In this article on EDI FAQs, we answer some frequently asked questions about Electronic Data Interchange, including key benefits.
What is EDI?
The term EDI stands for Electronic Data Interchange and is defined as the computer-to-computer trading of business documents such as purchase orders, invoices, inventory levels, and shipping notices.
Electronic Data Interchange uses a standard of data entitled ANSI (American National Standards Institute) or EDIFACT (Electronic Data Interchange For Administration, Commerce, and Transport) this ensures requests from one party are then compatible with the supplier’s information systems so that the supplier can fulfil all orders placed.
The software facilitates the exchange of documents and data over a variety of platforms, this joins numerous industries such as manufacturers, distributors, and retailers through their information systems within a worldwide business-to-business network.
What are the different types of EDI?
Direct EDI / Point to Point
This establishes one connection between two business partners, offering control for these partners and this is frequently used between larger customers and suppliers that have a lot of daily transactions.
EDI via VAN
Van or Value Added Networks are private networks in which electronic business documentation is exchanged between partners. VAN provider manages the network and companies provide mailboxes where they can send and receive Electronic Data Interchange documents.
EDI via AS2
AS2 is defined as an internet communications protocol that enables data to be transferred securely across the internet. Electronic Data Interchange via AS2 delivers the functionality of EDI with the ubiquity of internet access.
Web EDI
This conducts EDI using a standard internet browser, Web EDI makes Electronic Data Interchange easy and affordable for small/medium organizations and companies that have the need to utilize this service.
Mobile EDI
At present, this has had limited adoption due to security concerns with mobile devices across an EDI infrastructure but generally due to the devices themselves due to the quality and size of the screen of most devices being relatively poor until recently.
EDI Outsourcing
Also known as Managed Services and is a fast-growing option that enables companies to use external resources to manage their EDI environment on a daily basis. This is partially driven by companies wishing to integrate back-office business systems such as ERP (Enterprise Resource Planning) platforms.
These are all different types of Electronic Data Interchange, with a short description of each type and how they are used, for more company-specific types and explanations these are all accessible through your chosen search engine.
What is EDI software used for?
EDI software is commonly used to transmit key component data in a paperless environment which eliminates the necessity for documents to be sent using inefficient methods such as mailing and faxing.
This software is faster and convenient and companies put themselves at a security risk by sending attachments instead of securely transferring data directly into a system or platform for managing orders, pricing, and inventory. Therefore, removing the manual element which can increase the possibility of human error.
What are the benefits of EDI?
- Streamlined Process: By automating the process of business transactions means that business cycles and can move up to 61% faster. This leads to a shortening of order processing and delivery times, automation, in turn, helps improve customer service and also allows for reduced inventory levels for cost savings.
- Improved Information Flow: Data sent and tracked in real-time can reduce errors by up to 40% compared to errors created by manual data entry, lost or damaged faxes or mail, and illegible handwriting. To improve the order to cash cycle, in addition, helping to strengthen the relationships between business partners and overall improve cash flow.
- Lower Operational Costs: Electronic Data Interchange can help to save expenses including paper, printing, storage, and document retrieval can lower transaction costs by an estimated 35%. Human errors are reduced significantly leading to savings in costly error correction activities including investigation, negotiation, returns, restocking, and reconciliation in addition to potentially damaging your relationship with customers.
What is B2BE’s EDI solution?
B2BE’s EDI solution is a managed product that creates a highly efficient automated and integrated environment that is managed by B2BE removing the need to allocate specific resources, hardware, or the requirement for software. Your organization only needs to be able to send and receive data in a format you can handle. The B2BE EDI product handles the translation, mapping, enrichment, and validation of the documents and data.
Where is EDI used?
Commonly, EDI was used in the past primarily by automotive and retail businesses—however, in recent years it has been more widely adopted and is now frequently used in industries such as manufacturing, healthcare, pharmaceutical, utility, and construction to name a few couples of Electronic Data Interchange clients.
For example, a retailer attempting to implement a “just-in-time” inventory philosophy which is cutting down on overstocked inventory and replacing inventory in demand could do very well to implement an Electronic Data Interchange solution.
What are the components of EDI?
Standard Document Format
This is a standardized format agreed upon by both parties which do not require complicated hardware or software to access information where both parties communicate directly through a business application.
Translator and Mapper
Is a translator is used to convert the raw data into meaningful information according to specifications provided by a mapper. A mapper is used to create conversion specifications, it compiles the specification and then gives instructions to the translator on how to translate the data.
Communication Software
This communication software is used to transmit data and convert business documents into a standardized format. It follows a standard communication protocol that is incorporated into the software.
Communication Network
This is a communication network that provides a direct link between trading partners who are willing to exchange business documents through EDI.
Modem
It is a hardware device that transmits data from one computer to another.
VAN
A network that connects the computer system of one organization to another.
Point to Point Link: A direct communication link between two computers.
What are the applications of EDI?
- Retail Sector: Retailers use a common model stock for each shop location and the POS stock position is updated continuously and data is then fed via EDI enabled supply chain management network. The EDI software monitors all the logistics and makes updates in original stock.
- Manufacturing Sector: In the manufacturing sector EDI facilitates material requirement planning and just-in-time manufacturing. This helps the supplier to plan and schedule supply according to the requirements of the manufacturer. The suppliers respond via EDI with an ASN to identify the parts/materials to be delivered and the approximate delivery time and this is updated when the shipment is delivered.
- Automobile Sector: In this sector, EDI is used to keep customers updated with current product and pricing information during the purchase cycle. An ASN is transmitted through EDI to the customers to prepare a loading schedule and to ensure proper receipt of goods via EDI to speed up the payment process.
- Financial Sector: EDI replaces the labour-intensive activities of collecting, processing, and dispersing payments with an electronic system, facilitating the flow of payment between the bank accounts of trading partners without requiring any human intervention. A payee’s bank account is electronically credited and the payer’s account is electronically credited on the scheduled day of payment, such an exchange is known as Electronic Fund Transfer (EFT).
Why do we use EDI?
At a minimum, Electronic Data Interchange replaces the mail preparation and handling associated with traditional business communication. The real power of EDI is standardizing of information communicated in business documents, which makes a ‘paperless’ exchange, a traditional invoice illustrates what this can mean.
More information
Do you want to embark on an electronic EDI-based onboarding solution to trade with your suppliers? B2BE has all your bases covered with B2BE’s Web EDI solution. Now you know more about EDI, why not get in touch and see how B2Be can assist you further in your EDI needs.
About B2BE
B2BE delivers electronic supply chain solutions globally, helping organisations to better manage their supply chain processes, providing greater levels of visibility, auditability and control. We’re driven by a passion for what we do, inspired by innovation, and underpinned by a wealth of knowledge. With over 20+ years of experience, the B2BE teams operate worldwide.
For more information, visit www.b2be.com.