What is EDI (Electronic Data Interchange)

EDI (Electronic Data Interchange)

What is EDI?

Electronic Data Interchange is a data exchange method for sharing business documents in a standard format between two business partners. This computer-to-computer interface automates the creation of forms for both the buyer and seller. For example, a buyer places a Purchase Order, and the supplier (manufacturer) receives it and creates a Sales Order without a person typing the information into their own ERP. When the product ships, the supplier’s ERP sends the invoice to the buyer’s ERP for faster payment. EDI is commonly requested by large companies who place many orders regularly with a manufacturer or other supplier.

For different computer systems to read the data, EDI converts it into a standard format which both the buyer and supplier are configured to read. An EDI company handles the transfer and translation of the data either with software or a service, and changes a per-transaction fee. EDI helps manufacturers by reducing manual data entry and data entry errors as well as making their ERP systems more “real-time.” When the business volume justifies it, EDI can shorten lead-times, improve inventory accounting, and improve customer relationships.

How does EDI Work?

Both the supplier and the buyer agree on an EDI standard and version and the best way to send the data back and forth. Both will select an EDI vendor to supply the software and services. After the completion of the configuration with the EDI vendor and testing, the sender will collect and organize the data to be sent. Next, the EDI translator software or service will convert the internal data into the standard EDI format. Then the sender will connect and transmit EDI documents via the agreed-upon method. Some standard methods are AS2, a secure internet protocol, or a VAN provider. VAN providers have multiple communication protocols. The method may be combination depending on the partner’s preference and the volume of transactions.

What is the Future of EDI?

Now, more than ever, companies need to automate communication. Businesses have more options and lower setup costs which may justify implementation at lower business volumes than in the past. Manufacturers will want to look for Cloud options, consider communication protocols that are less expensive than the traditional VAN, select an EDI gateway that supports multiple file types, and use self-service portals to track file exchanges. EDI has been around since 1960 – and it’s only getting faster, better, and cheaper. Digital transformation and cloud computing have enabled far better gateway solutions with self-service and AI-based mapping tools. The old “EDI” is now seated in the modern era of IoT.