“Electronic data interchange (EDI) is the electronic transmission of structured data by agreed message standards from one computer system to another without human intervention. It is a system for exchanging business documents with external entities.” (Techopedia) Many articles have discussed the enormous benefits of EDI solutions. It is an obvious fact that EDI features give businesses an obvious competitive edge when it comes to financing, time, and labor. However, to better understand the reason behind its charm, it helps to dig deeper into the EDI workflow and see how things flow. So, how does EDI work?
EDI solutions are standardizations to streamline inter-industry data exchange processes. They are used to replace long, confusing email threads, time-consuming fax, or phone calls. It is important to keep in mind that even though EDI solutions, email, fax, and phone calls are used to exchange information between multiple parties, the standardized formats of EDI solutions automate most of the repetitive processes, shortening business cycles significantly.
The basic steps of an EDI workflow are preparing the document, translating them, and lastly, transmitting the data.
First step: Preparation
The first step in the EDI workflow is to generate the electronic file that is to be sent out. To do so, businesses need to collect and organize the data. Let’s say you need to send out a purchase order (PO).
Instead of printing out the PO form, the system generates an electronic file with the data to build the EDI file. The data source and methods vary, so here are several approaches you can take to prepare the document:
- Export computer data from spreadsheets or databases
- Work on formatting reports into data files
- Invest in EDI software that automatically converts your documents into EDI files
- Upgrade applications to export files suitable for EDI standard translation
- Manually enter the data
To minimize any errors and back-and-forth correction, it is ideal to involve as few human data entry processes as possible.
Second step: Translation
Once you have completed preparing the data, it is time to move on to the translation step in your EDI workflow. In this step, the collected data needs to go through translation software to convert your internal data into the appropriate standard EDI format with the proper segment and data components.
There are several ways for you to carry out this:
- If your business purchases and uses on-premise EDI solutions, it is likely that you also have a dedicated IT team to control and maintain the system. The translation of the document requires extensive expertise: you need to have the ability to specify how to map your internal data to the EDI data. Moreover, the data needs to comply with the EDI standards – for example, the ANSI ASC X12 or UNI/ EDIFACT standard. The translation software is available to fit nearly any computer environment and budget, from big systems that process thousands of transactions a day to smaller, PC-based software that handles only a few hundred transactions each week.
- Another choice is to use an EDI service provider. They will handle everything involving translating the document to comply with the requested EDI format. For some businesses, this might be a more economical choice. However, it is worth noting that the cost will go up if the transaction volume goes up.
Third step: Transmission
After the preparation and translation are finished, it is finally time for the last step. Your document is now ready to be transmitted to your trading partner. Once again, there is more than one way to do so, as there are several EDI communication protocols. Here is a list of several preferred ways to connect to your partner via EDI:
- Point-to-point EDI using communication protocols like AS2, HTTP, or OFTP.
- VAN (or Value Added Network), “is a private, hosted service that provides companies with a secure way to send and share data with its counterparties.” (Investopedia)
- A combination of both methods depends on factors like your partner’s requirements or the number of transactions.
Each transmission means has its pros and cons, so it is important to do your homework carefully to determine which one best fits your business needs.
Let’s say the document you wish to send to your partner is a purchase order. The EDI workflow is likely to look like this:
- Using the data preparation approaches mentioned earlier (manually inputting the data, exporting data from software or application, or built-in EDI solution), you will collect and get the data of your purchase order ready. The data is prepared to be translated into the EDI 850 standard.
- EDI 850 is the EDI that informs your partner about the details of the purchase order. You will need to feed the prepared data into your built-in EDI solution or ask your EDI service provider to translate the data into the EDI 850 format for you.
- After your internal data is translated into the EDI 850 format, the data is transmitted to your partner within a matter of seconds.
This saves a lot of time compared to the non-EDI means (email, fax, phone calls) – which require you and your team to go through the same manual data entry process repeatedly. Furthermore, it is difficult to keep track of all the data and requirements; thus, making the whole process extremely error-prone.
EDI workflow might seem lengthy and complicated when you take a close look at each separate step; but in reality, the process is fast and efficient. In the long run, EDI solutions save you and your business a lot of money, time, and even labor. Moreover, the EDI solution and its efficient workflow give your business the competitive edge you need in today’s ultra-competitive market. If you find this article helpful and want to start embarking on your EDI journey, let SCS Solutions help! Contact SCS Solutions via our website https://www.scssolutions.io/, Linkedin, or Facebook. We are excited to help you start your journey.