Electronic Data Interchange (EDI): All You Need to Know

UntitledWithout technology, businesses would still be relying on paper invoices, purchase orders and bills among other relevant business documents. This comes with a lot of challenges especially now that most of the businesses have gone online and transactions are done on a global sc

These challenges include slow business processes, errors and inability to track transactions. The cost of transactions is also very high given that one has to acquire papers that need to be printed, distributed, stored and filed.

It is just that technology has changed the way business is done, and focus has shifted from the traditional brick and mortar locations to online locations where there is a wider market, and the cost of running a business is very low.

What is EDI?Untitled

Electronic data interchange or EDI is a technological solution that allows the electronic exchange of data or business documents within or between organizations. This EDI definition does not restrict its use to the exchange of important business documents only but also the electronic transfer of funds between financial institutions and as electronic scanning inventory replenishment systems.

EDI is like an electronic mail only that the actual transaction is electronically transmitted and not simply a message.

Benefits of EDI

The benefits of EDI are the ones that come with using technology rather than manual processes.

It is about the benefits of EDI over the traditional paper-based transactions that are known to be costly, slow and prone to errors.

EDI systems are cheap because there is no paperwork involved and associated labor costs. It is also fast as lengthy processes like keying and filing are not necessary. Manual processes are prone to human errors that take time to correct something that is eliminated when using EDI solutions.

Access to information is enabled with EDI which allows for faster and accurate decision making for the management.

What you need to introduce an EDI system in your organization

Just like any other system that is technologically enabled, EDI system does not operate on a single infrastructure. It requires five things for it to operate as follows:

  1. EDI format standards like X12, EDIFACT, and VDA
  2. EDI network like Value-added networks (VAN)
  3. Translation software to translate data into EDI format
  4. Computers to implement EDI
  5. Controls or legal rules that govern all business transactions

Types of EDI

There are different types of EDI that you can use as a first time user or when you are scaling your current solution to suit your current business growth needs. They include:

Direct or point-to-point EDI

This is the initial version of EDI that require direct computer-to-computer communication between the involved businesses. This means that everything has to be similar including computer software, communication protocols, and transmission speed.

EDI via VAN

This is the exchange of EDI documents via a secure network. The involved businesses use a given mailbox to send and receive documents. There is also an alerting service that informs when both parties when messages are sent or received.

EDI via AS2

This is the exchange of data in a point-to-point manner through the internet. It is a popular method because it is secure, cheap and highly flexible.

Web EDI

This is EDI that is conducted through a web browser.

Other types of EDI include EDI via VPN/FTN, FTPS and SFTN and mobile EDI.

The EDI technology has many benefits and businesses can adopt the various solutions that are available depending on their current and future business needs. You should, however, ensure that you choose a solution and your provider carefully to ensure that the selected EDI solution provides value for the money that is invested in it.

 

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