What is electronic data interchange?
Electronic data interchange (more commonly called EDI) is the means by which businesses partners are able to automate sending business-critical information to one another. This information generally concerns the sale and transportation of goods and services. For example, documents commonly exchanged via EDI include orders, invoices and delivery notes.
EDI isn’t a single technology – it’s more of a concept. EDI refers to the exchange of structured electronic messages between different companies’ software systems with minimal human intervention.
This point is important, as minimising human input increases the speed, accuracy, security and cost efficiency of B2B communications.
To this day, many companies still send and receive paper documents. Let’s look at invoices as an example…
The steps involved in a typical exchange
Sending a paper invoice involves several steps on both the supplier’s and the receiver’s side. For the Supplier the invoice needs to be generated, printed and posted. The Supplier then has to wait for the document to reach their partner.
On the receiver’s side, they must first wait for the invoice to arrive. Following this, the necessary data must be manually entered into their accounting system.
In addition to being a costly and time-consuming method, the manual effort involved in exchanging paper documents can lead to errors and inconsistencies in data – a problem that can quickly escalate in fast-moving modern supply chains.
Avoiding manual effort
To avoid some of the issues with exchanging paper documents, many businesses exchange information digitally via email in the form of PDFs, word processing documents and spreadsheets. However, while this is marginally more efficient than sending physical documentation, the same key issues remain. The sender may still need to send the document manually and the receiver is still required to extract and log the relevant data themselves, all of which requires time and effort.
With EDI, the issue of manual data entry and message sending and receiving is removed completely, leading to far more streamlined supply chains.
With an EDI solution, relevant data is translated into a simple computer-readable language and sent directly to your partner’s system, which automatically extracts the data and stores it in the relevant place.
These EDI “languages” are text files, which condense all the necessary information into as simple and small a message as possible. To guarantee that both sender and receiver understand what is being sent and received, the content of these EDI files follows strict rules. These rules are defined in EDI standards. The two most common EDI standards are UN/EDIFACT and ANSI ASC X12, which are both delimiter-based standards. Many EDI messages are also exchanged using XML. Other widely used formats and standards also include CSV files and TRADACOMS documents (which are particularly popular in the UK).
What good EDI can offer
The best EDI systems will be able to offer additional benefits, such as greatly improved data visibility. For example, users may be able to access helpful information such as whether or not their partners have received or acknowledged a certain message in real time.
Similarly, amendments and adjustments to key B2B exchanges (such as orders and order responses) can also be handled quickly and easily. For example, were the sender of a certain message to alter any information, the receiver’s system may be able to update the relevant record automatically in log form (like a ledger) and alert the relevant users immediately to the change. Technically this would be achieved using a purchase order change EDI message.
The benefits of EDI
So what are the benefits of EDI in a nutshell? In short, EDI allows you to save money, save time, reduce risk and increase your competitive advantage – all while simultaneously making your supply chain greener.
So… now that we understand why businesses use EDI, let’s look briefly at the wider picture.
Decades ago electronic data interchange was only used by very large supply chain businesses as the technical setup and maintenance of EDI connections had to be handled completely in-house by specialised teams. Today, however, thanks to the emergence of cloud-based software, the benefits of EDI can be enjoyed by all businesses regardless of size or EDI know-how.
Thanks to the advantages EDI offers and its increasing availability, EDI’s global usage is growing steadily. Gartner predicts that 80% of B2B sales interactions between suppliers and buyers will occur in digital channels by 2025.
As well as private companies, governments too are turning to data exchange automation in an attempt to reduce costs – particularly those relating to electronic invoicing. As a result, across Europe in particular, new legislation means that having a reliable EDI solution may soon move from being a necessity for large businesses to being a necessity for all businesses.
Find out more
To find out more about ecosio’s solution and how we could help you to experience the benefits of e-invoicing, get in touch today! Alternatively, you can find more helpful information in the form of articles, white papers, webinars, case studies and infographics in our resource centre.