What is Electronic Data Interchange(EDI)

What is EDI

EDI stands for “Electronic Data Interchange.” The practice involves using computer technology to exchange information – or data – electronically between two organizations, called “Trading Partners.” Technically, EDI is a set of standards that define common formats for the information so it can be exchanged in this way.

Processes that used to be completed manually with paper have been replaced with an invisible, electronic flow of formatted data.  EDI has replaced paper forms of many documents, including invoices, bills of lading, advance shipping notifications, student transcripts, healthcare claims and many others.

Many businesses, government agencies and other organizations use EDI every day in the regular course of business. That’s because EDI makes doing business together a more automated and efficient process. Plus, digital technology can help ensure greater information security compared to paper documents.

How EDI Works – the Process

For the most part, EDI-based transactions are really the same as their manual, paper counterparts. The difference is that the EDI transactions are sent and received electronically, as packets of data formatted according to EDI standards.

There are effectively three major processes involved in the exchange of EDI data: mapping, translation and communications.

• 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.

Why You Need EDI – the Benefits

For many companies, EDI is really not a choice. It may be a requirement of doing business with larger organizations, including big retailers, manufacturers and government agencies.

Once you are communicating via EDI, the door is open to maximizing its value to your business. By integrating your EDI workflow with your back-end business or accounting system, you can streamline the entire process of how information flows through your organization. The benefits can be tremendous, including:

• Lower costs – By reducing the manual keying of data, handling of documents and other processes, you can potentially reduce the costs of labor and paper, and reduce errors (and their associated costs).
• Higher efficiency – Sending and receiving EDI data happens in seconds, and the information can be acted on immediately. This means time savings for you and your trading partners.
• Improved accuracy – You can reduce errors by using EDI because manual and duplicate entry is eliminated. Everything flows untouched, leaving a trail for easy future tracking.
• More supply chain visibility – With EDI, product sales data, product inventory status, demand forecasts and other metrics can be shared with suppliers and their suppliers. This allows for better inventory management and supports just-in-time delivery.
• Enhanced security – Thanks to numerous communications protocols addressing encryption and other security issues, critical business or personal data may be exchanged with higher levels of security via EDI than by any other means.
• Greater management information – Because EDI data is electronic data, you have a source of information to guide management decisions or to mine for further analysis.