Electronic data interchange (EDI) is a type of digital system that facilitates computer-to-computer exchange of common business documents such as purchase orders, invoices, inventory levels and shipping notices. It is capable of transmitting business documents and data across a wide range of technology platforms and programs. Labor-intensive methods for supply chain communication, including telephone calls, faxes or paper mail, may now be replaced by EDI. EDI brings together producers, suppliers and vendors in a global business-to-business setup through its data system.
All of your company’s information is typically stored within an Enterprise Resource Planning (ERP) system, such as details related to sales, inventory levels, invoicing and billing, shipping, and more. When your EDI solution interfaces with your ERP system, it gives you access to the information and documents you need to do business with other companies.
Your suppliers and customers also have specific policies on how they do business. Shipping addresses, pricing and other information must be considered when their order is processed. EDI solutions share this information to improve coordination between businesses along the supply chain.
EDI uses shared information standards to guarantee that data formats from different trading partners match. It helps business partners to avoid confusion and errors during order processing, invoicing and other transactions. If two business partners use different information standards, an EDI system facilitates communication by translating the data. When communication between two partners is initially established, related areas in each of the trading partners’ information systems are mapped to each other so that data can be shared reliably. When information is sent, it is automatically translated to match the data format used by the recipient’s system.
The primary advantage of EDI systems is highly efficient communication. Manually managing supply chain communications is too slow and error-prone for modern businesses. The EDI solution replaces many manual processes with faster, more accurate automated transactions. With an EDI solution, incoming orders are generated automatically without the need for user input. There are no interruptions due to working time zones or training new employees. Eliminating faxes and paper documents leads to improved cash flow, faster buy-sell cycle times, shorter lead times, and condensed inventory.
Similar to other business software such as ERP systems, which were once used exclusively by large enterprises, EDI solutions have declined in price and made their way into the hands of small and medium-sized businesses. Unlike ERP software, however, large business partners can set EDI as a prerequisite before joining another business’s supply chain. Therefore, being able to do business with these large companies is a huge advantage of implementing EDI.
EDI solutions increase the reliability and accuracy of information shared between businesses. After reducing manual communication processes by implementing EDI, companies notice a reduction in errors and duplicate records. Transferring information directly between your own ERP system and your partner ensures that it is accurate and tailored to your partner’s needs. This leads to richer relationships with business partners and fewer late transfers or costly chargebacks.
Automatically generating sales orders, invoices, shipment reports, etc. will make the job easier and easier for sales and warehouse staff. EDI solutions provide access only to authorized users and create audit trails to track usage and enforce information security. Integrating an EDI solution with your ERP system can provide other benefits, as the integration enables the automation of additional business processes.
For the reasons mentioned above, businesses interested in improving supply chain efficiency, agility and ROI should explore EDI technology.