Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in a standard electronic format between business partners. It is a concept of business documents exchange between counterparts through the intermediary “the centralized service of document transfer”. It describes arrangement methodology of “communication” of counterparts’ information systems by means of electronic messages without human input.
By moving from a paper-based exchange of business document to one that is electronic, businesses enjoy major benefits such as reduced cost, increased processing speed, reduced errors and improved relationships with business partners.
Each term in the definition is significant:
Computer-to-computer– EDI replaces postal mail, fax and email. While email is also an electronic approach, the documents exchanged via email must still be handled by people rather than computers. Having people involved slows down the processing of the documents and also introduces errors. Instead, EDI documents can flow straight through to the appropriate application on the receiver’s computer (e.g., the Order Management System) and processing can begin immediately.
Business documents – These are any of the documents that are typically exchanged between businesses. The most common documents exchanged via EDI are purchase orders, invoices and advance ship notices. But there are many, many others such as bill of lading, customs documents, inventory documents, shipping status documents and payment documents.
Standard format– Because EDI documents must be processed by computers rather than humans, a standard format must be used so that the computer will be able to read and understand the documents. A standard format describes what each piece of information is and in what format (e.g., integer, decimal, mmddyy). Without a standard format, each company would send documents using its company-specific format and, much as an English-speaking person probably doesn’t understand Japanese, the receiver’s computer system doesn’t understand the company-specific format of the sender’s format.
- There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS and ebXML. And, for each standard there are many different versions, e.g., ANSI 5010 or EDIFACT version D12, Release A. When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version.
- Businesses typically use an EDI translator – either as in-house software or via an EDI service provider – to translate the EDI format so the data can be used by their internal applications and thus enable straight through processing of documents.
Business partners – The exchange of EDI documents is typically between two different companies, referred to as business partners or trading partners. For example, Company A may buy goods from Company B. Company A sends orders to Company B. Company A and Company B are business partners.
The main objective of EDI is to replace exchange of paper documents by electronic document flow between information systems. In addition:
- To replace information exchange on papers
- To standardize and unify data
- To integrate data processing in IS
- To reduce percentage of manual labour
- To increase speed and accuracy of data collection
- To guarantee efficient delivery of data
- To provide necessary control, management and legalization of information flows
- To guarantee information security
Main functions of EDI:
- Search of goods and suppliers, information viewing, comparing prices, keeping ratings
- Forming, saving and sending EDI documents
- Signing documents with EDS
- Integration with registration systems (for example, with 1C or SAP)
Advantages of implementation:
- Increase of commodity turnover due to decreasing time of goods stockout
- Reducing costs of expendables due to lowering the expenditure of paper, cartridges, service of office equipment, etc.
- Expenses on telephone and fax would be cut down
- Working hours of the involved staff will be reduced due to reducing manual labor
- Quantity of errors in manual data entry decreases due to lowering human factor and refusing of duplicating/data transfer