
their EDI solutions and practices.

6. EDI Coordinator: at least one person to monitor the on-going EDI

operations, to resolve problems and to provide operational liaison
with your trading partners. Since trading can occur 24x7,
operational support and troubleshooting must likewise be available
24x7.

Page 7
 The startup costs range from a few to hundreds of thousands of dollars
depending on the complexity of your ERP environment, the number of
trading partners, and the required transport media services.

It is clear there will be some significant upfront investments in hardware

and software along with ongoing investments in staff and operations to
maintain an in-house EDI system. Add the requirement to have
professional staff fully engaged in development, maintenance and
support activities that are entirely independent of your core business
activities and you may elect to consider a hosted / out-sourced solution.

THE FUNDAMENTALS OF HOSTED SOLUTIONS

Leverage is the factor by which a Early adopters of hosted offerings often held the view that they could
lever multiplies the applied force - live with off-the-shelf implementations that required no customization,
it is therefore referred to as an according to the EDI Center for Training. The idea being hosted
advantage. applications needed to serve a large customer community without custom
adaptations and that businesses should adapt their operations to embrace
the hosted application’s capabilities and business procedures.
Nothing could be further from the truth in the current hosting model.

Page 8
 Leading providers of hosted EDI services offer extensive capabilities to
customize their services to each unique trading partner’s requirements.
These capabilities virtually eliminate the need for on-site technical
resources to accomplish custom programming. Additionally, automated
tools are presented to EDI coordination personnel to allow some level of
customization without the need for a skilled programmer.

In contrast with the in-house implementation, the hosted solution

requires only the implementation of EDI integration software: the
middleware to connect your ERP or accounting solution with the EDI
and to move data between them.

The hosted model simplifies efficient delivery of changes and upgrades

to all partners in the trading community. Once applied at the hosting
center all changes are immediately effected to the various partners.

According to Sourcingmag.com, one company’s change from an in-

house to a hosted EDI model enabled them to redeploy resources toward
improving and optimizing its internal core business applications, keep
the headcount down in the EDI department and still maintain the system
integrity to support their business, and meet their trading partner's
requirements.

The hosting service provider supplies all the connectivity to your trading
A Virtual Team is a group of partners, data transformation, data translation and document mapping
individuals who work across time,
space, and organizational
boundaries with links strengthened Hosted Solution Key Components
by webs of communication 1. Communication/Connectivity Services:
technology. They have
complementary skills and are
committed to a common purpose, Provided by the Hosting Service except for the single connection to your
have inter-dependent performance ERP environment.
goals, and share an approach to
work for which they hold
themselves mutually accountable.
2. EDI Translator:

Provided by the Hosting Service.

3. Mapping:

Developed and maintained by the Hosting Service.

4. EDI Integration Software:

A single standard document interface is required on-site to integrate

transactions with your ERP system in a native format. Typically
provided and integrated by a consultant specializing in your specific
ERP platform.

5. IT Technical Staff:

Page 9
EDI technical services provided by the Hosting Service include
development, testing, maintenance and support.

6. EDI Coordinator:

The one resource required on-site providing operational liaison with

your trading partners and in-house supply chain stakeholders.

Page 10
 SELECTING A HOSTED SERVICES PROVIDER
Selecting a hosted EDI services provider is a strategic decision that
demands that a company investigate not only the providers’ technology
but also the processes and the people.

Key Selection Criteria

• Decision Support
Knowledgeable service providers offer professional services which
aid in understanding business issues and help in making the right
choices for implementation.
.
• Connectivity and Translation Standards
Enables rapid connection to new partners without transport media
or document format limitations.

Qualified service providers offer

• A Global Infrastructure
professional services that will aid The world is flat: rarely does a company only trade with partners in
you in understanding your their own country. A “globally enabled” service provider will
business issues and help you make enable quick and efficient communications with partners in other
the right choices to implement the
geographies.
required services in the most
efficient fashion.
• Extensive Integration Tools and Methods
Trading partners come in all sizes and with different levels of
sophistication with EDI processing needs ranging from direct EDI-
to-ERP integration to simple Web portals for small partners. Hosted
services providers must embrace the spectrum of partners and
provide effective, high-value solutions for each class of partner.
More advanced services include Vendor Managed Inventory, Scan
Based Trading, and Logistics management capabilities.

• Change Management Tools and Processes

Few EDI trading environments are static. Standards change,
trading partners are added and deleted, documents are added or
changed, and on. It is essential that the Hosted services provider
offer well-defined, proven methods for adding new partners,
conducting testing of new or changed solutions, providing
operational services to rollout new programs, and providing overall
program management for your initiatives.

• Live Operational Management Services

The Hosted services provider must offer 24x7 monitoring and
support services, be continually available to alert you to issues, and
be available to respond to your problem reports. A capability is
required for collection and analysis of your transaction information
to support metrics regarding partner performance.

Page 11
 Cost Comparisons

(Even though the implementation methods are different there are enough similarities to make a
general cost comparison. The following chart illustrates the pricing differences.)

IN-HOUSE MODEL HOSTED MODEL

Server Hardware & OS $10,000 and up Host provides

Host provides support &
$60k to $120k per FTE
Staffing Salaries other SME services on
(Salary.com)
demand at a per hour rate
Translator Software $10k to over $200k Host provides

EDI Mapping Tool $5K to $25k Host provides

Varies – staff costs may be Host provides & 3rd party
Install & Integrate
extensive provides ERP integrator
AS2 at $3k to $5k license
Communications Services Host Provides
VAN Charges
Operation Monitoring Staffing and alert tools Host Provides

Support & Help Desk Staffing and support tools Host Provides
Hardware & software plus
Transaction Data Backup Host Provides
backup administration
Development costs plus Changes may be fee or
Updates & Changes distribution to all trading partners free and are automatically
(Programs and EDI and coordination of made available to all
documents) implementation at each partner partners through the
location central hosting service
Significantly reduced by
increased accuracy and
Late Fees & Charge backs Variable but common
timely transaction
processing

Page 12
 Pricing Examples

(For illustration purposes only. Each business implementation is unique and requires a custom
quote.)

IN-HOUSE MODEL HOSTED MODEL

Hardware: $10k
Small Business
Connectivity: VAN fee
15 Trading Partners Set-Up: $3k
Translator: $10k
2 Supported Documents Monthly Svc: $75
Mapping: $3k
20 Transactions Per Month
Staffing: $60k
Hardware: $25k
Mid-Sized Business Connectivity: VAN fee
75 Trading Partners AS2 fee Set-Up: $20k
4 Supported Documents Mapping: $6K Monthly Svc: $2k
200 Transactions Per Month Translator: $50k
Staffing: $120k
Hardware: $50k
Enterprise Connectivity: VAN fee
150 Trading Partners AS2 fee Set-Up: $50k
6 Supported Documents Mapping: $30k Monthly Svc: $6k
2000 Transactions Per Month Translator: $200k
Staffing: $240k

CONCLUSION

The decision to implement an in-house EDI solution or outsource to a

Hosted Service provider is a key strategic decision. Either approach can
be successful. Accordingly, a decision-maker must look closely at the
alternatives to understand the costs and value-propositions of each.

Identifying the right strategy requires time and diligence with respect to
clear goals and objectives. At the proverbial “end of the day,” the right
decision will be one that lowers your capital expenses and operating
costs while simultaneously increasing your service levels and partner
satisfaction.

Important key objectives include:

• Focus on Core Business

• Simplify Operation
• Improve Service Level
• Mitigate Risks
• Reduce TCO (operations and capital)
• Migrate to new technology

A more traditional approach suggests that in-house solutions are always

best since you have “control” over the operation. Further investigations

Page 13
 and development of an accurate Total Cost of Ownership will suggest
that having a vertically focused hosting provider for your EDI services is
less expensive, faster to implement and modify, more extensible and
more easily managed.

At the proverbial “end of the day,” As an inevitable evolutionary growth, hosted EDI services have emerged
the right decision will be one that as a mainstream solution and have joined hosted CRM and accounting
lowers your capital expenses and applications that have been enthusiastically and successfully accepted by
operating costs while large enterprises. Companies like Salesforce.com are application experts
simultaneously increasing your
service levels and partner that provide highly skilled resources along with security, backup, support
satisfaction. and monitoring services that exceed those that can be economically
implemented in-house.

Hosted solutions allow a company to integrate the EDI process into their
internal accounting or ERP systems and have the hosting provider
operate and manage the EDI process. And, in doing so, help companies
meet their objectives to maintain core business focus, reduce costs and
risks, improve service and expand their EDI trading community without
the corresponding growth pains.

ABOUT DICENTRAL

In July 2000, DiCentral Corporation introduced a technically innovative

web–hosted EDI solution that enabled buyers and suppliers to
collaborate and exchange critical enterprise data without costly
investments in software or hardware. This innovation transformed the
EDI world by providing easy and immediate EDI compliancy for small,
medium, and large suppliers.

Today, DiCentral is the fastest growing company in its field, with a

broad suite of products and solutions designed to meet the unique needs
of any size business. Our solutions address many industry challenges,
such as mandated compliance, global trade management, global data
synchronization, transaction management, and more. DiCentral products
are highly versatile, flexible and reliable, providing over 4,000 current
businesses with a competitive advantage in the marketplace.

For buyers, DiCentral offers proven, highly reliable, and global

platforms throughout their entire trading partner community.
Additionally, our expert background in buyer business rules and
processes ensures that all EDI transactions are met with confidence.

For suppliers, our award–winning support team is ready to answer

questions or resolve issues when the client needs assistance. With
support services worldwide, problems are solved quickly. DiCentral
provides on–demand training and live support to assist customers with
up–to–date information.

It’s an exciting time in the EDI industry, and DiCentral is proud to be at

the forefront of new technologies. Our industry leadership gives you

Page 14
 assurance that we understand your EDI challenges; demonstrating our
ability to help optimize the supply chain for both buyer and supplier.

Learn more about how DiCentral can help you gain a competitive
advantage; call us now at 281-480-1121. We welcome the opportunity to
be part of your EDI team!

http://www.dicentral.com

ABOUT THE AUTHOR

John Simmons is an independent consultant and freelance writer. John's

technology background extends from the desktop through enterprise-
level computing and supporting infrastructures. He has worked
extensively with both supplier and buyer organizations to help them
enable and manage their trading environments. His business
management experience includes senior and general management roles.
At Tandem Computers, Inc, John directed the worldwide product support
and software sustaining development operations for fault-tolerant UNIX
servers utilized in mission critical transaction processing applications
including EDI document exchange. At Avnet, Inc., he was responsible
for championing the company's enterprise-level solutions. He has worked
extensively with businesses to select, fund, and apply technology toward
improving the quality of their supply chain operations, migrating to new
technologies and reducing IT costs. John may be reached at
[email protected].

Page 15
 ATTACHMENT 1: Startup and Non-Recurring Costs Calculator

Startup & Non-Recurring Costs

In-House EDI Hosted

Implementation Services

9 Supporting Hardware
Hardware _______________ Included in Hosting
Operating System _______________ Service Fee
Backup Solution _______________

9 Application Software
Included in Hosting
EDI Translator _______________
Service Fee
EDI Mapping Tool _______________
Integration Adapter or Toolkit

9 Communication Services
VAN _______________ Included in Hosting
AS2 _______________ Service Fee
FTP _______________

9 Installation & Integration

Avg Hourly Rate Per Person _______________ Included in Hosting
Total Hours x Avg Rate _______________ Service Fee

9 Acctg or ERP Integration

Avg Hourly Rate Per Person _______________ Quoted Service from
Total Hours x Avg Rate _______________ Hosting Provider

9 Map Development
Avg Hourly Rate Per Person _______________ Quoted Service from
Total Hours x Avg Rate _______________ Hosting Provider

TOTAL

Page 16
 ATTACHMENT 2: Recurring and Operations Costs Calculator

Recurring & Operations Costs

In-House EDI
Implementation Hosted Services

9 Supporting Hardware
Hardware Maintenance _______________
Included in Hosting
Operating System _______________
Service Fee
Maintenance
Backup Administration _______________

9 Application Software
EDI Translator License Fee _______________ Included in Hosting
EDI Mapping Tool License _______________ Service Fee
Fee
Int Adapter or Toolkit Fee

9 Communication Services
VAN Transaction Fee _______________ Included in Hosting
AS2 License/Maint Fee _______________ Service Fee
FTP License/Maint Fee _______________

9 Operations & Monitoring Staff

Avg Hourly Rate Per Person _______________ Included in Hosting
Total Hours x Avg Rate _______________ Service Fee

9 Trading Partner Relations

Avg Hourly Rate Per Person _______________
Not Applicable
Total Hours x Avg Rate _______________

9 Acctg or ERP Integration

Maint
Avg Hourly Rate Per Person _______________ Quoted Service from
Total Hours x Avg Rate _______________ Hosting or 3rd Party
Provider

9 Map Maintenance
Avg Hourly Rate Per Person _______________ Fees Paid By Trading
Total Hours x Avg Rate _______________ Partners

Quoted Service from

9 Hosting Service Fee Not Applicable
Hosting Provider

TOTAL

Page 17