SEEBURGER: Automotive OEMs want EDI-capable suppliers
B2B - Business Integration

Is EDI Capability Possible Along the Entire Automotive Supply Chain?

| | Senior Developer, SEEBURGER
OEMs want EDI capability along the entire automotive supply chain

How to meet an OEM’s digitalization requirements

Suppliers account for 80% of the value added in the automotive industry. This obliges the OEM (Original Equipment Manufacturer, in this case car manufacturer) to ensure that their automotive suppliers meet the desired quality and reliability so that the vehicles also ultimately roll off the production line in the expected quality. For this purpose, the OEMs regularly conduct audits of their suppliers. One of the central factors in these audits is EDI capability. This article explains what that means for suppliers and how they can meet their OEM’s digitalization requirements.

What does EDI capability mean for an automotive supplier?

The automotive industry is under enormous pressure. The reasons for this range from labour shortages and fragile supply chains to ongoing shortages of both semiconductors and raw materials, resulting in delivery difficulties. OEMs, in an effort to counter this pressure, are placing increasingly stringent requirements on their suppliers. One of these is the ability to exchange electronic data, known as EDI.

EDI capability means providing a system that both automates and standardizes data exchange between automotive suppliers (using protocols such as AS2 or OFTP2 and formats such as VDA4984 and VDA4987). 1st-tier suppliers (companies that often supply entire component groups directly to the OEM) tend to implement this with an on-premises EDI system. Indeed, for just-in-time and just-in-sequence delivery, this is compulsory. For non time-critical processes (standard delivery call-off procedures), EDI communication may be outsourced to a cloud service. Here, a partner sets up and manages EDI communication for the supplier.

EDI capability thus ensures high quality communication along the digital automotive supply chain, from planning the products to notifying the OEM that they are ready. Almost all of an OEM’s 1st tier suppliers will have implemented EDI capability in one of the ways detailed above.

OEMs want EDI capability along the entire automotive supply chain.

The 1st-tier suppliers are themselves often part of an extensive supply chain, which means that they also have a large number of mostly smaller suppliers. Therefore, the ability of a 1st-tier supplier to deliver hinges on reliable supply from others upstream.

In recent years, OEMs have therefore put increasing pressure on their 1st-tier suppliers to also connect their suppliers by EDI. The aim is to avoid delivery bottlenecks through transparent and seamless communication, if possible along the entire supply chain. OEMs had started following this strategy before COVID-19 hit in 2020. However, since then initiatives such as ODETTE’s MMOG/LE (Materials Management Operational Guidelines/ Logistics Evaluation) have further driven this development. To this end, ODETTE has included the following warning on its website:

Achieving multi-tier supply chain resilience

All automotive companies, especially OEMs, are facing unprecedented disruption of their operations, due to shortage of components, shortage of staff or political changes. All are realising that Tier n sub-suppliers are just as important as their Tier 1 suppliers in keeping their factories supplied and are looking for ways to increase the performance, security and visibility of their total supply chain.

Customers will increasingly require their Tier 1 suppliers to deploy MMOG/LE with their own suppliers and so on down the tiers, so you need to be ready in good time!“1

The challenge of making the entire automotive supply chain EDI capable.

Let’s now look at the further tiers of the automotive supply chain (referred to as n-tier suppliers). These companies find it far more difficult to fully electronically deal with business processes through EDI. There are several reasons for this:

  • IT departments tend to get smaller the further upstream you go. This means that n-tier suppliers often simply don’t have the know-how needed to adopt EDI.
  • An EDI system is simply too expensive for smaller suppliers. These companies only invest in the most necessary IT infrastructure, and a return on investment for EDI capability would simply take too long to be tenable.
  • Thanks to the involvement of VDA/ODETTE/ANSI as well as big name OEMs, EDI processes in the automotive industry are well established and devised. However, they are complex beasts, with extensive requirements on format and process. They need to be used with a modern ERP system to access and process the data. Smaller n-tier suppliers rarely have this.
  • Every 1st tier supplier has a vested interest in maintaining a good relationship with an OEM, as this is often associated with a very high order volume and a corresponding effect on revenue. To this end, it’s important to tier-1 suppliers to meet their OEM’s requirements. In turn, the 1st and 2nd tier suppliers place high volume orders (with a corresponding effect on the bottom line) with their suppliers upstream. They are dependent on these suppliers in order to reliably supply the OEMs, and therefore work at good business relations with the n-tier. However, this is made far harder if they have to enforce compliance conditions, such as those necessitated by the introduction of EDI, in their contracts.

It’s therefore the 1st tier suppliers who find themselves between a rock and a hard place, trying to digitalize while also dealing with the technical limitations of their own suppliers.

How to introduce EDI capability along the entire automotive supply chain

The greatest perceived obstacles to adopting EDI processes are onboarding B2B partners and the complex compliance requirements detailed above. However, there are various cloud solutions which address these issues and more.

  • EDI from the cloud. Smaller suppliers can be given access to a supplier portal service. This would let them use EDI via a cloud service, without having to maintain their own EDI infrastructure. A cloud solution is also a cost-effective option when starting out with a small volume of messages for one partner.
  • WebEDI portal. A WebEDI portal makes life even easier to connect suppliers as these don’t need to set up and manage either EDI connections or an ERP interface. Make sure that the portal is capable of offering automotive processes, such as processing call-off information, preparing packaging information and printed labels.
  • Survey and evaluation tools let you survey your suppliers in advance about their EDI (or non-EDI) capabilities. This is much easier for the purchasing department than making several lengthy telephone calls.

In the long run, 1st-tier suppliers are going to find themselves increasingly required by their OEMs to insist on EDI capability for their upstream suppliers. Integrating suppliers is an issue which has really taken off since COVID-19 hit in 2020. This makes it all the more important to have an EDI partner who understands and masters both supplier integration and automotive processes, and can offer good solutions for EDI connectivity along the entire automotive supply chain.

How can SEEBURGER help?

SEEBURGER has been developing software products and services for the automotive industry since 1986. We are a global B2B software and IT-consulting company, and are a leader in Germany with our EDI solutions. We provide these on a single scalable platform, the SEEBURGER Business Integration Suite (BIS).  The modular product design helps you optimize your supply chain management by simplifying complex IT landscapes and increasing efficiency through process standardisation and frictionless data flow. Our automotive supply chain solutions are deployed in the cloud, as a hybrid solution or on-premises.

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1 https://www.odette.org/mmog#mmog-assessment (accessed 15/10/2022)

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Alex Jende

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Alex Jende started his career as a student at SEEBURGER in 2008. After completing his Master's degree in Information Management in 2010, he started full-time as a consultant for logistics solutions at SEEBURGER. His first focus was the realization of international customer projects in the field of automotive logistics. From 2015 he was responsible for the product management of the Logistic Solution Professional and from 2020 additionally for the Supplier Portal and thus the area of WebEDI for supplier connectivity at SEEBURGER. Alex relaxes as often as possible with extensive jogging tours around his home in Leipzig. Most weekends he goes back to his hometown Magdeburg. As a passionate soccer fan, he never misses a game of his club, the 1. FC Magdeburg, along with his family. His favorite way to spend his vacations is hiking in the Alps.