Electronic Data Interchange, or EDI, is simply the computer-to-computer exchange of documents between companies/agents/businesses/departments. EDI replaces the traditional faxing and mailing of paper documents. EDI documents use specific computer record formats like pdf, docs and docx for example that are based on widely accepted cross platform standards. More recently, many companies are even looking at SAP EDI integration to help their business grow even more.
In recent years hundreds of thousands of companies have made the leap to EDI software to improve their overall efficiencies. Many of these companies now require all of their partners to also use EDI.
The Benefits of EDI are:
- Computer-to-computer exchange of data which is much more cost effective compared to handling traditional paper documents.
- And obviously much less labour time is required for EDI.
- Fewer errors occur because EDI systems process the documents rather than processing by hand.
- Business transactions flow faster.
- Faster transactions support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs through fewer emergency expedites.
- Paper purchase orders can take up to 10 days from the time the buyer prepares the order to when the supplier ships it. EDI orders can take as little as one day.
How EDI Works: Let’s say a buyer prepares an order to a purchasing system and gets it approved. Next, the EDI order is formatted into an EDI document format called an ‘850’ purchase order.
Then the ‘850’ purchase order is securely transmitted to the supplier via the internet or through a VAN – Value Added Network. When the purchase order is sent using a VAN, then the buyer’s VAN connects with the supplier’s VAN. The VANs make sure all EDI transactions sent securely and reliably. The supplier’s VAN ensures that the supplier receives the order. The supplier’s computer system then processes the order. In this case VAN transportation is provided and the company servers provide all of the software and hardware required to process EDI documents. The only two things needed are internet access with an email client.
All the Data security and control are maintained throughout the transmission process using unique passwords, user identification and encryption. Both the buyer’s and the supplier’s EDI applications edit and check the documents for accuracy.