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Everything You Need to Know About EDI

In these days, businesses use EDI integration to share purchase orders, invoices, requests for quotations, loan applications, and many more types of documents. Due to the difference in the formats of the transmitted documents, trading partners who exchange products and services may face many problems in the transmission processes of electronic data. Companies that maintain their presence in the competitive market aim to reduce the operational workload and save time to increase internal efficiency. EDI integration, which aims to standardize document transfer, acts as an important bridge between commercial partners and brings companies one step closer to their goals. While EDI is more and more important for competitive companies, we aim to eliminate the question marks in your mind with the guide we have prepared.

What is EDI (Electronic Data Interchange)?

EDI, which stands for Electronic Data Interchange, is an integration that enables commercial partners to exchange data and documents in electronic format. The documents sent are exemplary in the form of invoices of purchase orders, payment information and shipping notifications. More precisely, EDI is a form of communication between trading partners that enables the transfer of business documents in a standardized format.

EDI users can interact virtually with another organization anywhere in the world without the hassle of waiting times and anticipating future procedures. EDI inherently eliminates paper, increases operational efficiency, and enhances virtual exchange with new trading partners.

The Concepts Related to EDI

In order to better explain EDI, we need to clarify some of the side concepts that we frequently use in this article. We mentioned that EDI is an integration that standardizes document exchange between trading partners. Let's take a look at the terms in this sentence:

Business Documents 

Aforementioned business documents are any of the documents that are typically exchanged between businesses. The most common documents exchanged via EDI are purchase orders, invoices, and pre-shipment statements. But much more is also covered by business documents, such as bills of lading, customs documents, inventory documents, shipping status documents, and payment documents.

Trading Partners

The exchange of EDI documents is between two different companies, often referred to as business partners or trading partners. For example, Company A may purchase products from Company B. Company A sends an order to Company B. Company A and Company B are business partners.

Standard Format

EDI is the processing of documents by computers rather than humans. A standard format should be used so that the computer can read and understand documents. A standard format describes what each piece of information is and in what format. (e.g. integer, decimal, etc.) Without a standard format, each company submits documents using their company-specific format. When the document formats of the recipient and the sender are different, the computer system cannot read the sent document. EDI aims to eliminate this problem by standardizing the documents.

There are many EDI standards in use today such as ANSI X12, EDIFACT, VDA, and there are many different versions for each standard. (ANSI 5010, EDIFACT version D12 etc.) When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version. In such cases, businesses need an EDI converter to convert the EDI format. Data can be used by internal applications through an in-house software or EDI service provider. This enables direct processing of documents.

How Does EDI Work?

The supplier-buyer relationship, which was previously handled by telephone calls, faxes and manual processes using paper, can be realized through EDI now. EDI band together manufacturers, distributors and retailers – through information systems – in an international network. So how does it do this? Let's examine the working principle of EDI by dividing it into desktop and mobile devices.

Computer-to-Computer EDI

Computer-to-computer EDI replaces mail, fax, and e-Mail. Although e-Mail is a form of electronic messaging, it does not offer an automated process as it must be managed by individuals. Execution of this process by individuals slows down the processing of documents and leads to human errors. Instead, EDI documents can be imported directly into the appropriate application (for example: Order Management System) on your recipient's computer and the process can be started immediately.

A manual data transfer process with lots of paper and operational workloads looks like this:

The recipient creates and prints the “purchase order” after making a purchase decision. This printed document is forwarded to the supplier via fax, mail or e-Mail. The supplier receives the purchase order and enters it into the order entry system. The buyer calls the supplier to confirm whether the purchase order has been received, or the supplier emails the confirmation of the order to the buyer. This document exchange, which is carried out by traditional methods, usually takes between three and five days.

The EDI Document Exchange of the Purchase Order looks like this: no paper, no people

The buyer makes a purchase decision, creates the purchase order, but does not print it. The EDI software creates an electronic version of the purchase order and automatically forwards it to the supplier. The supplier's order entry system receives the purchase order and immediately updates the system as soon as it receives it. The supplier's order entry system generates an acknowledgment and returns it to confirm receipt. This process normally takes place overnight and can take less than an hour.

Mobile EDI

New EDI mobile applications are starting to emerge as more and more companies seek to activate their supply chain and develop enterprise applications. Applications developed for tablets are gaining popularity in the field of supply chain. By using this technology, retailers can save half an hour per delivery, which saves a lot of time and money. More and more mobile EDI opportunities are emerging every day, but at this time no specific standard process has been set in this area.

Who Should Use EDI?

No definition of EDI is complete without real-world applicability. Electronic Data Interchange is useful for a wide variety of functions, covering thousands of private information exchanges. We can list some of the sectors and scenarios supported by EDI as follows:

Supply Chain (Retail, Manufacturing, Automotive)

  • Purchase
  • Order fulfillment
  • Shipping confirmations
  • International orders
  • Fulfillment of parts orders

Health Care Delivery

  • Exchange of patient health information
  • Health insurance transactions
  • Prescription information changes

Logistics

  • Scheduling consignment
  • Product tracking

Accounting

  • Create an invoice
  • Providing audit information

Aeronautics

  • Flight information exchange
  • Passenger name records (PNRs)
  • International conformity and standardization

Advantages of EDI

Minimum paper usage

EDI reduces associated archiving, printing, postal and recycling costs

Enhanced data quality

EDI minimizes data entry errors, improves accounts payable/credit time as processes streamline and are used for forecasting

Improved response time

Your business cycle is improved and stock levels are constantly kept up to date and visible.

Improved timelines

EDI transfer enables real-time processing and eliminates the time involved in manually sending, receiving and entering orders

Cost savings in operational efficiency

EDI reduces the time your staff takes to manually generate invoices and process purchase orders.

Supports building a greener world

EDI eliminates paper marks and keeps paper usage to a minimum.


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