What is EDI? How Does EDI work? What are the Benefits of EDI?
EDI = Electronic Data Interchange. Definition: Computer to computer exchange of standard business documents such as purchase orders, invoices, inventory levels and shipping notices.
EDI software solutions facilitate the exchange of business documents and data across a variety of platforms and programs. What before would be manual processes that used phone calls, faxes, or paper as communication between companies ordering or selling goods, is now all done through EDI. It joins manufacturers, distributors, and retailers, through their information systems, in a worldwide business-to-business network.
How does EDI work?
All of your company’s information is stored within your ERP system, such as details related to purchasing, inventory levels, invoicing and billing, shipping and so on. EDI solutions like Mapadoc or Edisoft integrate with your Sage ERP system, accessing and using the information needed to create the documents you need to do business with other companies.
Both your suppliers and your clients have specific requirements as to how they do business. Things like ship-to addresses, unique pricing, and so on, that are determined when a deal is made and have to be taken into account when transactions take place. This is the data that gets used by EDI solutions to facilitate trading between businesses.
EDI uses the standard of data (ANSI or EDIFACT) to ensure requests from one party are compatible with the supplier’s information system so that the supplier can fulfill orders placed. It helps companies doing businesses with each other, particularly suppliers that can consistently meet the requirements and terms of their clients, like retailers and distributors.
This is all organized during the implementation of EDI software, when fields are mapped to each other so that the relevant data is used. When a request is received, the data is converted to fit the system of the recipient and crucial information for the transaction is used to generate all incoming and outgoing documents.
How EDI benefits businesses?
Relying on manual processes to ensure conditions of a deal are met is a cumbersome and obviously error-prone process. An EDI solution will replace a lot of manual processes with automated transactions, by setting up a communication network between systems in a supply chain.
The growth of EDI software solutions is a lot like that of other business software systems like ERP. Once a luxury of large enterprises, it’s made its way into the hands of small and medium businesses. It differs, however, in that a large trading partner, retailer, or distributor often imposes EDI as a requirement on members of its supply chain. So, being able to trade with large companies who require partners to have an EDI solution for transactions is the big picture benefit of implementing the software. On a smaller scale, the EDI software also improves efficiency for a growing small and medium enterprise.
Benefit #1 – Time Saving and Speed Improvements
Some of the benefits of EDI solutions are quite straightforward. The speed in which information flows with EDI systems is a clear example of that. With an EDI solution, incoming orders are created automatically, not needing user input or taking up employee time.
There are no delays due to different time zones, or having to get a person familiar with the term on the phone. No faxes, or paper trails, leading to better cash flow, faster buy-sell cycle time, shorter lead times, and reduced inventories.
Benefit #2 – Accuracy and Elimination of Manual Errors
The reliability of the information being exchanged between businesses improves with an EDI solution. Companies see a reduction of errors by eliminating manual and duplicate data entry. With access to the data of ERP systems, EDI solutions serve as not only the medium in which the information travels, but also ensures that information accessed and received is not only accurate but that conditions for the transactions are met.
This leads to improved relationship with trading partners, minimizing costly charge backs, late deliveries, or incorrect product prices.
Benefit #3 – Security, and Simplicity
The standardization of data within your systems will help your IT staff and employees know where to find it. The automatic generation of sales orders, invoices, shipment reports and so on will also make the work simpler for sales and warehouse staff.
EDI solutions are set up to be only accessible to pre-defined authorized users, equipped with audit trails and archives to track use and ensure security. With electronic confirmations to ensure receipt of documents between parties, it brings transparency to business relationships.
Integrating EDI with your ERP system can bring other benefits, as further business processes can be mapped and automated. A company looking for EDI is a company that is on the right path of growth and may find further benefits investing in business software solutions.