The term EDI stands for Electronic Data Interchange and is defined as the computer-to-computer trading of business documents such as purchase orders, invoices, inventory levels, and shipping notices.
Electronic Data Interchange uses a standard of data entitled ANSI (American National Standards Institute) or EDIFACT (Electronic Data Interchange For Administration, Commerce, and Transport) this ensures requests from one party are then compatible with the supplier’s information systems so that the supplier can fulfill all orders placed.
The software facilitates the exchange of documents and data over a variety of platforms, this joins numerous industries such as manufacturers, distributors, and retailers through their information systems within a worldwide business-to-business network.
What are the different types of EDI?
- Direct EDI / Point to Point: This establishes one connection between two business partners, offering control for these partners and this is frequently used between larger customers and suppliers that have a lot of daily transactions.
- EDI via VAN: Van or Value Added Networks are private networks in which electronic business documentation is exchanged between partners. VAN provider manages the network and companies provide mailboxes where they can send and receive Electronic Data Interchange documents.
- EDI via AS2: AS2 is defined as an internet communications protocol that enables data to be transferred securely across the internet. Electronic Data Interchange via AS2 delivers the functionality of EDI with the ubiquity of internet access.
- Web EDI: This conducts EDI using a standard internet browser, Web EDI makes Electronic Data Interchange easy and affordable for small/medium organizations and companies that have the need to utilize this service.
- Mobile EDI: At present, this has had limited adoption due to security concerns with mobile devices across an EDI infrastructure but generally due to the devices themselves due to the quality and size of the screen of most devices being relatively poor until recently.
- EDI Outsourcing: Also known as Managed Services and is a fast-growing option that enables companies to use external resources to manage their EDI environment on a daily basis. This is partially driven by companies wishing to integrate back-office business systems such as ERP (Enterprise Resource Planning) platforms.
These are all different types of Electronic Data Interchange, with a short description of each type and how they are used, for more company-specific types and explanations these are all accessible through your chosen search engine.
EDI software is commonly used to transmit key component data in a paperless environment which eliminates the necessity for documents to be sent using inefficient methods such as mailing and faxing.
This software is faster and convenient and companies put themselves at a security risk by sending attachments instead of securely transferring data directly into a system or platform for managing orders, pricing, and inventory. Therefore, removing the manual element which can increase the possibility of human error.
What are the benefits of EDI?
- Streamlined Process: By automating the process of business transactions means that business cycles and can move up to 61% faster. This leads to a shortening of order processing and delivery times, automation, in turn, helps improve customer service and allows for reduced inventory levels for cost savings.
- Improved Information Flow: Data sent and tracked in real-time can reduce errors by up to 40% compared to errors created by manual data entry, lost or damaged faxes or mail, and illegible handwriting. To improve the order to cash cycle, in addition, helping to strengthen the relationships between business partners and overall improve cash flow.
- Lower Operational Costs: Electronic Data Interchange can help to save expenses including paper, printing, storage, and document retrieval can lower transaction costs by an estimated 35%. Human errors are reduced significantly leading to savings in costly error correction activities including investigation, negotiation, returns, restocking, and reconciliation in addition to potentially damaging your relationship with customers.
These are the positives for the implementation of EDI within your organization, however, there are some negatives that we will discuss in our next EDI blog.
Do you need to respond to the customer’s EDI requirement to trade electronically? Like the title suggests, the more you know the better you can understand EDI. This is just an introduction to EDI, if you want to learn more on EDI we will be posting part two in the near future, keep an eye out.