EDI technologies are a core component in delivering supply chain efficiency for retailers. EDI providers often work with retailers to get on the “preferred referral list” such that the get recommended by retailers to suppliers looking for an EDI solution. Clearly, the supplier is going to evaluate the recommended EDI provider.
Thin Profit Margins Drives Evaluation of EDI Providers
We know that retailers exist in the realm of extremely thin profit margins. For Walmart, it takes 30 days in a 31-day month to pay off the cost of merchandise, labor, taxes and other operating expenses. That leaves just one day of profitable operations. Given this environment of razor-thin margins, retailers work tirelessly to optimize supply chain efficiency and expense. Yet, it appears that some supply chain costs go unnoticed or get little attention after a vendor selection has been made.
Come January 1st 2017, a popular retail-focused EDI provider is raising its prices on several EDI services by over 15%. Clearly being done with the assumption that retailers will not take notice, or that the supplier is so locked in that they cannot switch. We personally think a price increase of this magnitude is outrageous especially to an industry that fights so hard to make a profit. If you’re not sure who this EDI provider is give us a call we’ll give you more hints.
How to Offset Price Increases of EDI Service Providers
So what can be done to offset these price increases such they don’t come back as an increased cost of doing business? We’ve developed a list of recommendations:
Evaluate the EDI preferred list of vendors annually (not just at the time the service was secured).
Ask how often the price for the solution has changed in the trailing 12 and 24 months.
Ask what percentage the price has changed.
Evaluate how difficult it is for your vendors to change EDI providers.
Evaluate any and all price increases relative to the market.
Stop recommending EDI providers that have frequent and large (in excess of 15%) price increase
We recognize that the preference of a supplier or a recommendation is not ALL about price, but rather the aggregate value provided. Yet we believe that a best practice is for retailers to simply implement an annual review of the recommendations they provide to suppliers.