Basics of EDI

What is EDI, EDI basics

Electronic Data Interchange (EDI) is electronically communicating business information such as purchase orders & invoices rather than with paper. Standard documents exchange includes purchase order, invoices, shipping documents, etc.

It is now widely used both in the United States and globally, because of various principles that have been enacted that provide basic guidelines for its use. The two standards bodies that are much related to EDI are the ANSI X12 standard, used primarily in the US, and the UN EDIFACT standard that is used outside of the United States.

A traditional ordering process is long and tedious that looks something like this:

  • A buyer fills out a purchasing order and then faxes or mails it to a supplier.
  • The supplier checks inventory and then manually enters the order into an ERP system.
  • The supplier sends an invoice to the buyer and waits.
  • The buyer enters the invoice manually into their ERP system and waits for processing.
  • Once the supplier is paid, they send confirmation of shipment.

EDI simplifies the exchange between a buyer and a supplier.  A buyer’s internal system that uses EDI sends a PO to the supplier, which is accepted by the supplier’s internal network. This exchange of documents in real-time without any need of faxing, mailing, or manual entry.

How does EDI works?

Electronic Data Interchange makes business to business transactions faster and more accurate. EDI associates with your organization’s ERP or accounting system, allowing for the seamless exchange of business documents between trading partners. By changing a traditionally manual process into a fully automated electronic transaction, companies can quickly and accurately exchange necessary data for doing business faster and more proficiently.

 As an example, assume a business is sending a purchase order to a supplier. Without Electronic Data Interchange, an employee would need to create a purchase order manually, print it, and send it to the supplier by mail. The mail could take several days to arrive. Once received, the supplier’s employee would take the purchase order; manually key it into their computer for tracking. The supplier would ship products to the customer along with an invoice. Often, the retailer would have to call the supplier to ensure the purchase order was received. The entire process is time-consuming and labor-intensive. Additionally, as with any extensive human intervention, you open up the process to mistakes and errors. This can negatively impact the customer experience and trading partner relationships.

EDI allows trading partners to automate the sending and receiving of documents based on the ordinary course of business. It provides a process to improve the timeline for business transactions. EDI transactions can be completed in a few hours.  

Automate EDI transactions with EDI by Design and achieve EDI compliance for your trading partners.