What is EDI (Electronic Data Interchange) & How Does it Work?

Electronic data interchange (EDI) is the computer-to-computer transfer of business documents between business partners. Electronic data interchange replaces the traditional methods of paper documents.

EDI documents based on specific computer record formats that are based on widely accepted standards. However, every company according the business needs will use the flexibility allowed by the standards in a unique way. This post will cover like what is EDI, benefits and implementation etc.

EDI Benefits and Drawbacks

The EDI process offers many benefits. Computer-to-computer transfer of documents is less expensive than handling paper documents. Studies have shown that traditional methods of a paper-based order can cost $70 or more while processing an EDI order costs less than one dollar.

· Allows cut labor costs and time

· eliminate human-caused errors because computer systems process the transactions rather than processing by employees

· Allows companies to cut processing time.

Faster order processing and delivery times support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs through fewer emergencies expedites.

One only drawback is that companies require resources in place to make an EDI program work; however, the need for buying and hiring these resources or outsourcing them to a third party EDI provider may be offset by the increased efficiency.

How EDI Works

A buyer creates an order in the purchasing system and has it approved. Next, the EDI order is translated into an EDI transaction format called a purchase order (EDI 850).

The purchase order is then securely exchanged to the supplier via the internet or through a VAN (Value Added Network).

If the purchase order is sent through a VAN, then the buyer’s VAN interconnects with the supplier’s VAN. The VANs responsible that EDI transactions are exchanged securely and reliably. The supplier’s VAN confirms that the supplier gets the order.

Now the supplier’s computer system processes the order. In the case of Infocon Systems’ clients, we provide VAN transportation and our servers including required software and hardware to process EDI documents.

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.

Following components are required for EDI capability:

1. Communication software, mail boxing of EDI transactions, Communication software..

1. VAN, ASYNC, BISYNC, and Internet communications as needed by various business partners.
2. A server or PC, communication devices with peripherals
3. A VAN will need to be contracted for ongoing EDI transmissions.
4. Trained Personnel to use the software and communication devices.
5. Maps will need to be developed for each EDI document type to be exchanged with each partner. Maps translate the encoded EDI record into a useable format.

EDI (Electronic Data Interchange)

Trading Partner Requirements

Every trading partner has unique EDI requirements that address their specific industry, region or standards. These requirements will include the specific kinds of EDI documents to be processed, such as the 810 invoices, 850 purchase order used in the example above and 856 advance ship notice.

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 usable by the receiving party. Meeting all of a trading partner’s EDI requirements is referred to as being EDI compliant.

Resource: https://www.reddit.com/r/edi/comments/u4g5gv/what_is_edi_electronic_data_interchange_how_does/