A manager explains how his company increased profits by using electronic data interchange.
"Our industry is old-fashioned; we tend to lag behind the times," says Michael Fidanza, general manager of Ideal Supply Co., an $18-million purveyor of industrial pipes and valves in Jersey City, N.J. But when a top customer asked about the company's electronic data interchange (EDI) capability in 1990, Fidanza decided to take the plunge. Usually, large suppliers or customers force small companies to install the hardware and software that make electronic ordering possible. But Ideal made the move before that point and beat the customer's other vendors to EDI; it also negotiated higher discounts for itself by being one of the few EDI-ready buyers in its industry.
"It's a good idea to get on board before your vendors and customers start demanding it," says Fidanza, because the sooner an EDI partnership is in place, the more money and time both companies involved save. Ideal's vendors showed their appreciation. "One of our vendors offered us an extra 5% in discounts," he says. "And another plugs in an extra $10,000 worth of product with every $50,000 purchase -- just because we're EDI." Savings like that quickly covered Ideal's investment.
Ideal spent about $5,000 on EDI software and hardware that would cost $10,000 today. The service that processes Fidanza's purchase orders each month charges a low $80 a month because it can download orders during off-peak hours. Now, up to 80% of Ideal's purchases and 15% of its sales are processed electronically.