Business transactions demand the continual exchange of documents
between businesses or trading partners. These documents contain
essential data that must be processed further to take the transactions
forward. The traditional way of exchanging such documents was through
postal delivery, emails and fax. But computers and internet, together with
modern software tools, brought about a significant shift in the way
businesses exchange such vital information. This became possible with
ELECTRONIC DATA INTERCHANGE or EDI, which is defined as a direct,
system to system exchange of business documents in a standard
electronic format. It effectively replaces the traditional methods used
earlier. Documents exchanged via EDI are most commonly purchase
orders, invoices, shipping advice, bills of lading, customs documentation
The involvement of people in handling documents and feeding data repeatedly
increases the possibility of errors and even slows down the work process. But
EDI-enabled systems allow information from the sender to flow directly to the
related application on the receiver’s computer. The subsequent steps required
begin without manual intervention.
Let’s take an example of a common document like purchase orders and invoices.
In a manual process, the buyer first enters the applicable data into a purchasing
system to generate the purchase order and then takes a print. The P.O. is then
dispatched physically through postal delivery or transmitted to the supplier
through email. The supplier then manually enters the P.O. information into their
own internal system, generates an invoice and prints it. After receiving the
invoice, the buyer enters the data into their own accounts payable system. This
entire cycle consumes several days, and if errors occur during manual entry, it
delays the process further and potentially cause wrong delivery of goods or
inaccurate generation of invoice.
EDI-enabled systems substitute this entire manual process with no human
intervention. The buyer’s purchasing system, which employs an EDI software,
auto-generates an EDI-formatted Purchase Order. The supplier’s system using
the EDI software receives the Purchase Order and alerts the concerned section
to ship the goods and generates an invoice that gets transmitted to the buyer’s
accounts payable system.
Since computers process EDI documents without human involvement, it
becomes necessary to use a universal format of communication. A universal
format classifies the nature of each bit of information and its format, for instance,
the number, decimal, month, day and year. When two businesses exchange EDI
documents, they must have a common EDI standard and version. To enable
end-to-end processing of documents by their internal applications, businesses
rely on an EDI translator, which can be an in-house tool or bought through a
What makes up an EDI document?
EDI documents are made of data elements, segments and envelopes grouped
in agreement with the commands in an EDI standard. When you produce an EDI
document, the precise formatting rules of the standard used must be obeyed.
When the EDI translator on the receiving computer interprets an inbound
document, for instance, a Purchase Order, it will recognize where to locate
relevant information such as the sender’s name, the reference number, date,
ordered items, price, delivery schedule, payment terms and so on. This data gets
fed into the receiver’s system in the right format without manual intervention.
EDI has streamlined and improved relationships between business
partners. It has enriched processes like electronic procurement, automated
receiving, electronic invoicing, and electronic payments. With EDI, your
company can cut down administrative costs, improve data quality, speed
up business cycles, and deliver strategic business gains.
iInterchange Systems is a preferred software solutions provider for container
depots and ocean carriers. The company’s solutions are backed by a firm and
committed after-sales-support apparatus. . This is the right time to begin a
conversation about implementing EDI in your company to stay ahead of
competition and continue your success journey.
Facts and figures stated in the blog are obtained from reliable sources on the