In the competitive business world that closely following technological developments have gained greater importance every day, the use of EDI has become almost a necessity. Firms who want to establish trading partnerships in the international market can perform business processes reliably and quickly through the EDI. Most organizations that want to standardize critical B2B transactions are already doing so with EDI. So, what are the advantages of EDI, which is widely used all over the world, to its users? Why should you use EDI? How can firms apply EDI to their business cycle? You can continue reading to get answers to all these questions.
Table of Contents
EDI (Electronic Data Interchange) is a digital communication protocol used to exchange business documents between two or more organizations. It is used to transfer data such as purchase orders, invoices, and shipping notices between companies. EDI is used to improve process efficiency, reduce costs, and improve customer relations.
For some businesses, EDI can be difficult to implement. One reason is the need to keep up with changing government regulations, standards, and updates. It is also inherently complex as it must meet the complexities of global business needs. For example, each trading partner in a B2B network can present individual requirements. Although the two partners decide which EDI document to use, each may have unique formatting requirements that must be supported. These factors and others have led many organizations to outsource EDI solutions.
Whether on-premise or outsourced, there are some key requirements, capabilities, and resources required to effectively implement EDI. In addition to the agreement on the document types, secure transfer methods and factors such as necessary hardware and software, an effective EDI application should consider:
This type of conversion software takes fields such as names, addresses, money amounts, part numbers, and amounts and maps them from business application formats to standardized documents and vice versa.
These capabilities support large batches of EDI messages by enabling senders and receivers to wrap and unpack transactions. Transactions may then be grouped or divided into several parts or areas of a trading partner's business.
Once the envelopes of a message have been opened, routing mechanisms are required for different groups to sort messages and deliver them to appropriate destinations. Message conversion may also be required to get the message into the correct format for the destination.
The TPA explains terms and conditions, sets standards for business documents, and defines communications and business protocols between trading partners.
Electronic Data Interchange (EDI) is widely used to automate business-to-business (B2B) transactions, such as purchase orders and invoices, by exchanging standardized documents between two trading partners.
EDI can be used to automate the exchange of financial information, such as payments and remittances, between trading partners.
EDI can be used to automate the exchange of logistics information, such as shipping notices, between trading partners.
EDI can be used to automate the exchange of health care information, such as claims and benefits, between trading partners.
EDI can be used to automate the exchange of insurance information, such as policies and claims, between trading partners.
EDI can be used to automate the exchange of government information, such as tax returns and applications, between trading partners.
Traditional B2B transactions such as purchasing order, sales order, invoice, pre-shipped retention, and functional approval are made up of many steps. Manually performing these transactions, many paper documents and operational workload brings along. When document exchanges between trading partners are carried out in a traditional way, human errors and heavy workload become inevitable. But with the use of EDI, paper documents are eliminated, and human intervention is minimized.
In short, EDI helps businesses improve the supply chain speed, accuracy, efficiency, and costs. We can list some of the advantages of EDI to their users as follows:
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