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 and invoices.
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 service provider.
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 internet.