WHAT IS EDI (ELECTRONIC DATA INTERCHANGE)?

WHAT IS EDI (ELECTRONIC DATA INTERCHANGE)?

Monday, September 15, 2014Global Administrator You’ve heard the term EDI bandied around and you probably know that it’s a method of sending and receiving documents from other companies. From the 50,000 foot view EDI is a regulated and pre-defined method that enables trading partners who have a business relationship, say a customer and vendor, to exchange their usual business documents. The documents could be anything from Orders and Invoices, Shipping Requests, Advanced Shipping Notices, Credit, Remittances, etc. It sounds very Retail/Manufacturing related, but there are standardized sets of documents that cover all industries, such as Pharma, Healthcare, Manufacturing etc. Hence, there’s very likely an EDI document for any transaction you may encounter within your ERP or accounting system or Warehouse Management System.

Why EDI?

The ability to exchange documents electronically has a wide variety of benefits, which include increased efficiency from automating transactions, reduction of errors from manual entry, validation of content (via EDI standards and receiving software) to confirm transactions contain all they need to enable proper processing, traceability, reduced costs and faster processing. The alternative to the EDI model is the manual exchange of paper based documents, resulting in waste and inefficiency when processing the documents.

What are these standards?

There are a wide variety of industry specific EDI standards that have conventions that are specific to the region. For example, ANSI X12 is the North American standard, EDIFACT is the European standard and there are many others. The transaction sets could be X12 4010 that contain the different documents (PO, Invoice, Ship Notice etc.) The sets granulate even further into subsets for particular industries.

How is it done?

You’ll need to belong to a VAN (Value Added Network) or an agent that will provide the services for you.  There will need to be a bilateral relationship established between your unique account on the VAN and your trading partner’s unique account ID. Don’t worry if your partner’s VAN is not identical to yours. Most VANs can connect to each other, which is known as an interconnect.

Let’s take a simple example of a retailer and vendor setting up EDI. The relationship is now in place and the retailer sends an order that will be received by the EDI software, known as a Translator. It would then be validated and an acknowledgement would be sent back to the sender. The receiver would now have visibility of the PO. After the process is completed, other choices would now be available, such as importing the document into an accounting system or even using the EDI software to turn the order into an invoice to send back to the retailer after the order is fulfilled.

In summary, EDI replaces the paper exchange and maximizes the efficiency of electronic consistency. How you utilize the efficiency is up to you by integrating these documents into your daily processes. To learn more about EDI and EDI integration visit our Frequently Asked Questions.