EDI stands for Electronic Data Interchange and is the name given to the computer-computer exchange of business documents between partners using a standardized format. Overhauling a paper-based exchange yields great benefits such as reduced costs, improved speed, and healthier business relationships. EDI software goes further than email because email still needs to be maintained by people. Throughout this article, we will dive further into how it works.
Computer-to-Computer
Removing the human touch is the primary function of edi software. Having people involved reduces speed and allows for errors. Sending EDI documents allows them to exit straight through to the appropriate program on the receivers (invoicing etc.), which allows for immediate processing in the correct place. In the manual process, documents are mailed or faxed to the end business, then they are processed by a human that is capable of putting them in the wrong place.
Standardized Format
Computers require documents to be imputed in a standard format – this allows the computer to recognize things like the date (DDMMYY). If businesses didn’t follow a standard format, then the computer wouldn’t be able to understand – this is the same as an English speaker not being able to understand the Chinese language. You can find more information here about the most standard formats used today.
How It Works
There are three steps involved when using EDI software:
- First, you need to prepare the documents ready to be sent. Instead of having to print invoices, your central system can build them using data from other sources.
- Once you’ve built your electronic data file, you need to put it through a translator software that will convert your data into a standard format. You can either invest in EDI software and maintain it in-house, which requires some specialized skills. Alternatively, you can outsource your EDI management to an external company.
- Finally, you need to transmit your files to the receiving business. There are numerous ways that you can connect to your business partners.
- The most popular method of transmission is through AS2, which is a secure internet protocol.
- You can also use an EDI network provider/VAN provider, using your communications protocol but relying on the network provider.
- You can combine the two processes depending on how much data you plan on sending.
Sending information through EDI software is fast, secure, and void of human errors.
Example of EDI in Practice
Let’s take the retail industry, which uses EDI for many daily operations. Retailers use EDI to place supply orders and send invoices. Using EDI allows computers to take care of the processing, which means that errors can’t be made and invoices can’t be misplaced. Large companies like Walmart only ever send documents by EDI to their suppliers, which makes it an essential business tool to be in with the big names in the market.
Today, processes are consistently being pushed towards being autonomous and this is just one way that is being achieved. Sending documents through EDI cuts paper usage, saves time, and will prevent human errors.
