Are you still scrambling around to gather an order’s data from a 1000-row spreadsheet or an email chain dating back to 3 months ago? Did you know there is a tool that centralizes all your essential data? This tool saves you time and money and enhances your business’ efficiency, profit, and quality. 

That tool is called Electronic Data Interchange software, or EDI for short. This article will provide you with all the basics you need to know regarding EDI: its definition, key features, and benefits. If you are new to EDI, this article is a perfect start.

What is Electronic Data Interchange (EDI)?

Techopedia defines Electronic Data Interchange as “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.”

Simply put, EDI is an electronic message exchange between two companies. Typically, these electronic messages:

• Do not involve human intervention
• Are business documents. The most common documents include purchase orders (POs), invoices, and shipping notices. 
• Have a standard format from a series of standardized elements. This is where the real power of EDI lies. More on this later.

There are several EDI standards. Each of them is commonly used in different regions and industries across the world.

Traditionally, EDI is used in trade transactions, but nowadays, it can easily be seen used in industries like

• Supply chain management (e.g. transportation information)
• Healthcare (EDI can even transmit the patient’s health records)
• Construction workflow
• Tax reporting
• Education
• Travel and hotel bookings

A large number of businesses use EDI intending to integrate it with other solutions such as warehouse management systems (WMS), enterprise resource planning (ERP) systems, and so on. 

At this point in the article, you might be wondering how EDI differs from emails. Isn’t it just sending information back and forth? Why not simply use emails in the beginning?

The answer lies in the standardization of EDI.

Let’s say you want to place a purchase order. Normally, you would need to manually fill in the purchase order form, including all the relevant information like the type of product, size, quantity, and so on, then hit send. After that, the manufacturer sends back an email confirming the order has been received. The manufacturer then goes on to enter the order information into their system, once again, manually. Later, the manufacturer would have to manually fill in the invoice and send it to you via email. Then it is your turn to record this information into your business system. 

Even if all this information is included in a single email thread, it is obvious that the whole process is extremely time-consuming and error-prone. Additionally, your business and the manufacturer use different formats for the business documents, making gathering the data even more time-consuming than it needs to be. 

This is where the EDI solution taps in to rescue. First, EDI documents have a standardized format that every business needs to follow. EDI standards strictly define where each piece of information (order number, type of product, quantity, etc.) goes and where they should be found. The strict standardization allows the EDI translator to immediately understand all the important information: what the order quantity is, what product is ordered, and so on. Then, this information will be automatically filled into the receiving business’ internal system. No human intervention is required. 

The data is transmitted swiftly and securely, eliminating any manual, time-consuming, and error-prone data entry. Gone are the days of waiting three to five days to receive paper documents – and there is even a high chance of them containing some kind of error. Now, the whole process only takes less than an hour and is highly accurate. 

Electronic Data Interchange (EDI) main features

The key features of EDI include

• EDI standards: the system has built-in EDI standards to comply with the standardized formats, allowing for sending and receiving documents conveniently.
• Communication protocols: EDI solutions should have the ability to support the most common file transfer protocols like HTTPS, AS2, FTP, OFTP, HTTP, etc.
• Error detection: with the built-in standards, the system quickly detects and flags any errors.
• Integration: the system is capable of integrating with other types of data processing systems.
• Transfer methods: the system is capable of supporting different transfer methods: directly, via the VAN (value-added network), or both. Investopedia defines a value-added network as “a private, hosted service that provides companies with a secure way to send and share data with its counterparties.”
• Data exchange: the system should be able to support a variety of document formats and exchange the said documents between trading partners. Trading partners refer to businesses that operate the business electronically.
• Secure exchange: since the files are encrypted and stay within the sharing network, the data is safe and secured.
• Data mapping: this feature refers to the software’s ability to translate the data back and forth – from the internal system data format to the standardized EDI format.
• Data tracking: Users can use this feature to optimize data transmissions as the software generates data at the same time. The software often creates dashboards to track the process and evaluates it.
• EDI testing: the software should have the ability to create a test environment to verify the data and make sure it complies with the industry’s strict regulations.

Electronic Data Interchange (EDI) benefits

The benefits of EDI have been mentioned here and there in the previous sections, but let’s dig deeper into its advantages. Although some criticize the system for being costly and complex, it is still the preferred data transmission means for businesses. 

EDI is highly efficient and accurate

It is clear that EDI’s strict standards have produced highly accurate business documents. Increased accuracy requires fewer data processing time and boosts productivity. You and your team will have more time to focus on other more vital tasks. With increased efficiency and transparency, relationships between business partners will improve, too. 

EDI saves time and money

It is clear that by using EDI systems, businesses have significantly cut down the data transmission time. Workers no longer need to spend an extensive amount of time dealing with data and get more done much quicker. The costly errors significantly decrease in number, meaning no more back-and-forth corrections. Moreover, a large part of the process has been automated; hence you will not need to spend as much on paper or labor. 

EDI improves traceability 

With the data tracking function, EDI provides users with real-time visibility and transparency, supporting data collection and analysis. 

EDI delivers a better customer experience

The enhanced efficiency, saved time, and money all translate back into the service and final product the customer receives. Increased productivity and execution ensure customers will only receive the best quality services.

Final note

Maybe it is time you and your team seriously start considering an Electronic Data Interchange solution. It will undoubtedly bring about major advantages. If you need help to kickstart your first EDI solution, do not hesitate and contact SCS Solutions for one of the best EDI systems out there. Reach out via our website https://www.scssolutions.io/, Linkedin, or Facebook. We can’t wait to help you start your EDI experience.