What is EDI?
EDI stands for Electronic Data Interchange, which is sharing documents computer-to-computer without the need for paper, printing, or even people. Using EDI in a business setting can cut down on costs and increase efficiency by cutting out the “middle man”, such as fax machines or email.
How Does EDI Work?
EDI is a replacement for sending documents to a business partner in a traditional way, such as fax, snail mail, or email. Instead of a document being sent to a person who would then turn around and enter in the data to their ERP system, EDI sends the document straight to the system and records the information. No people are involved. The documents that are usually sent via EDI include purchase orders, invoices, advance ship notices, inventory documents, or bill of lading.
Just as an English speaking person would not be able to read a Japanese document, EDI needs to be in a certain language that it understands, as well. When the documents are created to be sent via EDI, they need to be created in “standard format”. Data can be places in standard format through your EDI add on by manual entry, exporting from a spreadsheet, or using your ERP system. That data is then sent through an EDI translator to put it in the correct format. Finally, the information can then be sent to your business partner.
The Benefits of EDI
EDI significantly reduces costs that are normally associated with sending information via traditional methods. Consider the costs of paper alone, then add on having to purchase and maintain a fax machine or pay for envelops and stamps. Add on storage of those documents and paying someone to manually enter in the information into an ERP system. It’s estimated that manual paper processes for entering in information can cost up to $38, whereas using EDI costs only $1.35 per order processing.
EDI also helps to create more efficiency in your business. Using paper processes leaves a large area for errors, which means more time is spent correcting those errors or producing based on a mistake. Errors can occur from illegible handwriting, lost documents, or errors in reentering the data. It is estimated the EDI can reduce these types of errors by about 40 percent.