EDI VAN Costs Painful as Document Size & Volume Increase
One of the top reasons people complain about VANs is the cost. People don’t want to pay the fees, and it’s not hard to understand why. This becomes especially true as hub initiatives (Grocery, Retail or otherwise) start looking at smaller and smaller suppliers.s
Initially, the cost to send/receive EDI data was hugely expensive per document. Those costs have decreased; however, in the face of continual technical advances, I still consider VANs to be extremely expensive in relation to what you receive.
Driving the fees is an increase in document type, size and volume. Ten years ago, companies typically traded less than half of the documents in play currently, and the documents have become larger and more frequent (Example: POS Activity Report and Advance Ship Notice).
Many people will argue that the kilo character is continually commoditizing. And it’s true. Just like cell phone pricing, the cost for trading data across networks will continue to decrease. It is doing so as more and more buyers and sellers alike jump ship to other technologies. They (VANs) are trying to fight the battle of maintaining relevance. But even as the cost of trading data slowly continues to decline, companies are trading more documents. On the surface, you may be charged less per document, but you are trading more documents as supply chains increase in complexity and sophistication.
To some, the traditional VAN model’s “pay-as-you-go” pricing is fairly attractive at first. Based on volume of data sent/received you figure into a tier and paid that rate. But as the types of documents traded in various relationships increase, so does your invoice.
I often talk to companies who are frustrated that the VAN model penalizes them for success. For example, a company gets their first contract with a retailer, such as JC Penney, and contracts with a VAN or VAN reseller. They balk at the charges, but move on. When their product matures, other retailers become a client, such as Walmart, and suddenly their success is shared with the VAN as their traffic spikes. Walmart and many other large hubs don’t use a VAN for this exact reason. That and reliability.
Read any VAN agreement and one of the first things that should strike you is their responsibility in the event that they lose or ‘drop’ your data or have an ‘outage’. If they lose $250,000 worth of order data -- they will take $3.00 off your next invoice (broken out into five, four kilo character documents and you are paying $0.15/KC). They won’t even give you a free month’s service or a thousand kilo characters ‘gratis’.
VANs have played an important role in improving the ability of companies to communicate more effectively. However, they have not evolved their model or capabilities to justify their costs in contrast to the services they offer. It confounds and penalizes the growth and success of the companies it was meant to serve.