What is EDI? Eurodev Services Electronic Data Interchange

Eurodev Services
What is EDI?
Electronic Data Interchange
What is EDI?
In its simplest form, Electronic Data Interchange, or EDI, is the computer-to-computer exchange
between two companies of standard business documents in electronic format. EDI is considered
to describe the rigorously standardized format of electronic documents. EDI is very useful in
supply chain. Increased efficiency and cost savings drive the adoption of EDI for most trading
partners.
Electronic Data Interchange, or EDI, is not a new technology and in fact has been around since
the late 1960s. While EDI has benefited enormously from advances in technology, eg the
introduction of the internet, EDI is not technology dependant. There are preferred ways to
implement EDI in a company, but there are many approaches to choose from. The approach
chosen should be driven by a company’s business needs, not a particular implementation or
technology.
There are two key elements in basic EDI. First, electronic documents replace paper based ones.
Second, the exchange of documents takes place in a standardized format. Using these two basic
concepts, any business can enter the world of EDI and begin taking advantage of the speed and
economy of electronic commerce, or e-Commerce.
In today’s fast-paced business world, your business may already be moving in this direction,
customers or suppliers may already be approaching you to begin trading information
electronically. For the newcomer to EDI, it may seem a very confusing subject area.
So what is a document? A document is any form of communication, usually paper based, sent
between two companies, examples include:
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Purchase Orders
Invoices
Shipping Notices
Export / Import Notices
Carrier to carrier waybills
Funds transfer
Design specifications
Health insurance claims
EDI is essentially a data processing concept which is independent of communication protocols or
transmission media. EDI is a logical outgrowth of the standard computerization going on within
companies over the last few decades. With EDI, the type of electronic communication between
departments within a company can now easily be extended to reach out to other companies or
trading partners.
EDI replaces human readable, paper or electronic based documents with machine readable,
electronically coded documents. With EDI, the sending computer creates the message and the
receiving computer interprets the message without any human involvement at all.
Before learning about what makes up an EDI system and how to implement one, it is important
to look at an example that highlights some of the key differences between traditional paper
document transactions and EDI. One of the first places where many companies implement EDI
is in the exchange of a purchase order, (PO). In the traditional method of processing a purchase
order, a buyer or purchasing agent will go through a fairly standard procedure to create a
purchase order, consisting of the following steps:
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A buyer reviews data from an inventory or planning system
The buyer enters data into a screen in the purchasing system to create a PO
The buyer waits for the PO to be printed, usually on a special form
After the PO is printed, the buyer mails it to the vendor
The vendor receives the PO and posts it in their order entry system
The buyer calls the vendor periodically to determine if the PO has been received and
processed
When you add up the internal processing time required by the sender and receiver, and then
add a couple of days in the mail, this process normally takes between three and five days. This
assumes first that both the sender and receiver handled the PO quickly and that at every point
along the way there were no errors in transcribing data from a form to a system.
Now consider the same document exchange when a company places its purchase orders
electronically using EDI:
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The buyer reviews the data and creates the PO, but does not print it
EDI software creates an electronic version of the PO and transmits it automatically to the
sender within minutes
The vendor’s order entry system receives the PO and updates the system immediately
upon receipt
What took up to five days with paper and the postal system has just taken less than one hour.
By eliminating the paper handling from most of the stages of the process, EDI has the potential
to transform a traditional paper based process to look like this:
The major benefits of implementing EDI within your business are discussed in more detail in the
‘Benefits of EDI’ section of this Microsite but in summary EDI can help improve speed and
accuracy of transactions, reduce costs and it provides improved flexibility when interacting on a
daily basis with your trading partners or customers. To find out how to implement an EDI
system, please choose the ‘Implementing EDI’ button from the menu above.
Source: EDI Basics http://www.edibasics.co.uk/
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1996, EuroDev has helped more than 150 North American companies expand into the European
market. Our unique, full-service model includes sales development, human resources
management, business administration, and facilitating mergers and acquisitions.
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