Electronic data interchange (EDI) is a type of digital system that facilitates the computer-to-computer exchange of common business documents such as purchase orders, invoices, inventory levels, and shipping notices. It is capable of transmitting business documents and data across a wide range of technology platforms and programs. Labor-intensive methods for supply chain communication, including telephone calls, faxes, or paper mail can now be replaced by EDI. EDI brings together producers, suppliers, and vendors, via their data systems, in a global business-to-business setup.
All of your company’s information is typically stored within an enterprise resource planning (ERP) system, such as details associated with sales, inventory levels, invoicing and billing, shipping, and so on. When your EDI solution interfaces with your ERP system, it gains access to the information and documents you need to do business with other companies.
Your suppliers and clients also have specific policies on how they do business. Shipping addresses, pricing, and other information must be considered when their orders are processed. EDI solutions share this information to improve coordination between businesses along the supply chain.
EDI uses shared information standards to guarantee that different trading partners’ data formats match. This helps trading partners avoid confusion and errors during order processing, invoicing, and other transactions. In case two trading partners use different information standards, an EDI system facilitates communication by performing data translation. When communication between two partners is initially established, corresponding fields in each trading partners’ information systems are mapped to each other so that data can be shared reliably. When information is sent, it is automatically translated to match the data format used by the recipient’s system.
The primary benefit of EDI systems is highly efficient communication. Manually managing supply chain communication is too slow and error-prone for modern businesses. EDI solutions replace many manual processes with faster, more accurate automated transactions. With an EDI solution, incoming orders are generated automatically, without requiring user input. There are no interruptions caused by operating across time zones or training new employees. Eliminating faxes and paper documents leads to improved cash flow, faster buy-sell cycle time, shorter lead times, and condensed inventories.
Similar to other business software like ERP systems, which were once used exclusively by large enterprises, EDI solutions have dropped in price and made their way into the hands of small and mid-sized businesses. Unlike ERP software, however, large trading partners might stipulate EDI as a prerequisite before another business can join its supply chain. Therefore, being able to trade with these large companies is a big-picture advantage of implementing EDI.
EDI solutions increase the reliability and accuracy of the information shared between businesses. After minimizing manual communication processes by implementing EDI, companies notice a decrease in errors and duplicate records. Transferring information directly between your own ERP system and your partner’s ensures that it is accurate and conforms to your partner’s requirements. This leads to enriched relationships with trading partners and fewer late transfers or expensive chargebacks.
Automatically generating sales orders, invoices, shipment reports, and so on will make work simpler and easier for sales and warehouse staff. EDI solutions only grant access to authorized users and produce audit trails to track use and enforce information security. Integrating an EDI solution with your ERP system can bring other advantages, since integration enables the automation of additional business procedures.