What is EDI (Electronic Data Interchange) How EDI Works and It’s Benefits
EDI or Electronic Data Interchange is the virtual exchange of data or business documents such as purchase orders, invoices, inventory levels and shipping notices in electronic format between trading partners. EDI replaces manual processes that used phone calls, paper or faxes as communication between companies ordering or selling goods. EDI improves operational efficiency and enhances virtual exchanges with trading partners — while reducing costs, enhancing customer service and improving customer satisfaction. Are you asking yourself, “What is EDI?” EDI is the process of sharing business documents between companies that are using different systems.
With EDI, any company (manufacturers, distributors, and retailers) can virtually interact with another organization in a worldwide business-to-business network without the hassle of waiting times and forecasting future procedures.
How Does EDI Integration Works?
1. Prepare Data File: A sender prepares an order in his or her purchasing system and has it approved. A common example is a 850 purchase order to buy goods or services.
2. EDI Document Mapping: The 850 purchase order is converted from the in house system into the EDI format through some form of data transformation mapping software or tool.
3. Transfer EDI Document: You can share the 850 purchase order with your vendor/client once your data file is converted into EDI format. This transmission can directly be done using Internet or through (VAN) via a secure communication protocol like SFTP, HTTPS, or AS2.
4. Receiving End: Once the EDI formatted document is received at receiver’s end, it is again converted back to data file using EDI standard format, appropriate segment and element. This process is done using EDI translator or services.
Benefits of Using EDI
Primary benefits of EDI integration include elimination of data re-entry, accuracy, efficiency, and easy EDI integrations with other applications.
Time and Cost Savings: Electronically transferring documents takes just minutes while sending via post that can typically take three to five days. EDI reduces associated expenses of storage, printing, postage, mailing and recycling.
Data Accuracy and Elimination of Manual Errors — errors are reduced because EDI data is received exactly as transmitted, so you eliminate re-keying errors. Improved accuracy results in a host of benefits including elimination of excessive shipping charges and the cost of returns for incorrect orders.
Security: EDI boosts the level of protection for any transactions by strongly allocation data across a more extensive variation of communicating protocols and safety standards, hence, reducing supply chain risks.
Efficiency — Because EDI is an automatic process, it brings greater efficiency and enhanced productivity. There’s no risk of the type of inefficiency that comes with human processing, such as forgetting to transfer a purchase order or failing to send an invoice during the holiday period.