Electronic Data Interchange is the optimal solution to integrating your systems with your most important trading partners. Instead of transmitting and receiving information manually using pen and paper, EDI shares data electronically and instantaneously without human input. It’s fast, reliable, and secure.
By automating document exchange, you can save money on postage and couriers and eliminate costly mistakes and confusion. Lines of communication are always open, keeping trading partners in sync at all times.
What Does EDI Mean for My Business?
EDI, which is the most efficient and secure global data exchange process, can be tailored to your unique business needs. For example, companies in the retail industry use EDI to exchange purchase orders and invoices, while healthcare providers send claims, payment and remittance advice, and more.
To determine whether EDI is necessary for your business, you may want to consider the following questions:
- Do your customers or suppliers require or prefer to use EDI?
- Do you exchange a large volume of standard business documents with other companies?
- Do you want to reduce the time and cost associated with manual data entry and document processing?
- Do you want to make your business transactions more accurate and secure?
If the answer is “yes” to any of the above, then EDI could positively impact your business.
How Does EDI Work?
EDI is a set of industry standards that define how trading partners should share information. It automates data flow electronically–computer to computer–guaranteeing safe dispatch and receipt of documents around the clock. No human input is required.
Sending and receiving a purchase order the old-fashioned way (without EDI)
The traditional method of exchanging a purchase order, which is one of the most common business documents, takes several days.
Step 1: The buyer reviews the supplier's offerings and selects items to purchase.
Step 2: The buyer manually creates a purchase order and emails or mails it to the supplier.
Step 3: The supplier receives the purchase order and manually keys the information into their internal system.
Step 4: If everything goes according to plan, the supplier sends the buyer an acknowledgment of the order.
The above process sounds straightforward but is fraught with inefficiencies and unknowns. Emails can be missing attachments, sent to the wrong person, or go to Spam. Creating documents manually and keying information into systems is labor-intensive and prone to error. And, as we all know, traditional mail is slow and unreliable.
Sending and receiving a purchase order the modern way (with EDI)
Exchanging a purchase order with EDI takes minutes, not days.
Step 1: The buyer selects the items they want to purchase, similar to the previous example.
Step 2: The buyer’s EDI software generates an electronic PO automatically and transmits it to the supplier’s order entry system.
Step 3: The order entry system receives the PO and transmits an acknowledgment back to the buyer’s EDI solution in real time.
With EDI, there’s no risk of manual error, delays, or unnecessary back and forth. Transmission and system updates happen automatically, ensuring alignment. Your company can move at the speed of modern business–not the rate of your least proficient employee.
Six Benefits of Using EDI in Your Business
1. Greater Speed and Efficiency
EDI is a highly efficient and automated system for sharing information, replacing slow, manual, error-prone processes. Users can create, send, and receive multiple documents in seconds–instead of hours–and switch their focus to higher-value tasks.
2. Improved Accuracy
Data sent via EDI is never touched by a human hand, eliminating typos and costly downstream consequences. Built-in rules, standardized data formats, and codes ensure documents exchanged are accurate and complete. Inconsistencies are flagged automatically so you can rectify issues immediately.
3. Lower Costs
With EDI, you can save money on printing, paper, stamps, and storage and reduce the cost of labor by extracting more value from employees. Fewer mistakes and delays in the documentation process help you avoid fines, SLA violations, refund requests, and chargebacks.
4. Enhanced Security
EDI ensures secure data exchange through encryption, authentication, and access controls. That’s one reason HIPAA, the U.S. Federal health insurance law of 1996, encourages EDI in the healthcare system.
5. Better Data Visibility
EDI data can be stored, accessed, and analyzed more efficiently than physical documents. This makes it easier for companies to use their data to make better decisions, identify trends and patterns, and drive continuous improvement.
6. Seamless Integration
EDI data can be easily shared within and outside your company, breaking down silos and enhancing collaboration. You can easily integrate EDI with your ERP, CRM, and other business systems to automate repetitive B2B transactions and gain a holistic view of your operations.