EDI stands for Electronic Data Interchange. It is about allowing business documents to be exchanged between multiple computers using a standard electronic format that can be accepted by all internal and external partners. Essentially, an EDI supply chain means that you can cut out paper-exchanges. If done right, this means that you can lower your cost, process orders in a much quicker manner, lower the chance of errors and particularly human errors, and improve the working relationships you have with your business partners.
The Key Elements of the EDI Supply Chain
By implementing an EDI supply chain, you no longer need email, fax, or postal mail. Of course, email is a form of electronic communication. However, any attachments and documents sent via email have to be handled by people and are therefore not automated. Whenever people are involved, the processing of documents slows down significantly. Furthermore, it increases the likelihood of errors occurring. Using EDI means that every document is sent automatically to the computer that needs to process it.
All businesses have a variety of different business documents that they exchange between departments and partners. Purchase orders, advance ship notices, and invoices are clear examples of these types of documents. However, there are many others, such as customs documents, bills of lading, shipping status documents, inventory documents, and payment documents. These can all be handled automatically through an EDI package.
That is possible because these documents are available in a standard format. This also makes it possible for computers, and not humans, to process them. If a document uses a standard format, a computer can be taught to read and understand them. Every piece of information will have its specific place and specific format. It integrates different businesses together, ensuring that their respective computers also follow the same format. This also makes it possible to work on an international level, as it cuts out the need for language understanding.
Numerous EDI standards now exist, including EDIFACT, ANSI, ebXML, and TRADACOMS. Each of those standards comes with a range of different versions, such as EDIFACT version D12, Release A, and ANSI 5010. What this does mean is that businesses that agree to communicate through EDI packages must agree on which standard to use and which version of that standard to implement. This is why there is also a need for an EDI translator, which can be provided by an external service or through in-house software packages. These translators take the data of the standard EDI documents and translate them so that the organization’s own internal applications can also read them, thereby further automating the entire process.
The different business partners involved in EDI exchanges can vary depending on which company uses it. Business and trading partners are essentially the same things. If, for instance, Company I purchases raw materials from Company II, then they are business or trading partners. If they automate the entire purchasing process through EDI, they can both work in a more streamlined manner.