What is EDI? And Can it Really Ease Business Communications?

Data exchange is an integral part of any business between vendors, suppliers, logistics, and many other business partners. Without an automated system, you need resources to manage the data manually which is a time consuming and not cost effective process. There are also concerns about processing time, manual errors in data transfer, and unstructured or littered data without a single dashboard to analyze and review — which can cause severe setbacks for your business.

It is possible that some of your partners or vendors already have a profile Digital data exchange Or an EDI in place. This means that while vendors and partners can share and analyze data in real time, they have to bear the delays and even errors on your part. This will eventually affect your bottom line and reduce customer satisfaction. In the absence of an automated process, the need for manual detection of errors becomes necessary and it is an additional cost for your business. Add to that list the difficulty of tracking the security concerns of data exchanged between your business and other partners.

If you are looking to expand your business but are falling behind due to the lack of automated data integration technology, then EDI might be the technology for you. In this beginner’s guide to EDI, we will cover the following topics:

History and development of electronic data interchange

Although the electronic method of communication only began in the 1960s, railroads used the telegraph to send messages using Morse code earlier in the 1850s. The birth of technology can be attributed to the need to simplify communications for the American transportation industry in the 1960s. The goal was to create an accurate and unified format for sharing documents such as orders, invoices, etc., between multiple computer systems.

In 1979, American National Standards Institute (ANSI) has established a committee (Accredited Standards Committee or ASC) to regulate electronic data interchange. With the boom of manufacturing and the growth of multinational organizations, the need for electronic data interchange has spread across the world. By 2001, the ASC and the UN/EDIFACT Working Group (EWG) had issued a global standard for electronic data interchange. Fast-track to 2021, and many other industries have adopted EDI, with more than 150,000 companies worldwide using various standard formats depending on industry and region.

What is EDI?

There are several definitions of EDI one can find. But, frankly, EDI is the electronic exchange of basic documents (also referred to as messages) between companies using a standardized format. Therefore, it replaces the practice of sending paper documents previously sent by post, fax and/or email. The use of Electronic Data Interchange (EDI) simplifies the communication process by using a standardized format.

One of the older definitions of EDI by the National Institute of Standards and Technology still holds true – “computer-to-computer exchange of precisely formatted messages that represent documents. EDI refers to a series of messages between two parties, either of which may serve as the originator or the recipient.”

It is important to note that this exchange of important information between computers in a standard format can take place not only between two business partners but also within the organisation. Therefore, EDI facilitates the business process that communicates vital information using structured data, and agreed messaging standards, from one computer system to another.

How-EDI-works-Infographic

What documents can be shared via EDI?

Today, industries use EDI integration to share a range of document types. The most common document flow exchanged between business partners’ computer systems are purchase orders, invoices, and advance shipping notices. Many other documents are sent via different EDI formats depending on the industry and region.

  • Retail Food or FMCG (Fast Moving Consumer Goods): Requests for quotations, inquiries about order status, product transfers, resale reports, etc.
  • e-commerce company: Booking confirmations, shipment status, customs documents, etc.
  • the creator: Tanker loading bids, routing guidance requests, product activity data, advance shipping notices/lists, etc.
  • Healthcare / medical organization: Application tips, pricing information, functional acknowledgments etc.
  • ProviderCredit/debit adjustments, consolidated service invoice statements, sales catalogs and other documents.
  • logistics companies: Booking reservations, status details, warehouse shipping orders, loading tender response, etc.

We have listed a few of the formats across some of the industries in which EDI is prevalent. However, the scope is wide as more and more industries are adopting EDI.

What is the standard EDI format?

We now know that EDI documents follow a standard format for intelligent systems to understand and move that data forward. The standard format defines static instructions for each of the necessary information items. Therefore, without this format, EDI or EDI technology is useless. Therefore, companies cannot customize or change this format based on their preferences.

What we have to understand is that there are a range of standard formats, as these formats differ based on industries and regions. Some of these are – ANSI, X12, EDIFACT, ODETTE, TRADACOMS, ebXML. Each standard may have many different versions depending on which ERP is integrated with it. Before the business or commercial partners start the EDI process, they have to agree not only on the EDI standard, but on the version as well. The way around the different versions is to add an EDI translator which can understand and translate the EDI format in use and facilitate efficient document processing.

Does EDI require any human intervention?

While most solution providers may claim that EDI does not need Which Human intervention and that all documents are formatted, interpreted and transmitted by computer systems, this is far from the truth. A computer system can accurately read data only if the document follows standard formats and protocols. Once the EDI is implemented, a different checklist must be followed for each format, such as data structure, document type, etc. There are different standard formats for different industries. Therefore, the fact is that EDI facilitates automated exchange of business messages with minimal human intervention.

Human intervention will be required in the phases of quality checks, system errors, or when sensitive data needs to be filled in individually in rare cases.

Manual process - infographic

Why EDI?

Sharing business documents manually via mail, fax, and email was the way people worked before the EDI boom. Here are the benefits of integrating EDI with your ERP system.

Improves processing speed
All transactions/documents are automatically shared in real time, regardless of time zones. There is no need for the team to manually understand and feed data which can take hours or even days.

Reduced margin for errors
Since documents are sent in a standard and agreed upon format in EDI, there is a simplified means of communication. If companies will send documents in their own formats. The recipient will have to understand this document and then process it based on the format required for their institution.

Comfortable and efficient
The strict standardization and coordination guidelines that come with EDI make the transmission of information regardless of language Appropriate and more effective for your business and business partners. For example, a Finnish organization purchases goods from a Taiwanese company. The exchange of information between the two companies will be according to the shape of the industry, which means efficiency and precise Document exchange, regardless of language barriers. If this situation is handled manually, it may need third party translation services that will delay the processing of the transaction.

Cost-effective
Traditional ways of sharing information manually tend to use paper. Electronic exchange saves the cost of printing, storing and copying documents and is better for our environment.

free resources
Adopting automated technology such as Electronic Data Interchange (EDI) saves resources that previously spent large amounts of their time processing documents. They can now focus on data analysis And other important tasks to improve it Work productivity.

If you are keen to take advantage of the advantages of EDI and want to rate EDI solution type most suitable for your business, then read our blog which explains the options available for EDI integration based on different scenarios.

Is Integrated EDI the Right Solution for Your Business?

Data integration and automation are a given in most industries. However, for some companies, traditional ways of doing things may lead to missed opportunities and even losses over time. The advantages of EDI are numerous. to increase Clients who have implemented our integrated business EDI Solution– EDI Studio saw more accuracy, efficiency, improved processing time, and reduced turnaround time. Infact, EDI Studio has enabled our customers to achieve meaningful digital transformations across their businesses within their Microsoft ERP environment.

In a world moving towards remote operations and more reliance on ERP systems, it makes sense to upgrade your ERP to incorporate automated processes that can significantly simplify communications. There are many EDI solutions available both inside and outside of ERP. However, the Electronic Data Interchange (EDI) solution built into Microsoft Dynamics 365 has many benefits such as – integrated operations, improved visibility, better compatibility, and improved performance.

Read Our e-book Below to find out how your business can benefit from an integrated EDI solution.

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