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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)?

Electronic Data Interchange, or EDI, is a method of sending business documents electronically between two companies. This integration allows companies to exchange data and documents in electronic format. In addition to making the process more efficient, EDI also reduces costs, because there is no need for paper copies or faxes.

EDI has been around since the late 1960s and has been widely used in the U.S. since the 1990s. As technology advanced and business became increasingly globalized, EDI became an important tool for businesses looking to streamline their processes and save money.

Today, most major corporations use EDI for at least some of their transactions with suppliers, customers, or other partners within their supply chain.

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?

EDI standards cover how data should be formatted, how it should be transmitted and how it should be received by the recipient's computer system. The standards also include rules for error handling so that if something goes wrong during transmission, the computer can figure out what needs to be fixed before continuing with the transmission.

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. It's a standardized way for businesses to exchange data electronically. It replaces mail, fax, and e-mail and can be used to exchange any type of business document.

EDI is a computer-to-computer protocol used by trading partners to electronically exchange information pertaining to transactions between them. The use of EDI has grown over the past several years as it has become easier and less expensive for companies to implement EDI solutions.

Computer-to-computer EDI works like this: A buyer sends an order or purchase order via an EDI message to a seller. The seller receives the message and sends back an acknowledgement that it has received the order or purchase order. The buyer then ships the goods ordered so that when they arrive at their destination, another acknowledgement can be sent from the shipper to confirm delivery of items ordered by the buyer.

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 buyer makes a purchase decision, and 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 the 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 You 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 and Benefits of EDI

The main advantage of EDI is that it can be used to exchange any type of business document between two companies that have agreed on a standard format for their data. This means that once you have set up your EDI system with one supplier, it will automatically work with all other suppliers who also support this standard format.

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

By eliminating the need for paper documents and manual processes, there are fewer people involved and less time spent on activities that are not part of your core business. This means lower costs for all parties involved. EDI reduces the time your staff takes to manually generate invoices and process purchase orders.

Improved customer service

Customers benefit from faster response times as you can process transactions more quickly with fewer errors. You can also speed up payments, which improves cash flow and helps keep customers happy with their payment experience.

EDI Support Services

While EDI is conceptually simple, it requires specialized software and processes to implement. This makes it more complex than other forms of electronic communications like email or instant messaging. If you want to use EDI in your business, you need to understand how it works and what benefits it can provide.

MDP Group has successfully implemented thousands of integration projects and provides EDI services with Europe's most experienced integration team. You can contact us to get information about our EDI support services.


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