What is electric data interchange (EDI)?
Electric data interchange is the process by which businesses use electronic methods to distribute information they would typically distribute in a paper format. Today, EDI is becoming more popular across industries, such as in retail and manufacturing, construction, insurance, automotive and government. EDI can convert a variety of documents and company processes into an electronic format, including:
- Payment confirmations
- Shipping confirmations
- Purchase orders
- Customer information
- Transaction updates
Benefits of EDI
EDI can present many benefits to your business and its communication. Here are some potential benefits of using EDI:
Faster business cycles
Since EDI encourages replacing paper documents with electronic ones, businesses can potentially experience faster business cycles because recipients can get electronic documents almost instantaneously, whereas paper documents would typically take a day or more by mail.
One way of doing this is that if a retail company notices a spike in demand for a specific clothing item, they could send an online request to the manufacturer for 100 more inventory of that product. The manufacturer could then process and send the order within a day. In contrast, if the retail company had still been using a paper communication format, they would have likely had to send it via mail. This process could take a day or more depending on the manufacturer’s location, which slows down the business cycle.
Minimized communication errors
Handwritten words and numbers can cause confusion and communication errors between businesses and their partners if the writing is illegible, but typed electronic documents reduce room for error because you can use an easy-to-read font like Times New Roman. For instance, if a restaurant owner sends handwritten purchase requests to their food vendors, they may receive the wrong amount of a product due to misread information. They could potentially reduce inventory error by typing the amount of product instead.
Limited paper use
Businesses can promote sustainable and environmental-friendly measures within their business practices through EDIs. Going digital can help reduce the amount of paper your business purchases and uses. For example, if an insurance provider converts to an EDI system, they can send relevant documents to their customers via email. This helps them communicate information to their customers almost instantly and reduces their paper waste and usage, which could provide an increase to their budget.
Increased opportunity for international partnerships
Because EDIs use a universal format, you can potentially convert documents to other languages for international partners. This could encourage international partnerships or increase communication between your company and your partners. For instance, a fair trade coffee company that works with an agricultural organization in Argentina to purchase fair trade coffee beans might have difficulty communicating quickly through handwritten invoices due to limited language literacy. However, electronic communication methods can make translating documents more efficient and result in faster business cycles.
Better transaction statuses
Implementing EDI into your business allows you to react to changes in the transaction process efficiently. This is helpful if you need to cancel an order from a manufacturer or relay an order status to a client. For example, if an electronics company that installs computers in office buildings receives a call from a client wanting an update on their installation date, electronic communication can enable them to pull up the manufacturer’s transaction data to determine whether the products are ready.
Types of EDI
There are several types of EDI you can use depending on your needs or industry. Typically, businesses implement a few different EDI documents into their business practices. You can share these documents via internet-based communications, internal software or a third party. Here are some examples of the types of EDIs you can apply to your company:
- Direct EDI (Point-to-Point): This system allows your company to maintain digital communication with an individual recipient.
- EDI outsourcing: There are companies designed to manage digital communication for your business so you can focus on other tasks.
- Mobile EDI: EDI apps allow corporations and their partners to access and manage transactions right from their smartphones.
- Web EDI: Web EDIs allow companies to use an internet browser to manage digital communication. This may be an affordable option for companies with a limited budget.
- EDI AS2: AS2 is a software program that lets companies securely transmit data via the internet.
- EDI VAN: This option acts as an alternative to the Direct EDI method so companies can maximize their EDI efficiency.
- EDI FTP (VPN, SFTP or FTPS): Companies use these types of EDIs to help make web-based or direct EDIs more secure.