Electronic Data Interchange, or EDI, has been in use for decades - as early as the late 1960s. In its most basic form, EDI is a computer to computer exchange, between two companies, of standard business documents in an electronic format. There are two key elements in basic EDI. First, electronic documents replace paper based documents Second, the exchange of documents takes place in a standardized format. Using these two basic concepts, any business can enter the world of EDI and take advantage of the speed and economy of eCommerce.
The ability to exchange documents electronically has a wide variety of benefits, which include increased efficiency from automating transactions, reduction of errors from manual data entry, validation of content (via EDI standards and receiving software) to confirm transactions contain all they need to enable proper processing, traceability, reduced costs and faster processing. The primary alternative to the EDI model is the manual exchange of paper based documents, resulting in waste and inefficiency when processing the documents.
In order to work with specific trading partners, vendors and/or suppliers, you may be mandated to perform EDI in order to start or continue a business relationship.
What are EDI Standards?
EDI Standards were established decades ago to define a generic and repeatable set of structured data placeholders (data that resides in a fixed field within a record) and rules for the creation of common business documents. These documents include, but are not limited to, purchase orders, invoices, and shipment notices in an electronic form.
The main reason for creating these standards was to help businesses avoid spending valuable time and resources defining the layouts of common business documents. The end result for businesses is a reduction in electronic document integration costs and a more efficient process setting up integration components. Defining EDI standards is an ongoing process as business requirements are refined and extended and thus have to be recorded in a common data definition language.
There are a wide variety of industry specific EDI standards that have conventions that are specific to a region. For example, ANSI X12 is the North American standard, EDIFACT is the European standard and there are many others. The transaction sets could be X12 4010 that contain the different documents (PO, Invoice, Ship Notice etc.) The sets granulate even further into subsets for particular industries (eg. Retail, Manufacturing, Healthcare, Transportation & Logistics, etc.).
How do I start with EDI?
Once your company and your trading partner decide that you want to conduct business using EDI, there are a few general steps you can take to begin the process:
- Obtain the EDI Implementation Guide from your trading partner. This will define how your selected electronic business documents will be structured.
- Purchase EDI software that includes document maps and a translator. This software is used to transform your accounting system data (ie. orders, shipments, etc) into the layout requested/required by your trading partner.
- Once this software is setup you and your trading partner will typically begin testing document exchanges.
- Communicate with your trading partner to determine how your EDI documents can be exchanged. The most common methods are via Internet EDI, a Value Added Network (VAN), or direct one-to-one/peer-to-peer electronic document transfer. The eBridge Connections ePortal solution uses Internet EDI as the primary method of exchanging business documents with trading partners. We can also exchange documents with VANs as interconnects.
- Conduct a set of tests with your EDI solution provider to verify that your software operates correctly and your trading partner receives the documents correctly.
- Perform parallel document processing where you still send and receive your paper documents with your trading partner.
- Eventually switch off paper business document exchange. You will notice a large reduction of document processing costs, dramatic increase of accuracy of the data, speed of exchange of business documents, improved cash flows, reduced processing errors and an increase in customer service levels.
How does it all work?
Let’s take a simple example of a retailer and vendor setting up EDI. The relationship is now in place and the retailer sends a purchase order that will be received by the EDI software (such as that provided by eBridge Connections). It would then be validated and an acknowledgement would be sent back to the sender. The receiver would now have visibility of the PO. After that process is completed, other choices become available, such as using the EDI software to transform and import the document into an accounting system or to convert the PO into an invoice to send back to the retailer (after the order is fulfilled).
In summary, EDI replaces the paper exchange and maximizes the efficiency of electronic consistency. How you utilize the efficiency is up to you by integrating these documents into your daily processes. To learn more about EDI and EDI integration please contact us.