Electronic Data Interchange

EDI. It’s not someone’s name or some forensic scene drama.  This week we will be discussing Electronic Data Interchange (EDI).  EDI refers to the computer-to-computer exchange between different companies via electronic communication channels.  It is an external data exchange from one organization’s system to the system of a business partner, with business documents like orders, confirmations, or invoices.  EDI was developed as a standard to simplify and standardize external documents.  It became more important with the Internet boom. You might be interested to know, EDI is not dependent on any special technologies.

There are three essential elements of EDI.  They are listed below.

•  An electronic transmission medium (network or Internet).
• An agreed upon standard for structuring and formatting messages.
• A fast delivery of electronic documents from sender to receiver.

Some people argue that the concept of using EDI is compared to using a fax or email since there is a connection between computers.  Let’s look at these comparisons.

Fax – Similarities exist between EDI and fax since both use telephone lines and can travel from computer to computer.  There are differences.  Fax is primarily paper- based and requires a human interaction.  Fax receipts are not generally acceptable to applications.  Fax machines accept non-standard data formats, and anything that can be scanned can be faxed, whereas EDI requires standard message formats between business partners.

Email – Similarities also exist between e-mail and EDI.  Both travel from computer to computer and both use an electronic mailbox.  However, three of the four differences listed for EDI vs. fax also apply to EDI vs. email: an email message format is not standard, email requires human interaction, and email is not acceptable to applications.

The main advantage of using EDI is to eliminate paper documents and create a standard for interchanging documents digitally.  Other advantages are listed below.

•  Reduction of overhead and transaction costs by saving unnecessary time and money to re-capture data.
• Optimization of process quality by reducing human interaction and media disruptions.
• Optimization of process time by changing the transmission from postal service to electronic data interchange.
• Increase in customer satisfaction from faster fulfillment of requests.
• Improvement of supplier partnerships as payments is processed much faster.

There are some disadvantages for using EDI.  They are listed below.

• The implementation of the infrastructure will take time. Resulting in costs a lot of additional hour for training and integration.
• It is considered to have one or more of your customers using EDI in order to make it more cost effective.
• In case of system failure, manual systems must be in place to ensure business continuity.
• Human interaction is still a potential a problem by entering the wrong data.
• Like all systems, EDI will need continual protection from viruses, hacking and potential fraud.

Understanding your primary needs is vital when considering the implementation of an EDI system.  Companies that already use an EDI system are seeing dramatic cost savings compared to traditional methods.

I hope that you found this information helpful.  Please feel free to forward it to others.  If you would like to learn more about this topic or would like to request a topic, please contact me. If you missed any past newsletters or would like a printed copy, please visit my website at.  www.mdsystemsolutions.com.

Until next time…Happy Computing!!!