What is electronic data interchange (EDI)?

We get a lot of questions from people who have been asked to trade using EDI, what it actually is. Put simply, electronic data interchange is the electronic exchange of structured data, or messages, between business applications.

The aim of EDI is to minimise manual labour, ensure accuracy, speed up the exchange of messages and gain visibility into the trading process. Many large organisations, particularly retailers or those with a large supply chain, utilise EDI to streamline their processes and save costs.

To better understand EDI, its use and benefits, let’s look at an example of a typical exchange without EDI:

1. A retailer enters a purchase order in their ERP system.
2. The retailer sends that purchase order through email, post or fax to the supplier.
3. The supplier validates the purchase order to ensure that all required information is provided and they have stock on hand.
4. The supplier enters the purchase order into their ERP system or accounting package.
5. The supplier sends a purchase order response to the retailer by email, post or fax.
6. The supplier picks and packs the order and sends a despatch advice.
7. The supplier enters the invoice into their application and sends it to the retailer.

Imagine the time, money and data entry errors involved in this process. What if we could just connect the ERP systems or accounting packages of the retailer and supplier? Well that’s what EDI does.

If two organisations are connected via EDI, the flow of messages is completely automated:

1. The retailer enters a purchase order into their ERP.
2. A map can be built in the gateway to convert the message into the format needed by the supplier, like an XML, EDIFACT, iDoc, flat file or CSV.
3. The purchase order is sent to the supplier’s application, where they can run validations. If the validation is successful, the purchase order appears within second of it being sent.
4. A despatch advice is generated in the supplier’s application and sent via EDI to the retailer.
5. An invoice is generated in the supplier’s application and sent via EDI to the retailer.

What are the benefits of EDI?

From a financial standpoint alone, EDI can lead to huge cost savings for organisations. There’s the time staff spend on data entry and chasing up issues, the improved cash flow because invoices are received sooner, accurate data always being on hand and much more.

Let’s look the benefits in greater detail.

Cost savings

A lot of paper and printing is involved in traditional transactions. There’s also the storage, filing, reproduction and document retrieval. All these processes involve labour costs, which EDI can significantly reduce. Studies have found the implementation of EDI can remove 90% of invoicing costs.

Errors are another issue. Manual data entry comes with inherent data issues because of the high number of processes involved. An EDI solution reduces these manual processes drastically, reducing the likelihood of errors and removing the cost of following up the errors.

Increased speed and data accuracy

EDI can speed up trading cycles dramatically. Instead of waiting days to receive an invoice, you can receive it in seconds of it being sent.

Data quality also improves when you implement EDI; studies show that it can reduce transaction errors by as much as 40%. There’s also a reduced number of lost faxes and mail and less data entry errors.

Greater efficiency

One of the key draws of EDI technology is the automation of otherwise-laborious processes. EDI enables staff to spend their time on higher-value tasks, rather than data entry.

The near-real-time visibility that EDI provides also helps companies achieve fewer stock-outs and fewer cancelled orders.  It’s near-real-time nature also allows organisations to track the trading process and be confident to make decisions based on the information available.