EDI stands for “Electronic Data Interchange” and is the most commonly used B2B eCommerce technology. The EDI process involves the electronic interchange of business information – or data – between two organizations, called “Trading Partners.” There is an established set of EDI standards that format documents so that they can be exchanged electronically (watch our video on YouTube about how to read an EDI document
EDI replaces paper forms of many documents, including invoices, advance shipping notifications, student transcripts, healthcare claims and many others. With EDI, you decrease inaccuracies, business costs and time.
Many businesses, government agencies and other organizations use EDI every day to manage their business transactions. That’s because EDI is automated, efficient and highly secure compared to manually exchanging documents that contain sensitive information.
Why is EDI better and how can it benefit my organization?
EDI is a widely accepted B2B platform that supports multiple industries and companies of any size, scope or niche. Its cross-function capability integrates nicely with trading partners’ various internal systems and technologies. In fact, most major trading partners require suppliers to use EDI to improve the speed, accuracy, efficiency and security of doing business.
EDI technology provides several advantages to organizations over other data formats such as xml. These advantages include:
- Receipts for Every Message Sent: These Functional Acknowledgements (FA) ensure that you know if your message was received by your trading partner.
- Process Best Practices: For example, receipt of a Purchase Order may be followed by a Purchase Order Acknowledgement, Shipping Notice and then an invoice in that order. Such common process patterns exist in EDI because of common transaction types. Other e-Business message formats do not have to adhere to such standards, increasing the complexity and variability of your B2B exchanges.
- Common Message Formats: With other e-Business formats, you have to independently validate, decode and understand how to integrate these messages for every new trading partner.
- Compact and Fast Messages: EDI messages are very compact so you will be able to send them much faster to your trading partners. And if you use a VAN or other transmission method that charges by the size of document, EDI will be the most cost effective method of transmitting e-Business data.
- Historical Adoption: EDI as a standard has been in use for over 50 years. As a proven method to successfully integrate business operations you can be assured that your investment in EDI is an investment in your future.
By integrating your EDI workflow with your core business or accounting system, you can streamline how information flows throughout your organization. The benefits can be tremendous, including:
- Increased Productivity: Automated transactions save significant time by eliminating manual effort for both processing transactions and researching errors.
- Decreased Expenses: Automation also reduces the risks for charge-back, errors caused by manual processes and even paper costs.
- Reduced Cycle Time: Sending and receiving EDI data happens in seconds and can be acted on immediately, resulting in reduced cycle times for both you and your trading partners.
- Improved Supply Chain Visibility & Control: With EDI, product sales data, product inventory status, demand forecasts and other metrics can be shared with suppliers and their suppliers – allowing for better inventory management and supports just-in-time delivery.
- Enhanced Security: Established communication protocols address encryption and other security issues that enable critical business or personal data to be exchanged with higher levels of security.
Still not sure if EDI is right for your organization? Download our EDI Buyer’s Guide
to learn more about the various EDI solutions and understand the buying process.
How EDI Works
There are three major processes involved in the exchange of EDI data:
- Mapping involves transforming an EDI document into another format (such as XML, a flat file, a delimited file, etc.) or vice versa. Mapping is essential for proper system integration.
- Translation is the process of accepting inbound EDI data, or preparing an outbound file for transmission.
- Communications refers to the transmission of the EDI transaction. This can be done indirectly, through an external clearinghouse or VAN (“Value Added Network”) or direct via AS2 using EDI software, a web-based EDI tool or outsourcing with an EDI service provider.
Learn more about EDI and how it works by downloading our EDI 101 Guide