EDI or electronic data interchange is a novel and contemporary technique to share exclusive and confidential data between businesses. It is a deviated approach from the traditional ways of using information interchange, which was paper-based.
EDI transactions of data are computer-to-computer data exchanges. This method of data interchange automates the process and eliminates the unprecedented errors that are inevitable in manual data transfer. EDI not only minimizes but can omit the need for manual interruptions in the data exchange process.
Here is how EDI differs from a traditional document exchange:
| Traditional Document Exchange | EDI Document Exchange |
| The process requires three to five days | The process requires less than an hour |
| The buyer initiates the buyer order and prints it | The buyer initiated the buyer order but there is no need to print it |
| The PO reaches the supplier and the supplier enters it into the system | The software generates an electronic version of the PO and then transmits it to the supplier |
| The seller authenticates the buyer purchase order via an email or an acknowledgment order | The system receives the purchase order and automatically updates the system accordingly |
Types of EDI
Point-to-Point Connections
Direct connections are another term for point-to-point connections. The business communicates directly via a network using the same internet protocols. Those companies that need frequent and high-volume data exchange mostly use direct communications.
Companies that rely on this mode of data transfer should choose the right software package. One that enables access to all the agreed-upon protocols such as AS2, SFTP, and FTPS.
EDI via VAN
A secure and safe type of EDI, this one provides organizations with direct access to a mailbox. The documents and other data transmissions occur via that mailbox. The VAN providers also offer companies an alerting service that informs them when they have successfully sent the message. It also notifies when there is a new message.
EDI via AS2
AS2 also known as Applicability Statement 2 is an EDI transfer protocol that ensures safe, cheap, and quick data interchange between two computers. EDI via AS2 is one of the most widely used modes of communication in the consumer goods and retail sector. This mode of data transfer acts as an envelope that secures the information using digital signatures and end-to-end encryption.
Web EDI
This is a tool that assists those organizations which lack the basic infrastructure needed for EDI data transmission. Web EDI conducts two main functions: one is the ability to send messages across the web, and the second is the creation of follow-up documents for the suppliers.
Web EDI is highly useful in securing information in those areas where IT and EDI skills are still in the developmental stage. With the help of the web EDI, companies located in those regions do not have to install any EDI software.
Mobile EDI
Although not designed for mobile use, IT companies are developing EDI software appropriate for a mobile interface as well. There are many hindrances to the successful implementation of this one. For instance, the mobile screen is not that helpful in this context. However, a mobile EDI promises accessibility, reliability, and flexibility to receive data at any time and at any place.
EDI Outsourcing
It is a method in which a company outsource EDI services from a third-party provider. This is mostly suitable for those companies which are small-sized, midsize, and startups. Managing complex EDI software within a company premises is a daunting task. That is why companies are often inclined towards EDI outsourcing. Not only it is cost-effective but also saves a lot of operational costs.
Benefits of EDI
Operational Efficiency
As it reduces the need for manual data entry, there is less room for errors. Moreover, EDI aids in lowering operating costs by eliminating the dependency on paper, printing, storage, filing, postage, and paper record keeping. All of this helps to improve the operational efficiency of the organization by putting less burden on the administration department.
Less Room for Errors
There is not a single shadow of doubt regarding the fact that manual inputs are highly prone to errors. From the instances of illegible handwriting to incoherent document handling, the room for errors and inaccuracy is always there. EDI, on the other end of the spectrum, ensures a more efficient method of data transfer that reduces and omits human errors. Hence improving the whole process of record-keeping.
Secure Data Transfer
Whether the data transfer is secure or not is a common concern for organizations. With EDI, companies can rest assured that the data transactions are end-to-end encrypted. EDI follows all the necessary communication protocols that are necessary for internet-based data interchange.
Reduced Organizational Carbon Footprint
The use of paper for data transmission is a traditional method of data interchange. However, paper-based transmissions are notorious for their increased carbon footprint. The use of EDI, which is a paperless mode of data transmission, is a safer and environmentally sound approach. The recent age calls for organizations to become more environmentally responsible and this use of EDI offers this level of corporate responsibility.
Improved Operational Visibility
One of the biggest perks of using EDI in business is that it increases operational visibility. This automated data exchange leads to a transparent invoice process which ensures end-to-end visibility in the operational capacity of the organization.
Reduced Inventory Cost
With the help of EDI, you have more control over the operations because it guarantees enhanced transparency of actions. This subsequently improves the inventory management process, making it more streamlined and efficient. Hence, leading to reduced costs in the name of inventory management.
Limitations of EDI
High Upfront Cost
It is wrong for us to beat around the bush and say that EDI is inexpensive. EDI is a costly venture that requires hefty investments for installation. This can collide with the budget constraints of small businesses. Small businesses often struggle with financial stability which is why installing EDI for business communication can be a daunting task for them.
Nowadays, EDI technology is becoming less expensive but it still does not fall in the category of affordable technology for everyone.
Time-Consuming
The initial setup installation of EDI is a time-consuming process. From the setup installation to the integration of it with the already existing protocols requires a lot of time. But once, EDI is installed it promises ease and even provides mobile and web options for those who are not aligned with advanced technologies.
Complex Standards
For some organizations, complying with the long list of EDI protocols can be a tough nut to crack. Some common EDI standards are:
- UN/EDIFACT
- ANSI ASC X12
- GSI EDI
- TRADACOMS
- HL7
It can be difficult for organizations to find a suitable provider that supports this versatile range of EDI protocols. This is what makes organizations hesitant to acquire EDI as their main source of inter-business communication.
Require Investments in System Protection
There is no denying the fact that EDI requires high-budget investments in computer networks. To protect the company’s server from malware, viruses, hacking, and cyber attacks, there is a need to install state-of-the-art computer systems, which is a costly affair.
EDI Implementations
EDI implementation in the business world is complex. That is why a step-by-step approach is inevitable to ensure a smooth transition.
Step 1: Development of an Organizational Structure
To smoothly integrate EDI in your organization, you must start with the development of an organizational hierarchy in your company. The company must have these key elements in the organizational structure:
- EDI coordinator (can be an in-house IT expert or can be hired externally)
- The steering committee (includes all the department heads who will be affected by EDI implementation)
- Senior management sponsor (a dedicated member of the senior management to overlook the whole process)
- Dedicated team of EDI ( the team of experts who will integrate EDI into the system)
Step 2: Take a Strategic Review of Your Organization
A strategic review of the organization’s proceedings is highly essential because it helps to analyze all the areas where EDI can be successfully implemented. In this context, some of the most important factors to consider are the customer population, number of trading partners, volume of transactions, type of transactions, and the number of suppliers.
Step: 3 Start with a Business-centric EDI Solution
After the successful identification of the areas that require swift implementations of EDI, the next step is to craft an EDI solution that suits your business needs the most. Here are the things that a company needs to evaluate to find the perfect EDI solution for their needs:
- The volume of EDI-dependent traffic
- IT Infrastructure
- Internal network capacity
- Updates required in the internal system
- Areas that need a high level of customization
Step: 4 Choose the Best-suited EDI Network Provider
The search for the best and most well-suited EDI network provider is highly aligned with the company’s requirements. From pricing structure to the market reach of the providers, you have to choose the one EDI network provider that is not colliding with the company’s technical budget but is in line with the needs of the business.
Step: 5 Integration of EDI in Your Business
The integration of EDI across the business is done with the help of in-depth data analysis. You first have to understand the data, its types, and how much it is scattered around. Then comes the step of assorting the data into two types, primary and secondary.
Primary data contains common but important data such as purchase orders, details about invoices, and other sort of information. Secondary data contains more relevant and specific information such as product code, department code, and carrier code. Affiliation with industry codes such as the Standard Industry Code is also inevitable.
It is after this step, that the company can progress with data mapping for a seamless EDI integration.
Step: 6 Undertake Data Mapping
Successful data analysis will lead to the next step which is data mapping. Data mapping is necessary because it helps the EDI software to analyze the system’s needs and formulate a solution accordingly.
It is a crucial step because it reduces and eliminates the need for customizations. EDI works best when there is an aligned and streamlined process that is not being revamped according to every trading partner.
Step: 7 Run a Pilot Project
The pilot test is necessary because it outlines how well the system is accepting the EDI implementations. Moreover, it will also outline the errors in the pathways and the readjustments that are needed for a more capable and fine version of EDI across the business and company premises. From anticipated traffic burden to user satisfaction, the pilot project will provide a complete and real-time assessment of the whole EDI transaction.
Step: 8 Implement EDI with Your Trading Partners
The final step in a successful implementation process of EDI is rolling out the whole program to the subsidiaries, trading partners, and people in the business. For instance, if you are the acting body in the whole process, then you need to have the necessary resources and potential to execute the whole EDI program, successfully.
Future of EDI
EDI is quickly becoming a mainstream mode of data interchange between companies. A rather novel concept, two decades ago, EDI is now a business necessity in this contemporary world. A 50-year-old technology, EDI standards started emerging in 1968. Then with the introduction of XML, AS2, EDI started booming.
Regardless of its limitations, EDI can still be touted as the potential answer to inter-business communications conundrums. It is faster, cheaper, and more flexible than the traditional and existing strategies.
The new EDI in the industry is EDI-as-a-Service. It is considered a real game changer for the IT industry. It is a holistic solution that is more output-oriented, capable of solving the gaps and embracing visibility and flexibility.
