Electronic Data Interchange

Electronic Data Interchange) The electronic communication of business transactions, such as orders, confirmations and invoices, between organizations. Third parties provide EDI services that enable organizations with different equipment to connect. Although interactive access may be a part of it, EDI implies direct computer-to-computer transactions into vendors' databases and ordering systems.

Overview of EDI benefits and drawbacks

The EDI process provides many benefits. Computer-to-computer exchange of information is much less expensive than handling paper documents. Studies have shown that manually processing a paper-based order can cost $70 or more while processing an EDI order costs less than one dollar.

* Much less labor time is required
* Fewer errors occur because computer systems process the documents rather than processing by hand
* Business transactions flow faster.

EDI example

Here is an example of how the electronic data interchange process works. A buyer prepares an order in his or her purchasing system and has it approved.

Next, the EDI order is translated into an EDI document format called an 850 purchase order.

The EDI 850 purchase order is then securely transmitted to the supplier either via the internet or through a VAN (Value Added Network).

If the purchase order is sent using a VAN, then the buyer’s VAN interconnects with the supplier’s VAN. The VANs make sure that EDI transactions are sent securely and reliably. The supplier’s VAN ensures that the supplier receives the order.

EDI requirements

Each trading partner has unique EDI requirements. These will include the specific kinds of EDI documents to be processed, such as the 850 purchase order used in the example above, 856 advance ship notices and 810 invoices.

Almost any business document that one company wants to exchange with another company can be sent via EDI. However each EDI document must be exchanged with the partner in exactly the format they specify.

Many partners will have an EDI implementation guide or kit that explains their specific requirements. Maps are required to translate the EDI documents from the trading partner’s format into the format that is useable by the receiving party.

Meeting all of an EDI trading partner's EDI requirements is called being EDI compliant.

What you need to be EDI compliant

EDI compliance involves either buying or outsourcing the following components:

1. Software for communications

2. VAN service for EDI transmission

3. Mailboxing of EDI transactions

4. Mapping and translation software

5. Installing upgrades to software as needed

6. Mapping labor

7. Testing with EDI trading partners

8. Upgrades for new versions required by trading partners