I’ll buy that for a dollar!

If you’re old enough (or have an extensive enough Sci-Fi DVD/movie collection), you may remember the film RoboCop from 1987.  It was directed by Paul Verhoeven, who later became famous for that fantastic piece of cinematic achievement – Showgirls!  But he also gave us the Arnold “The Governator” Schwarzenegger classic “TOTAL RECALL”, and another classic of camp cinematic achievement “Basic Instinct”.

RoboCop was a futuristic view of life in the US – specifically in Detroit, MI – where violent crime is the norm – much like today?  Throughout the movie, there are glimpsed scenes of a sitcom TV show (later identified as “It’s Not My Problem”) where a major character uses the catch phrase “I’ll buy that for a dollar!

This wonderful ditty of a catch-phrase came to Me over the past few days when I was reading a post on the EDI-L Yahoo! group about “What is a decent price/cost per EDI message?” and everybody started weighing in with replies – some giving us examples of how much it costs per message at their company (about 50 cents per message) and others going down the “I pay 20 cents per KC” and others talking about the varied costs of the VANs per KC charges.  The poster suggested something about “32 cents per message” – a flat fee.

But here’s where the logic of the question – and the answers – falls apart.

Think about the documents – the messages – which you work with everyday in your EDI system…  Some are POs, some are ASNs, and some are Invoices.  You may be also sending or receiving catalog data, revised POs, acknowledgements, and more.  And now think about the SIZE of those messages.  The 997 Functional Acknowledgement (FA) can be a very short document or message – maybe just a hundred characters long.  It takes 10 of those to make a single KC…  Well, it takes 10 and nearly a quarter to make that KC – there are 1024 characters in a KC.

And then look at a BIG record – the 832 Price/Sales Catalog – and how many KCs are included.  It’s probably a few hundred KCs long – at least.

Or just think about a simple set of transactions:

     ·         A PO for a single line item
The FA
Another FA (for the ASN)
An Invoice
     ·         Another FA

So we’ve got 6 documents.  But now let’s say that the PO is for 15,000 units of the single item.  It, too, will be a small document – we’ll say its 1 KC of data.  Above, I show an FA at about 1/10th of a KC.  The Invoice will also probably be a short document – as it’s for just the single item – so another single KC of data flow.  In just 5 documents, we’ve got less than 3 KCs of data.

But that ASN; now there’s a big document to trade…  Let’s say that the vendor packages those items being ordered – My famous WIDGETS! – at 10 units per carton.  With 15,000 units, that’s 1500 Cartons!  And if your ASN is a carton level detail, that’s 1500 line items – actually 3000 lines (2 for each carton) – plus the data for the Shipment level and the Order level loops.  Now we’re talking SIZE.  Of course, we may still only be talking about – maybe – 10,000 characters – 10 KC.

But the concept of paying per message – now that’s not really quite fair is it…?  You’re paying 32 cents for that ASN, but you’re also paying 32 cents for the FA.  Big price difference…! 

For that 10 KC document, you’re spending 3.2 cents per KC.  But for that FA at 100 CHARACTERS, you’re spending – what – $3.20 per KC…?  Or is it $32.00….?  And if it’s just that 1 KC PO or Invoice, it’s .32 cents per KC.

Let’s take that comparison out of the EDI world for a second; let’s think about houses.  Assume that a new program comes down the pike where EVERY house will cost the same.  Size, location, amenities, all the rest – doesn’t matter.  It’s all about a unit – the house.  And each house will sell for $250,000.  The problem is that you can have small shacks of 500 square feet selling for the same price as one of the big, 5000 square foot mansions in Beverly Hills or a Malibu Beach house.  A 400 square foot studio “condo” in “the ghetto” selling for the same price as a huge 8000 sf penthouse apartment on Fifth Avenue in New York.

Can you see the problem with this logic?  Using the same concepts I used above on the KC scale, let’s go to the unit of measurement for buildings – the square foot.  In that 500 sf shack, you’re spending $500 per square foot!  But that mansion?  You’re only spending about 50 bucks a square foot.  It’s 10 times the cost for the smaller space, once broken down to the square foot level.  The studio is $625 per foot and the penthouse is just $31.25 per square foot.

Which place would YOU rather have…?  Where’s the bargain…?  Would you buy that concept for a dollar?

It’s the same problem in “per message” pricing vs. “per KC” pricing.  You’ve got these tiny little messages costing as much as the huge monster messages.  And your figures are skewed.  Now, since it costs as much to send the FA as it does to send the Catalog, you might get trading partners that balk at sending the FA for the traded documents.  Then you’ll get trading partners using charge-backs to enforce that FA compliance.

Suddenly, the “low cost per message” now starts to have a lot of other costs involved.  Charge-backs and the human hours required to track down messages – if they’ve been received by your trading partner – and more.  All to save – what, a few cents?

And that’s really one of the problems I’ve often talked about – especially on those groups – in that you can’t just look at the basic cost – the per KC charge – and base your decision off of that fee.  If you do, you’ll likely end up costing yourself a LOT more money in the long run.  Suddenly, that cheap 2 cents per KC rate you worked so hard to get is really costing you an extra 5 cents per KC in other features and benefits that maybe were included in the 6 cent per KC quote you got from that other VAN or SaaS provider you also heard from.  That cut rate deal maybe isn’t such a deal anymore.

There is another catch-phrase that comes to mind – Caveat Emptor; Latin for “BUYER BEWARE”.  It basically means you should look into what you’re buying – and all the aspects of it – and not just buy something without thinking.  Another “Look before you leap” comes to mind.

I’ve said it before – maybe in a blog, maybe in our forums, maybe on EDI-L or some other EDI related group.  But I’ve mentioned how – every once in a while – I’ll get a call or an e-mail or … something … from a VAN or network provider promising Me that they can save Me “50% of your VAN costs!” – expecting that I’m just going to JUMP right onto their wagon and sign up to save a few pennies.  But then again, what about the possible down time?  Or the archival storage?  Or any of the other features I get from My current VAN provider that aren’t included in that “50% off” cost…?

You get what you pay for – there ain’t no such thing as a free lunch – and everything has strings attached and other aspects of the deal to consider.

Yep, I’ll buy that for a dollar, indeed!

Author: Craig Dunham – EDI Coordinator
Read more about Craig here: http://editalk.com/contributors/