Electronic Data Interchange

EDI transactions are one area of electronic commerce that companies use, for example, one company
may wish to electronically send a purchase order to another and this can be performed using EDI.

EDI transactions were designed to be independent of the communications used by companies or the
software technology that generates the EDI data.

The implementation of EDI is important for companies as it can significantly reduce the cost of sending
documents.

EDI Costs Versus Benefits

A paper purchase order requires resources to print the PO, fax it, or post it to the vendor. EDI
automatically sends the electronic document to the vendor thus reducing the cost of sending the PO.
Not all companies use EDI. There is a cost to implement and maintain the technologyrequired to
perform EDI. Each trading partner that a company wants to use EDI with may require resources to setup
and this can be cost prohibitive for smaller companies or companies without technical resources.

Some companies who profess to use EDI may receive orders electronically but are unable to
automatically load those orders into their sales systems.

The EDI orders are printed out and manually entered into their computer systems.

This situation is common where companies have aging order systems that do not have the capability to
accept or generate EDI orders.

EDI How It Works

There are a number of ways EDI messages are transmitted between trading partners. The most common
method was to use a value added network or VAN. This allowed companies to send a transmission
which was then reviewed by the VAN and then sent to the correct recipient.

EDI (Electronic Data Interchange) enables the electronic transfer of business information between
trading partners (B2B) through a standardized format. EDI has actually been around for roughly 50
years, originally developed by the U.S. transportation industry to standardize electronic transactions
between vendors and customers. This highly efficient process is entirely paperless and requires no
human participation, saving businesses countless dollars through the elimination of repetitive cost-,
labor- and time-intensive tasks such as purchasing, printing, processing and delivery of paper
documents. Incorporating EDI not only saves time and money across industries and throughout the
supply chain, its paperless process significantly reduces a businesses’ environmental footprint.

EDI is used in supply chain management to facilitate the transfer of a wide range of documents such as
bills of lading, customs documents, inventory documents, shipping status documents and payment
information documents.
Here are some of the most common documents that EDI facilitates in the supply chain:

 Orders

 Order Acknowledgements

 Order Amendments

 Shipment Notifications

 Invoices

 Remittance Advice

 Requests for Routing Instructions

 Routing Instructions

 Organizational Relationships

 Commission Sales Reports

 Planning Schedules w/ Release Capability

 Price/Sales Catalogs

 Requests for Quotation

 Specifications/Technical Information

While EDI is the industry standard in large-scale, B2B transactions, more and more SME’s are reaping the
benefits of this technology as well, due to the cost savings and increased access to larger-scale suppliers
who are already using EDI.

Benefits of EDI for Supply Chain Management

Let’s review a few of the most compelling benefits that EDI delivers to the supply chain:

Instant Exchange of Documents / Real-time Transactions

Information can be exchanged and transactions executed in real time between trading partners,
eliminating redundant, time-consuming and error-prone tasks from the equation.

No Human Intervention Means Greater Accuracy

Here’s a simple truth – When humans input data or “handle” documents, the risk of errors entering the
equation increases exponentially. EDI eliminates those risks, since all information is exchanged
electronically, meaning that orders submitted through EDI are accurate and that ensures faster
confirmation.
Cost and Time Savings

In the B2B universe, slow, paper-driven processes result in much higher costs and additional time
required for trading partners to conduct their business. Typical repetitive tasks that apply to the
processing of paper documents such as printing, copying, delivering, filing, storage and postage, to name
a few, are eliminated when you upgrade to an EDI solution, which combine to yield tremendous savings
in time and money. It’s often the difference between taking seconds to complete a transaction with EDI
compared to possibly an hour or more for the same task with a paper-driven procedure. And that really
adds up over time.

Reduced Waste = “Greener” Business Practices

EDI offers an eco-friendly alternative to outdated paper-based processes that generate so much waste
into the environment. Trees are saved and the planet rejoices.

Streamlined Communication Between Trading Partners Nets More Sales and Better Relationships

EDI streamlines not only transactions but all types of communications between trading partners, which
nets more sales and enhances partner and customer relationships. For example, sales cycles are
shortened, orders are taken and confirmed more rapidly and customers gain more confidence in your
ability to deliver superior service.

Real-time Updates Ensure Peak Inventory Management

EDI has established a reputation for helping companies maintain optimal inventory levels, which ensures
they can meet immediate demand as well as optimize stock levels for the future. Bolstered by access to
real-time updates, businesses can use the latest information to set up benchmarks and alerts that
promote optimal resource allocation and prevent shortages or excess inventory issues.

EDI Keeps Your Business Ahead of the Game

This blog has noted just a few of the most compelling advantages that EDI offers to trading partners
throughout the supply chain. The savings in time and money, the boost in sales and accuracy and the
enhancement to customer and partner relationships make EDI a strategy that should be seriously
investigated by SME’s that haven’t yet committed to this technology.

EDI, with its global connectivity capabilities, also extends a company’s reach to a broader network of
trading partners. And as more companies adopt this technology, their access to an ever-growing supply
chain will skyrocket.

With EDI offering so many long-term advantages, isn’t it time to discover what EDI can do for your
business?

When a supply chain of different companies and different processes is carried out, data needs to be
exchanged among them. However, data exchange is difficult if each of them uses different computers.
Electronic data interchange (EDI) will be useful in that case.
"EDI (Electronic data interchange)" is indispensable for QR (Quick Response) and ECR (Efficient
Consumer Response). Both QR and ECR require EDI as a fundamental technology for exchanging order
placement/receipt data and billing/payment data between manufacturers and distributors.

When a supply chain is carried out among different companies, transaction data needs to be exchanged
amongst computers through communication lines. At that time, even though manufacturers and
distributors have the same concept, EDI cannot be realized if they use different computers. EDI is a
breakthrough for this technical bottleneck. In EDI, various arrangements that need to be made among
interested parties should be based on widely-agreed standard conventions as much as possible.

While EDI is an infrastructure of a supply chain management system for QR and ECR, it is also a
technology that supports concepts such as computer-aided design (CAD) and computer-aided
acquisition and logistic support (CALS), a higher-level concept of CAD. EDI is based on standardization of
electronic data exchange. There are many organizations that make rules for the standardization, such as
ANSI (American National Standards Institute), EDIFACT (Electronic Document Interchange For
Administration, Commerce and Transportation), CII (Center for the Informatization of Industry),
EIAJ(Electronics Industries Association of Japan), and VICS (Voluntary Interindustry Commerce Standards
Association). The rules differ depending on the types of applications for each industry that are installed
on the infrastructure of EDI.

Management practice such as supply chain management that transcends industries can be realized only
when an infrastructure of society's resources exists. However, you cannot always gain the benefits
immediately even if the infrastructure exists. Promoting the standardization through budgeting by the
government and industry organizations will lead to the establishment of a nation's industrial base.