Electronic data interchange (EDI) is the digital exchange of business documents between companies, replacing old school faxing and mailing methods. Common documents exchanged through EDI include purchase orders, invoices and shipping documents. EDI is used in a variety of industries by more than 100,000 companies, most of whom require their trading partners to also adopt EDI in order to ensure continuity, collaboration, and the standardization or ordering and communication.
Electronic data interchange is now widely used both in the United States and globally, based on a number of standards that have been enacted that provide basic guidelines for its use. The two standards bodies that are most frequently associated with Electronic Data Interchange are the ANSI X12 standard, used primarily in the US, and the UN EDIFACT standard that is used outside of the United States.
Using EDI for electronic transactions throughout the business cycle results in significant savings in time and resources, as the need for manual order entry is greatly reduced. Replacing repetitive manual processes with fast, accurate electronic system streamlines your entire supply chain, meaning that business resources can be used for more valuable, revenue-building activities.
By implementing electronic data interchange, organizations are able to reduce clerical tasks and eliminate most data entry errors. For suppliers this means a dramatic reduction in the amount of chargebacks incurred due to order errors and for retailers this means a dramatic improvement in customer satisfaction. In addition, current trading partners benefit from the seamless flow of information, which opens doors for new business opportunities.
Electronic Data Interchange was created to ease the management and flow of transaction information. Accordingly, any data that is part of a business document can be transmitted using Electronic Data Interchange. Trade documents are some of the most frequently exchanged using Electronic Data Interchange. These include bills of lading, status reports, purchase orders, invoices, quotes and other more esoteric forms like residential mortgage insurance applications and healthcare claim payments.
Since Electronic Data Interchange is the exchange of information between systems, rather than between people, the information sent via Electronic Data Interchange is in a style that is only recognizable by a machine. Both the sending and receiving computer must have Electronic Data Interchange software that can interpret the data and transform it into a form usable by the business. There are two common forms of translation for Electronic Data Interchange - a machine to readable format, also known as "rip and read" that creates a printed report, and the automatic translation of Electronic Data Interchange into an ERP or accounting system, also known as Integrated Electronic Data Interchange.
Electronic Data Interchange makes business to business transactions faster and more accurate. As an example, assume a business is sending a purchase order to a supplier. Without Electronic Data Interchange they would create a purchase order, print it and send it to the supplier by mail. The supplier would take the purchase order, manually key it into their computer for tracking and ship products to the customer along with an invoice. With Electronic Data Interchange the entire process can become electronic with the customer generating a purchase order that is sent via Electronic Data Interchange. The supplier in turn takes the received electronic document, sends products to customer and an invoice also using Electronic Data Interchange. Depending on the configurations used, the entire process can be electronic when using Electronic Data Interchange.
While Electronic Data Interchange was invented for the benefit of large corporations, it’s since been made accessible to small and mid-sized businesses (SMBs) as well. Large retailers often mandate the use of EDI, forcing smaller companies to comply in order to do business. While the tendency is for SMBs to adopt the most affordable, cloud-based EDI solution in response to retailer mandate, research shows that when small businesses leverage EDI as a competitive advantage, they're better prepared for rapid growth and increasing buyer demands.
Finding a good EDI solution can be challenging, but two key considerations are crucial: Finding software that is easy to install and manage, as well as software that offers flexibility through the ability to manage multiple trading partners. Additionally, the software should provide a high degree of automation, giving the business the ability to manage electronic data interchange with little if any human involvement.
You know you need to implement EDI, so now what? Start by taking stock of your trading partner requirements, business goals, and current expenses. This will help you select an EDI solution that will meet the needs of your growing organization. There are many options for EDI, ranging from basic web platforms to sophisticated integrated systems that incorporate inventory and order management software.
Get in touch with one of our product consultants to see how EDI can help you.