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EDI GUIDE

Electronic Data Interchange

Understanding the Basics of EDI

Electronic Data Interchange, otherwise referred to as "EDI", is the exchange of common business forms and documents between two or more organizations using a machine-based communications and archiving system.

Common documents exchanged using Electronic Data Interchange include purchase orders, invoices and shipping documents. Electronic Data Interchange can be performed in a number of ways, but today is most often performed through desktop computers.

Benefits of Electronic Data Interchange

Electronic Data Interchange found an early and eager proponent in the automotive industry that wanted to implement means of enabling "just in time" inventory movement. Electronic Data Interchange was not created to replace paper, but rather to decrease the time and error rates associated with the manual data input. Since more than 70% of a computers transactional data output becomes a second computer's transactional data input, it's easy to see how Electronic Data Interchange could provide significant time and cost savings.

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.

How Electronic Data Interchange is Used

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.

How Electronic Data Interchange Works

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.

Electronic Data Interchange Below the Enterprise

While Electronic Data Interchange was invented for the benefit of large multi-national corporations, small and mid-sized businesses now have access to the money and time saving benefits of Electronic Data Interchange. Larger retailers often mandate the use of Electronic Data Interchange, forcing smaller companies to find solutions that are affordable and sound long-term investments. Finding a good Electronic Data Interchange solution can be challenging. Two key aspects of finding the right solution include finding software that is easy to install and manage, as well as software that offers expandability 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.

Getting Started with Electronic Data Interchange

One of the most challenging aspects of deploying Electronic Data Interchange software can be the installation process. Many solutions require dedicated, expensive hardware to process Electronic Data Interchange at maximum efficiency.

Growing with Electronic Data Interchange

A second key aspect of Electronic Data Interchange software is expandability. How quickly and easily your Electronic Data Interchange lets you add new trading partners is a key requirement you should consider before your purchase.

You should first take the time to investigate your needs and specific requirements. Start by finding out which trading partners support Electronic Data Interchange, and read up on the subject. Getting some basic knowledge will let you maximize your return on Electronic Data Interchange.

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