What is EDI or electronic data interchange?

EDI is the electronic exchange of documents between businesses. As opposed to traditional methods such as paper, fax, and e-mail, EDI securely and automatically sends important information between businesses. In an EDI system, companies choose the data format that can integrate with other systems to eliminate the need for manual data entry.
Common documents businesses send through EDI include:

• Inventory and customs documents
• Shipping notices
• Bills of lading
• Payment documents
• Invoices
• Purchase orders

Types of EDI

There are three ways to utilize EDI:

1. Direct EDI (point-to-point): Computers in an organization connect with computers in another organization. Direct EDI is widely used but can become overly complex if connected with too many companies.
2. Value-added network (VAN): A third-party network manages data transmission and routes communications using a mailbox approach.
3. Web-based EDI: Also known as Internet EDI, companies access a web portal or platform for EDI transmission.

How does the basic EDI process work?

There are several steps in the EDI process:

Document creation: The sender creates a sharable document such as a purchase order, invoice, shipping notice, or another document.
Translation: Senders must translate the document into a standardized EDI format before sending it electronically. EDI software usually handles translations.

Transmission: The translated document is ready to get transmitted to the receiver. There are several transmission communication methods, including EDI file transfer protocol (FTP) and web-based methods.

Data receipt: The receiving organization’s EDI system receives the document. It is their responsibility to check completeness and compliance standards.

Processing: The data from the translated document is automatically processed using integrations with the recipient’s ERP and other systems.

Confirmation: The sender receives EDI messages informing them that the recipient received and processed the document. EDI systems may archive the transaction for record-keeping and compliance purposes.

Benefits of EDI

Electronic transmission has several benefits over paper, fax, and e-mail processes, such as:

• Faster results: Companies replace slow manual processes with faster electronic workflows
• Fewer errors: EDI eliminates data entry mistakes, illegible handwriting, and miscommunications
• Improved data accuracy: Predefined standards, verification processes, and data consistency enhance data accuracy
• Quick transaction processing and integration: Faster processing enables companies to meet contractor demands
• Cost savings: Businesses save on document production, mailing, and storage costs
• Compliance: Organizations comply with industry regulations by following certain standards
• Environmental benefits: Reducing the use of paper preserves trees

EDI standards

EDI standards vary by industry and region and are critical for interoperability, consistency, and compliance. Examples include:

ANSI X12: Widely used in the U.S. in manufacturing, healthcare, retail, finance, and transportation.

UN/EDIFACT: The international EDI standard recognized by the United Nations, commonly used in Europe

EANCOM: Developed by G1 for retail and consumer goods sectors

HL7: Used in healthcare for the electronic exchange of medical and patient information

SWIFT: Financial industry standard for safer and standardized communication between financial institutions

Tradacoms: Used in the United Kingdom in retail

What is EDI used for?

EEDI is helpful across several industries, but two common examples of its use cases are:

1. Accounting (e.g generating invoices and providing audit trails
2. Logistics (e.g. scheduling shipments and tracking goods)
3. Supply chain (e.g. international payments, order fulfillment, shipping confirmation)

What has replaced EDI?

Application Programming Interfaces (API) are a more flexible way to connect systems from different companies. APIs can use EDI but do not need it to work. Unlike traditional EDI, API allows different systems to communicate with each other in real time.