Electronic data interchange (EDI) is an electronic communication system that provides standards for exchanging data via any electronic means. By adhering to the same standard, two different companies, even in two different countries, can electronically exchange documents (such as purchase orders, invoices, shipping notices, and many others).
An EDI message contains a string of data elements, each of which represents a singular fact, such as a price, product model number, and so forth, separated by delimiter. The entire string is called a data segment. One or more data segments framed by a header and trailer form a transaction set, which is the EDI unit of transmission (equivalent to a message). A transaction set often consists of what would usually be contained in a typical business document or form. The parties who exchange EDI transmissions are referred to as trading partners. EDI implies a sequence of messages between two parties, either of whom may serve as originator or recipient. The formatted data representing the documents may be transmitted from originator to recipient via telecommunications or physically transported on electronic storage media.
EDI delivers a lot of benefits for companies that can afford the up-front expense of becoming EDI-enabled. Most stem from a single key starting point: data input. Because data is entered just once, errors are kept to a minimum, and the entire process is streamlined, saving paper and time and improving accuracy and order fulfillment for customers. In addition to data entry, other labor-intensive manual processing tasks, such as typing invoices, sealing envelopes, and affixing postage, are dramatically reduced or eliminated. People are employed more effectively, increasing productivity. Inventories are used more efficiently because EDI provides speedier,
more accurate information on both the customer and supplier sides, reducing inventory costs, and lead times. In the long run, the investment in EDI delivers dramatic cost savings as well as the opportunity to do business within a wider, more global EDI-enabled trading community
Key benefits of Electronic Data Interchange (EDI)
Here are some reasons why businesses adopt EDI.
- Provides better customer services
- Edi tends to promote long-term buyer-supplier relationships and increase mutual trust
- Reduces lead times and stockholding
Electronic trading documents can be delivered far more quickly than their paper counterparts, thus the turnaround time from order to delivery can be reduced. By using EDI for forecasting and planning, companies are able to get forward warning of likely orders and to plan their production and stock levels accordingly. Companies receiving advanced shipping notes or acknowledgments know in advance what is actually going to be delivered, and are made aware of shortages so alternate supplies can be sourced. Integrating electronic documents means they can be processed much faster, again reducing lead times and speeding up payments. Reduction in lead times through buyers and suppliers working together in real time environment.
- The integration of functions, particularly marketing, purchasing production and finance
- The replacement of paper documents e.g. purchase orders, acknowledgement slips, invoices, etc is used by buyers and sellers in commercial transactions by standard electronic messages conveyed between computers often without the need for human intervention . By replacing paper documents, your company can benefit significantly by:
- Reduced labour costs
- Elimination of human keying errors
- Faster document processing
- Instant document retrieval
- Remove reliance on the postal service
Increase quality of the trading relationship
Electronic trading documents when printed are much easier to read than copies faxed or generated on multi-part stationery by impact printers. Accurate documents help ensure accurate supplies. Batches of electronic documents are usually sequentially numbered; therefore missing documents can easily be identified, not causing companies to wade through piles of paper.
Competitive Edge: Because electronic data interchange (EDI) makes you attractive to deal with from your customers’ point of view, and you are in their eyes cheaper and more efficient to deal with than a competitor trading on paper, your costs will be lower because you will require less manpower to process orders, deliveries or payments. It is no accident that the leading UK retailers all rely on EDI for placing orders and receiving invoices – they know the benefits they get and the costs that can be saved.
End Repetition: If your trading partner wants a copy of a document, instead of calling you, they simply check their mailbox. This results in a great time savings from not having to copy and fax/mail copies of business documents.
Save Time: EDI also saves time over paper processing since the transfer of information from computer to computer is automatic. There is no need to rekey information with EDI. And the chance for error drops to near zero, with no data entry.
Expand Your Customer Base: Thus with improved customer service, you can ultimately expand your customer base. Many large manufacturers and retailers are ordering their suppliers to institute an EDI program. So, when evaluating a new product to carry or a new supplier to use, the ability to do EDI is a big plus.
Disadvantages of EDI
- Too Many Standards: There are too many standards bodies developing standard documents formats for EDI. For example your company may be following the X12 standard format, while your trading partner follows the EDIFACT standard format.
- Changing Standards: Each year, most standards bodies publish revisions to the standards. This poses a problem to EDI users. You may be using one version of the standard while your trading partners are still using older versions.
- EDI is too expensive: Some companies are only doing business with others who use EDI. If a company wants to do business with these organizations, they have to implement an EDI program. This expense may be very costly for small companies.
- Limit Your Trading Partners: Some large companies tend to stop doing business with companies who don’t comply with EDI. For example WalMart is only doing business with other companies that use EDI. The result of this is a limited group of people you can do business with.