Understanding the Basics of EDI

What Is EDI?

Electronic data interchange (EDI) is the digital exchange of business documents between companies using computers, replacing old school faxing and mailing methods. Standard 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 also to adopt EDI to ensure continuity, collaboration, and the standardization or ordering and communication.

Automated Communication

To truly understand EDI, you need to break down each step in the exchange process. How EDI differs from traditional communication between businesses lies within how information is transferred. EDI is a computer-to-computer exchange, without the need for any manual input. It aims to completely replace the time-consuming nature of mail, fax, or even electronic mail.

A traditional ordering process is a long and arduous process, that looks something like this:

1. A buyer fills out a purchasing order and then faxes or mails it to a supplier.

2. The supplier checks inventory and then manually enters the order into an ERP system.

3. The supplier sends an invoice to the buyer and waits.

4. The buyer enters the invoice manually into their ERP system and waits for processing.

5. Once the supplier is paid, they send confirmation of shipment.

EDI Standard Language

For this automated exchange to take place, it must be processed in a form that the internal computing systems can understand. EDI has several standard formats and versions that are in use: ANSI and EDIFACT. Think of each format as a different language. For businesses to exchange documents, they must agree upon a specific EDI standard and version to communicate effectively. For this reason, companies rely on an EDI translator. An EDI translator can be implemented via software or a third-party EDI provider to process the documents accurately.

Benefits of EDI?

Before the use of EDI, businesses used existing paper systems for B2B transactions like Purchase Order, Sales Order, Invoice, and Shipping Notice. All these forms were sent through fax or mail, leading to significant lag time. Since every step in the transaction process was completed manually, mistakes and errors were commonplace.

1. EDI Implementation Results in Significant Cost Savings

2. EDI Increases Business Efficiency

3. EDI Supports the Development of Business Strategies

4. EDI Assists Businesses in Reducing CO2 Emissions

5. EDI Enhances Transactional Security

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