What it means
Before the internet was widespread, large companies needed a reliable way to send purchase orders and invoices to each other without paper. The value-added network provided it by connecting to each partner once, so the partners did not have to connect to each other.
The core technology is electronic data interchange, known as EDI, which is a standard format for business documents that computers can read without human re-keying. The network adds extras on top, such as mailboxes where messages wait until collected, translation between different formats, and records that prove a document was sent and received.
Those records are valuable if a supplier and customer disagree about an order. The business case is about cost and accuracy.
A paper or emailed order that has to be re-keyed costs staff time and creates errors, while an electronic one flows straight into the buyer's system. Faster, cleaner data also tends to mean faster invoicing and faster cash collection.
Charges are normally a monthly fee plus a per-document or per-volume rate. Larger customers sometimes insist on suppliers using EDI, and the supplier then has to choose between a VAN and a direct connection.
The right choice depends on volume, the number of partners and in-house technical skill. Direct internet-based connections have reduced the need for VANs in some cases.
Many firms still use them because the service handles testing, monitoring and the onboarding of new partners, which saves effort for finance and operations teams. For finance teams, the VAN invoice itself deserves attention.
Costs can creep up as document volumes grow, so it is sensible to review pricing tiers each year and to ask whether the same volume could be handled more cheaply another way.
In practice
Real-world examples.
Example
A food manufacturer with $30 million of annual sales supplies three large supermarket chains, each of which requires EDI orders. The manufacturer subscribes to one VAN that connects to all three. It avoids building and maintaining three separate links, and the VAN handles changes when a chain updates its format.
Example
A car parts distributor receives thousands of purchase orders a week from workshops. The VAN translates each customer's format into the distributor's system format. Staff no longer re-key orders, and invoicing errors fall. Disputes over what was ordered become rarer and quicker to settle.
Example
A healthcare supplier needs an audit trail showing exactly when each order reached a hospital group. The VAN's logs provide a time-stamped record of every message sent and received. The supplier uses them to settle a payment dispute in a single phone call.
Formula
Calculation
Monthly VAN cost = Fixed fee + (Number of documents x Fee per document)
A distributor sends and receives 4,000 EDI documents a month. Its VAN charges a fixed fee of $200 and $0.35 per document. Monthly cost = 200 + (4,000 x 0.35) = 200 + 1,400 = $1,600, which is $1,600 / 4,000 = $0.40 per document. If processing the same documents by hand cost $4.00 each, the manual cost would be 4,000 x 4.00 = $16,000, so the network would save $14,400 a month before considering error reduction.Case study
Seen in the real world.
This illustrative case concerns a fictional company, Redfern Hardware Supply, which had been winning orders from a national retail chain only to find the chain required all suppliers to trade by EDI. The company's finance team had no in-house capability and a deadline of 90 days.
Rather than build its own connections, Redfern signed with a value-added network. The provider set up the link, ran test messages with the retailer and translated the documents to the format Redfern's accounting software accepted. The first month cost around $1,500 in fees.
The team calculated that the saving in manual order entry paid back the fees within two months. The fictional case shows the typical VAN trade-off: a recurring fee in exchange for speed, reliability and not having to build the technical links.
Watch out
Common mistakes.
- Assuming a VAN is the same as the internet. A VAN is a managed service with security, storage and records, not just a connection.
- Ignoring volume when comparing prices. A low fixed fee can turn expensive at high document counts, so model the full monthly cost.
- Assuming EDI and a VAN are the same thing. EDI is the document format, and a VAN is one way of delivering it.
Questions
People also ask.
Do I always need a VAN to use EDI?
No, companies can connect directly over the internet, but a VAN reduces the effort of connecting to many partners and gives you one contract, one support desk and one set of records.
How do VANs charge?
Most charge a monthly fee plus a per-document or per-volume rate, and some add set-up fees for each new trading partner.
Is a value-added network the same as value-added tax?
No, the two share only the words value-added, and a VAN is a technology service while VAT is a tax.
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