What is EDI?

Electronic data interchange (EDI):

Is the structured transmission of data between organizations by electronic means. It is used to transfer electronic documents or business data from one computer system to another computer system, i.e. from one trading partner to another trading partner without human intervention.

It is not a new technology and in fact has been around since the late 1960s. While EDI has benefitted enormously from advances in technology, eg the introduction of the internet, EDI is not technology dependant. There are preferred ways to implement EDI in a company, but there are many approaches to choose from. The approach chosen should be driven by a company’s business needs, not a particular implementation or technology.

There are two key elements in basic EDI. First, electronic documents replace paper based ones. Second, the exchange of documents takes place in a standardised format. Using these two basic concepts, any business can enter the world of EDI and begin taking advantage of the speed and economy of electronic commerce, or e-Commerce.

EDI documents use specific computer record formats that are based on widely accepted standards. However, each company will use the flexibility allowed by the standards in a unique way that fits their business needs.

What is a document in this context ?

It is any form of communication, usually paper based, sent between two companies;

  • Purchase Orders
  • Invoices
  • Shipping Notices
  • Export / Import Notices
  • Carrier to carrier waybills
  • Funds transfer
  • Design specifications
  • Health insurance claims

EDI is used in a variety of industries. Many of thousands of companies have made the switch to EDI to improve their efficiencies. Many of these companies require all of their partners to also use EDI.

Overview of EDI benefits and drawbacks

The EDI process provides many benefits. Computer-to-computer exchange of information is much less expensive than handling paper documents. Studies have shown that manually processing a paper-based order can cost up to 70 times more than processing an EDI order;

  • Much less manual processing time is required
  • Fewer errors occur because computer systems process the documents rather than processing by hand
  • Business transactions flow faster because there are no bottlenecks

Faster transactions support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs through needing fewer emergency measures.

One drawback to EDI is that companies must ensure that they have the resources in place to make an EDI solution work; however, the need for acquiring these resources or outsourcing them is likely to be offset by the increased efficiency that EDI provides.

EDI example

The raising and processing of a Purchase Order

Manual Process

  • A buyer reviews data from an inventory or planning system
  • The buyer enters data into a screen in the purchasing system to create a PO
  • The buyer waits for the PO to be printed, usually on a special form
  • After the PO is printed, the buyer mails it to the vendor
  • The vendor receives the PO and posts it in their order entry system
  • The buyer calls the vendor periodically to determine if the PO has been received and processed

This process, when you include postal time but assume no delays or errors in the manual transcription is likely to take between four and six days.

Automated EDI Process

The buyer reviews the data and creates the PO, but does not print it

  • EDI software creates an electronic version of the PO and transmits it automatically to the sender within minutes
  • The vendor’s order entry system receives the PO and updates the system immediately upon receipt

What previously took up to six days using a manual process can take less than one hour by eliminating the paper handling from nearly all stages of the process using an automated EDI process.

Data security and control are maintained throughout the transmission process using passwords, user identification and encryption. Both the buyer’s and the supplier’s EDI applications edit and check the documents for accuracy.

Becoming EDI Compliant

Each trading partner has unique EDI requirements. These will include the specific kinds of EDI documents to be processed, such as the ones listed above.
Almost any business document that one company wants to exchange with another company can be sent via EDI. However each EDI document must be exchanged with the partner in exactly the format they specify.

Many partners will have an EDI implementation guide or kit that explains their specific requirements. Maps are required to translate the EDI documents from the trading partner’s format into the format that is useable by the receiving party.

Meeting all of an EDI trading partner’s EDI requirements is called being EDI compliant.

What you need to be EDI compliant

EDI compliance involves either buying or outsourcing the following components:

  1. Software for communications
  2. VAN service for EDI transmission
  3. Mailboxing of EDI transactions
  4. Mapping and translation software
  5. Installing upgrades to software as needed
  6. Mapping skills
  7. Testing with EDI trading partners
  8. Upgrades for new versions required by trading partners

 

Intec have held EDI as a core skill for over 20 years and have helped countless companies become EDI compliant and maximise the benefits of that compliance.

If you would like to know more about Intec’s EDI Software, how it could benefit your organisation or more about Intec’s wide range of EDI solutions, request a call back here
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