We’ve noticed recently during our conversations with prospects, clients, and partners that most people have heard the term EDI but aren’t totally clear on what EDI is or the benefits it would offer their business.

EDI stands for Electronic Data Interchange and enables organizations to exchange data computer-to-computer between business partners in a standardized electronic format quickly, accurately, and reliably.  The term EDI broadly describes a system in which a variety of file formats and types pass between trading partners by using an agreed upon set of standards that define the structure of files that can be digitized and shared electronically.  This allows businesses to share documents like RFQs (Request for Quotations), bids, Purchase Orders, invoices, and shipping notices electronically that have otherwise traditionally been communicated on paper.  It’s essentially an electronic conversation between two businesses, or more specifically, two business systems.

How does EDI Technology Work?

All of your company’s important information is stored within your ERP system including details related to purchasing, inventory levels, invoicing, billing, shipping, etc.  EDI solutions integrate with your ERP system so that they can assess and use information required to create documents needed to do business with other companies.  Your suppliers, clients, and even your organization have specific requirements as to how they do business.  Things like ship-to addresses, unique pricing, etc. are determined when a deal is made and have been factored into plans when transactions take place.  This is the data that EDI solutions use to facilitate trading between businesses.

EDI technologies utilize a set standard of data (AANSI or EDIFACT) to ensure requests form one party are compatible with the other party’s information system.  During the implementation of EDI, software fields are mapped to each other so that the relevant data is used.  When a request is received from a trading partner, the data is converted to fit the system of the recipient and crucial information for the transaction is used to generate all incoming and outgoing documents.

Let’s say for example a Purchase Order has been processed in your system.  Information from that Purchase Order is translated into a specific format and digitally submitted directly to your supplier’s system.  Sometimes, a Value Added Network (VAN) can act as an intermediary between you and your trading partner. Basically, this VAN acts as a post office that receives transactions and routes them to the appropriate recipient.

In a warehouse fulfillment situation, a customer may send an EDI message with a purchase order to a supplier, which can be generated by the system when the stock reaches a specified minimum.  By doing this, the amount in holding can be maintained automatically, since the supplier will already have the Purchase Order in their system, allowing them to fill the order and create an invoice in their ERP system.  The invoice is then sent to the customer and appears along with shipment tracking and delivery confirmation in their accounts payable for payment.  All of this can be accomplished without human intervention to generate or transfer the Purchase Order or Invoice with the help of an EDI system.

3 Key Benefits of EDI

  1. Reduce or eliminate manual data-entry errors. EDI solutions negate the need for employees to re-key data into multiple systems reducing or eliminating data-entry errors.
  2. Streamline transaction processing. EDI and similar technologies also increase the speed at which the trading partner receives and add order information into their systems, thus significantly reducing cycle times.
  3. Direct and indirect cost savings. EDI technologies can reduce direct costs such as paper, postage, printers & toner, and document storage.  However, some indirect cost savings can include increased employee productivity, reduced lead times, more frequent inventory turns, better use of office and/or warehouse space, improved cash flow, and allows you to facility on-boarding new EDI-enabled customers.

Integrating EDI and ERP

Not all ERP packages come with EDI functionality built in.  In this case, third-party enhancements must be utilized to import and export data between trading partners and your organization’s ERP system.  Once the EDI and ERP systems have been implemented, integrated, and tested, together they will be able to transfer large amounts of data without employee intervention or manual processes.  Transactions can be processed almost instantaneously, substantially speeding up the cycle time for orders.

Contact us if you have questions about how EDI technology can benefit your business or to discuss integration with your current ERP software.

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