Original Equipment Manufacturers (OEMs) must ensure that suppliers who support them are instructed specifically on what to supply and when. In addition, the high volume of transactions associated with producing, for example 30 units per hour, 24 hours per day, lends itself to a mechanism for automatically handling the data transactions that mirror this process. The compulsion for using EDI is for both transactional efficiency and control of manufacturing. The make-to-order process can only be made practical using EDI. To ensure the effectiveness of a closed loop system between OEM and supplier, it is essential that EDI is implemented and integrated.
The ability and success by which OEMs achieve this has a direct bearing on their future competitive position. It is no surprise then that OEMs want EDI messaging, and mandate integration with the supplier's ERP system. The ability to coordinate materials flow and concurrent processes accurately and responsively throughout the supply chain is a challenge for Lean IT. Managerial control can only be achieved through the flow of accurate information where it is required, and when it is required. EDI is the most effective method of achieving direct transfer of data between computer applications, in different parts of the supply chain, without any manual intervention.
Why EDI? Why not e-mail or file
The transfer of any data between applications requires an agreement by both parties. E-mail is unstructured. While file structures can be agreed locally, the automotive business has thousands of suppliers, supplying many different factories. These suppliers and OEMs use systems that will always be different. Therefore, internationally prescribed file transfer standards have been adopted. The internet still cannot handle the high volumes demanded or guarantee the security levels provided by EDI. However, the internet is emerging as a way for smaller companies to get EDI.
The anatomy of EDI
EDI is the interchange of data, structured in accordance with recognized EDI standards, sent electronically between computer applications. Figure 1 illustrates the data transfer bridges between organizations, and shows that they are comprehensive in nature. The standards of EDI relevant to the Automotive Industry are:
- UN sponsored EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport)
- US sponsored ANSI X12 (American National Standards Institute)
- European sponsored ODETTE (Organization for Data Exchange by Tele-Transmission in Europe)
- German sponsored VDA (Verband Deutscher Automobilhersteller)
EDI standards parcel into messages by coding in accordance with syntax (see Figure 2). Syntax is the punctuation, layout and content rules used in the construction of the message.
EDI and Lean IT
For planning and preparation purposes, EDI is used to detail the forward schedules of components required. These requirements are generated from the OEM's Material Requirements Planning (MRP) system on a weekly basis. This lengthy timeline enables the supplier to procure the raw materials needed to support the program. The details show the planning data of volumes and the execution data, which includes packing requirements and time of delivery.
The move to make-to-order by OEMs is facilitated by the use of EDI. The delivery call of a component/part in a coordinated way is prompted by the vehicle assembly process or by a signal to replace some stock (such as an empty bin or Kanban card). Using this data, an EDI message is broadcast every hour to the supplier for the requisite quantity. By allocating a unique serial number for this delivery call, the supplier labels the goods with this number for the OEM to account for the delivery call upon receipt. Using specific locations, trackside deliveries are made practical.
This solution completes the supply chain, with the end-consumer at the head of the chain. This places great demands on data processing and the communications network. EDI provides the means to connect the different computer systems across a supply chain network with minimal fuss.
Supply chain visibility relies on labels as vital elements in the ability to track the movement of materials at all stages through their life cycle. By providing a unique identification for the delivery call, a bar-coded label for the goods can be produced that, when scanned, will automatically confirm receipt of the items. The comprehensive nature of the labels requires many fields of data such as:
- delivery address
- delivery call number
- number of packages
- product description (including product classification)
- supplier identity number
- unique serial number
- article number
- date of manufacture
EDI and administration
In an Industry of high volumes and repetitive transaction, the labor-intensive, manual techniques for document transactional administration are eliminated by the use of EDI (see Figure 4). However, a prerequisite for this is an ERP system that is capable of integrating EDI messages routinely into its database files for seamless processing. The billing and payment process for thousands of components is handled daily, effortlessly and without error.
OEMs routinely receive the goods into their system and can therefore generate an EDI invoice message. This is similar to getting a credit card statement at the end of the month. The OEM produces the invoice and automatically pays, based on this amount. The supplier can check and reconcile the amounts within their own system.
For monitoring and control purposes, suppliers transmit 'Advance Shipping Notes' (as used by Volvo). This dispatch advice informs a manufacturer that goods have left the supplier's premises and are in transit. From this, the OEM gets notice of any potential supply pipeline shortages. Knowledge of goods in transit is practical as the dispatch advice message is transmitted and received by the OEM before the truck arrives. Upon arrival, this message, having been integrated within the OEMs system, facilitates a simple receiving process without having to re-key the data.
As goods are prepared for transit, bar code labels are attached. Corresponding transport documentation is also generated, including any dispatch or delivery notes that may be required. Bar codes can be used for identifying goods throughout the transport chain, including the check-off and check-in stages.
Prior to the introduction of EDI, paper schedules and information created a bureaucratic nightmare. Without doubt, the initial adoption of EDI changed the capability of the Industry to transmit and respond to schedule changes and remove the intensive labor levels required for mundane administration. EDI generates documents automatically from a computer application. These documents are then transmitted directly to the component supplier's computer via a telecommunications network. The whole procedure is electronic and avoids manual processing, re-keying or checking of documents. With EDI, the cost of processing a document is dramatically reduced, sometimes by well over 50 percent. Errors caused by manual intervention and re-keying are avoided.
EDI can be viewed as an enabling technology that facilitates computer- to-computer communications. It may be better described as a component of 'Advanced Communications Systems'.
OEMs used to mandate that to qualify as a supplier, EDI must be adopted as part of the supplier process. This view has now been modified to insist that EDI messages be automatically integrated and generated using the supplier's ERP system. Furthermore, Chrysler, Ford and GM have collaborated on the development of a common set of EDI requirements, with mandatory implementation dates. These are:
- Tier One suppliers will send Advanced Shipment Notification to the OEM via EDI
- Tier One suppliers shall receive planning, shipping and sequencing messages via EDI and mechanically integrate these messages into their ERP system
- Tier One suppliers will transmit planning schedules to the Tier Two suppliers at the least on a weekly basis
- Tier One suppliers will have the capability of sending daily delivery requirements to their Tier Two suppliers
- Tier Two suppliers will use EDI to transmit planning schedules no less than once per week
These mandates reinforce a strong 'multi-level' communications methodology between the Tiers of the automotive supply chain. Therefore, a strong level of trust must be established throughout the chain. Over-inflating requirements to ensure adequate supply is a common practice in the supply chain and to a degree is system generated. However, most of this is a 'protection' buffer against changes in demand and supply. The reality of EDI requires thorough planning using ERP solutions that are capable of integrating EDI.
Strategies for Advanced Communications
The power of OEMs that force suppliers into the world of EDI can lead to a parochial adoption of EDI, in order to eliminate paper and reduce cost. This misses out on the opportunities to raise business performance substantially. As part of an overall strategy for IT, EDI should be implemented and used to introduce new and improved methods of working.
When exploited to its full potential, EDI can facilitate new methods of conducting business, from 'Just in Time' (JIT) in the production chain to concurrent engineering. A comprehensive strategy should define the company's ambitions. It should line these up with the Automotive Industry's ambitions from every viewpoint, from application and technical requirements to trading partners and time scales. What is required is a strategy for advanced communications to ensure companies' software is ready for the changes that are inevitable within the Automotive Industry.