Introductions of EDI:

The information technology (IT) has a huge ability for improving the performance of management
organizations. Organization has to invest extra money for creating the business value of IT. There
exists argument on positive, negative or neutral impacts. To get rid from this, Chrysler
Corporation made a decision to make a study on Electronic data interchange (EDI). The research
system has done in two ways, at first the priority work in the business value of IT then the
research framework. The researchers gave prior in manufacturing production for it. An important
finding of this study is that information worker productivity has either declined in some sectors
or not kept the pace of production worker productivity in the manufacturing sector. The concerns
expressed by the authors are also in broad agreement. Overall, they question the validity of prior
findings and call for more rigorous research to pinpoint the true costs and benefits. Since the IT
impact cannot be assessed in isolation, confounding effects of other inputs must be accounted
for. The problem is compounded by the lack of quality data on IT investment. Often, firms are
reluctant to divulge this data for competitive reasons. Second, the complexity of teasing out the
benefits and value necessitates the use of rigorous scientific methods that are often missing in
prior work. Research from another survey found that the involvement of trading partners is
crucial for implementation success. Three field studies on EDI conducted recently have reported
some encouraging results. A study at LTV Steel on its EDI linkages with outside processors
establishes that compared to the old manual mode of information exchange, EDI transactions
have more favorable effects on quality and inventory measures . U.S. automobile manufacturer
and its first-tier suppliers report that the use of integrated EDI to share schedule information
lowers the level of shipping discrepancies and it has highly increased their tracking of inventory.
The first two survey studies are based on perceptual data. The field studies measure EDI impact
using intermediate variable. In addition, all of the studies surveyed use cross-sectional
Data.

Chrysler launched electronic communication with a few suppliers in 1969. At that time, this
system lacked adequate communication abilities at both ends, which resulted in excessive human
interventions. In 1976, Chrysler implemented an online receiving system to track shipping
information and uncover discrepancies. The EDI programs, launched in 1984 with the
introduction of the Supplier Delivery Schedule transaction and as it is running today.
70 percent of components and subassemblies outsourced, Chrysler took a bold initiative to
correct this problem. EDI technology was harnessed to change material flows and implement JIT
practices. The movement of materials had to be supported by rapid, reliable, and frequent
communication with suppliers. Chrysler management believed that with EDI and JIT practices, the
plants could reduce. Chrysler developed a well-planned strategy in implementing EDI systems at
the assembly centers. All suppliers were notified in detail about Chrysler's targets for fully
electronic communication. These notices, sent on a real-time basis, used the Chrysler electronic
network. The supplier received a verification of the content of each ASN from Chrysler through
the Application Advice transaction set. In many cases, fast response was mandatory because it
took less than 15 minutes for the material to arrive at Chrysler assembly docks. Without the
electronic link, it was not possible to implement frequent and accurate delivery schedules or to
dramatically reduce buffer inventories. Chrysler changed the mode of logistics operations to fully
exploit the improved quality and quantity of information available. For instance, under the old
mode, the inbound material flow was insufficient. The study highlights the savings accrued in
major categories of costs as a result of the support inter organizational formation exchange
between Chrysler and its assembly plant suppliers.

Benefits of EDI:
The major benefits of the EDI system at Chrysler can be divided into two categories. First,
improved information exchanges between Chrysler and its suppliers because of EDI may lead to
cost savings. This section develops models to quantify the dollar benefits that result from the
improved information quality. Second, preparing and processing documents electronically
should also lead to savings over the manual mode. These savings accrue primarily from reduced
personnel cost and lower transmission charges. A subsequent section estimates the savings from
electronic data handling.

Our theoretical premise is that the EDI program should make the management of inventory
more effective by improving the quality of information exchanged at both suppliers' and
Chrysler's ends. Our analysis thus focuses on the impact of EDI on the following four cost
categories at the assembly centers:

* Inventory Holding Cost

* Obsolete Inventory Cost
* Transportation Cost
* Premium Freight

Inventory Holdings Cost:

The effect of EDI implementation is modeled on inventory turnover at assembly centers.
Subsequently, the dollar savings resulting from the improvement in the inventory turnover
(INV) are assessed.

Obsolete inventory cost:

The EDI technology is not only expected to lead to more effective use of inventory, but it should
also have an impact on the obsolete inventory at the end of the model year. As a result of the
close tracking of the flow of material from the supplier relative to production requirements, the
regulated flow of material should result in lower inventory write-offs when it comes time for
the yearly model change.
As before the model controls the relevant characteristics there were two variables-
*Minor model changes (MINOR) between 5 percent and 15 percent new parts,
*Major model changes (MAJOR) with more than 15 percent new parts.

Transportation cost:
The normal transportation cost is likely to be affected by the EDI program. However, other
factors such as production volume, average supplier distance from the plant, mix and prices of
different transportation modes (rail and road), and changes in the management control of
transportation costs also determine the transportation cost at the plant level.

Premium freight:
Premium freight occurs when the normal EDI mode of operations is disrupted. Common causes
include loss of material, receiving discrepancy, records problems, damage in transit, supplier
side problem, etc. To overcome these disturbances, materials are procured using special
delivery methods including air transport. Obviously, these conditions lead to inefficient
transport and escalate inbound freight costs.

Results
Our preliminary analysis of the raw data provided evidence of strong EDI impact in most cases.
Figure 3 shows two scatter plots of inventory turnover for two plants. The top plot corresponds
to a smaller plant with lower parts variety. It is clear from this figure that both plants had
significant improvements in inventory turnover at the launch of the EDI program in 1984.
Total EDI Impacts and limitations:

1. Significant improvement is observed in inventory turnover after EDI installation but it

fluctuate depending on other variables like production fluctuations over time, model
changes, etc.
2. The launch of the EDI program and its penetration overtime significantly helped to
improve inventory turnover. The coefficients of VOLUME and PARTS were negative and
statistically significant. These results concur with our expectations and capture the
adverse effects of large plant size and high parts variety. The savings from the reduction
in inventory were calculated based on an annual carrying cost of 20 percent. The savings
depended on the inventory turnover at the initiation of the EDI program. The rate of
savings tends to diminish with increased EDI penetration because inventory costs are
inversely proportional to inventory turnover
3. The estimation results of this model largely support our expectations. The effect of EDI
was to lower the obsolescence cost as is evidenced by the negative sign of the coefficients
of PROGRAM and EDI*VOLUME. The effect of model change was, as expected, to escalate
write offs. In fact, major model changes (more than 15 percent new parts) were found to
have a much higher impact than minor model changes (5 percent to 15 percent new
parts). The estimated coefficient of VOLUME was positive, confirming that larger plants
are more susceptible to obsolescence problems.
4. All parameter estimates of this model were statistically significant. Moreover, the sign of
each parameter estimate was in the expected direction.
5. Analysis of transportation cost by comparing different factors like mix effect, price
effect, systems effect. The combined effect of mix and price changes the systems effect.
6. An obvious source of savings that result from using EDI is the reduction in information
handling costs. Typically, information-handling cost savings are realized from reduced
personnel cost and lower transmission charges. The use of EDI affects a series of clerical
activities normally performed in a manual system. These activities include keypunching
of data, mail preparation, document filing and storage, etc. The magnitude of savings
realized from electronic document handling depends on the manual procedures followed
by specific organizations.
7. Main concern for EDI is the mismanagement and redistribution. If it is redistributed the
owner company will not be able to do the business properly.

Conclusions:
Total cost impact of improved information exchanges due to EDI has been described in this
session. Here , there are many concerns we found like; Theory- related concerns, measurement
related concerns, Data- related concerns, others concerns etc. The focus of this study was to
measure the impact of improved information exchanges between Chrysler and it is assembly
center suppliers using EDI.