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What Is a Value-Added Network (VAN)?
A value-added network (VAN) is a private, hosted service that provides companies with a secure way to send and share data with its counterparties. Value-added networks were a common way to facilitate electronic data interchange (EDI) between companies. As the internet created competition for this service with the advent of secure email, VANs responded by expanding their service offerings to include things like message encryption, secure email, and management reporting.
A value-added network simplifies the communications process by reducing the number of parties with which a company needs to communicate. The VAN accomplishes this by acting as an intermediary between business partners that share standards-based or proprietary data. VANs are set up with audit capabilities so that the data being exchanged is formatted correctly and validated before it is transferred to the next party. VANs are sometimes referred to as added-value networks or turnkey communications lines.
How a Value-Added Network (VAN) Works
Value-added networks are generally used by large companies for efficient supply chain management with their suppliers, or by industry consortiums or telecommunications companies. VANs usually operate in a mailbox setting, wherein a company sends a transaction to a VAN, and the VAN places it in the receiver's mailbox. The receiver contacts the VAN and picks up the transaction, and then sends a transaction of its own.
The system is similar to email, except that it is used for standardized structured data rather than unstructured text.
VANs in the Internet Era
The ubiquity of the Internet has lessened the attraction of VANs, largely due to cost considerations. Simply put, it is often more cost-effective to move data over the Internet than to pay the minimum monthly fees and per-character charges included in typical VAN contracts. VANs have countered the challenge from the internet by focusing on specific industry verticals such as healthcare, retail, and manufacturing. These industries have unique data integrity and security concerns that make VANs a true value-added solution.
VANs simplify the communications process by allowing the company to communicate with fewer parties.
The data being exchanged through the VAN can be formatted to go directly into the software application of the receiving organization, an enterprise resource planning (ERP) suite, for example. This direct exchange between two companies increases the speed of commerce while also reducing the chances of human errors that occur with manual data entry.
VANs can also provide visibility tools that show the delivery status of data and some corresponding workflows, allowing companies to better coordinate dependent activities through the system rather than exchanging phone calls and emails. Not only is using a VAN more efficient and more accurate, but it also saves the cost of hiring human data-entry professionals for the exchange of information.
Like many pre-Internet technologies, VANs have had to reinvent themselves to remain relevant going forward. Today, VANs offer services that go above and beyond mailboxes for EDI exchange and retrieval, authentication of messages, and archival of past transactions. Modern VANs create value for businesses by offering automatic backups of EDI data, flexible access to that data via secure web portals, and unlimited data pricing packages.
There is no doubt that utilising Electronic Data Interchange (EDI) hosts multiple benefits for all supply chain participants.
As a supplier, how do you decide when it is time to get started on your EDI journey?
Maybe your buyers have recommended or insisted that you utilise EDI to continue trading with them?
Perhaps you are looking into ways of selling more products and cannot engage new customers as you are not EDI enabled?
Or maybe, you want to reduce your overheads and decrease errors to remain competitive?
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In any case, an EDI VAN (Value Added Network) can add enormous benefits to your bottom line.
An EDI VAN (Electronic Data Interchange - Value Added Network) is essentially an EDI provider that serves all supply chain participants (buyers, wholesalers, 3PL, 4PL and suppliers) as the enabler that connects, translates, converts and communicates your business information so that in turn, all participants can add to their network of trading partners.
Many business drivers lead organisations to undertake the journey of becoming EDI enabled. As a supplier, your primary objective is to add to your network of buyers and increase profitability so that your products can obtain maximum exposure. By the same token, you want to keep your buyers happy with a consistent and error-free delivery cycle so that they keep purchasing your products.
This is where EDI comes in.
There are numerous benefits when implementing EDI internally or joining an EDI VAN. Here are some of the reasons why our clients have decided to enlist the services of Pacific Commerce as an EDI VAN.
1 – New business connections
Every year more and more companies pop up providing similar products to yours, resulting in ever-expanding competition. As international trade restrictions ease more Asian countries are producing quality products at our doorstep, and many retailers turn to foreign suppliers to reduce their overheads. Therefore, you need to re-focus on efficiencies, specifically in the administration of purchasing and invoicing. By keeping costs down, you will be able to pass the benefits to your customers or shareholders (your choice). The first step to this is becoming EDI enabled.
You may have the perfect product, a great team behind the scenes and all the right cogs in the right places, but your products cannot be efficiently sold if you don’t have the buyers willing to purchase. Almost every major buyer in Australia is EDI enabled and requires suppliers to utilise EDI to trade with them. From enlisting the services of an EDI VAN you in turn, open the door to hundreds of opportunities as you can seamlessly trade to their network of buyers and suppliers and any other company that is EDI enabled.
2 - Enhanced buyer relationships
Large retailers or buying entities have one goal in mind - keeping administrative overheads low by reducing errors and the amount of manual intervention needed in the procure-to-pay cycle.
The way these organisations generally do this is to automate as many repetitive processes as possible, hence the reason why all major retailers and end users are EDI enabled and typically require their trading partners (you) to trade through EDI.
Therefore, becoming EDI enabled through an EDI VAN ensures that your buyers are happy, and you can foster long-term relationships as transactions seamlessly flow from one party to another.
Another way of looking at it is that you are delivering savings into their administration by automating processes, a true “Value Add” to show as a benefit of doing business with your organisation.
EDI also eliminates manual data entry and human intervention which is highly prone to administrative errors. Even minuscule errors can become costly for both parties.
3 - Enhanced cash flow and faster turnover of stock
EDI can improve your cash flow – a competitive edge desired by all businesses. Through engaging more buyers with EDI and improving efficiencies, your organisation has the potential to increase the value of sales, reduce administrative costs and shorten the payment cycle.
Some large buyers will have up to 90-day payment terms that only kicks in once the goods have been delivered (not when you send the invoice). If products take 30 days to be delivered, then it could be 120 days before you get paid. If you have any issues with your paperwork or products upon delivery, this process will be restarted, and your cash flow takes another hit.
4 - Accurate product information
Some reputable EDI VAN’s will ensure that your product data (Master Data) is cleansed to the point where you can effectively trade with your buyers with minimal errors. A lot don’t.
We often have suppliers approach us unsure how to keep on top of the ever-changing industry standards. Without a great deal of knowledge with product data management, you might be supplying products that are not up to the standards of your buyers and leave yourself exposed to either legal implications or compliance issues administered by these large organisations.
And some EDI VANs can assist you in this process or give you recommendations about how to amend your issues ensuring that your product’s Master Data (product information) is up to scratch.
Misleading or inaccurate Product Information can lead to delivered goods being returned (at your expense) or if the goods you supply don’t fit the description on any contracts you have with the buyer, contractual compliance may be an issue, impacting on your business.
5 – Reduced administrative work = simplistic workflows
Although you probably won’t see this benefit immediately, you will in time see a massive reduction in administrative work as the EDI VAN would have helped you simplify your workflows with EDI.
What this means is that your manual processes and data validation will be streamlined. Now, as you are selling more products as mentioned in points one and three, you will need to reallocate your data entry team/admin team to more pressing roles.
The traditional procure-to-pay workflow is not as complicated as such until something goes wrong. As soon as there is a tiny error or misprinted figure, there can be weeks of verification to fix the problem.
Automating this part of your business process not only increases employee satisfaction (as they’re not typing all day), but it also makes your output far more accurate as human error is minimised.
This article originally appeared on pacificcommerce.com.au
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