What is Electronic Data Interchange (EDI)? Unlike other electronic data interchange articles, this piece will help provide a complete understanding of the electronic data interchange process, including an overview of EDI benefits and drawbacks.

Basically, the electronic data interchange process is the computer-to-computer exchange of business documents between companies. EDI replaces the faxing and mailing of paper documents. EDI documents use specific computer record formats that are based on widely accepted standards. However, each company may use the flexibility allowed by the standards in a unique way that fits their business needs.

EDI is used in a variety of industries. In fact over 80,000 companies have made the switch to EDI to improve their efficiencies. Many of these companies require all of their partners to also use EDI.

The EDI process provides many benefits. Computer-to-computer exchange of information is much less expensive than handling paper documents. Studies have shown that processing a paper-based order can cost $70 or more while processing an EDI order costs a dollar or less. Much less labor time is required. Fewer errors occur because computer systems process the documents rather than processing by hand.

EDI transactions between companies flow faster and more reliably than paper documents. Faster transactions support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs through fewer emergency expedites.

Paper purchase orders can take up to 10 days from the time the buyer prepares the order to when the supplier ships it. EDI orders can take as little as one day.

Drawbacks are few and far between, but there are some. For example, companies choosing to implement both paper and EDI processes must manage both of these processes. However, as stated before, using EDI is much more efficient than using paper, lending strength to the argument against paper documents. Also, companies must ensure that they have the resources in place to make an EDI program work; however, the need for these resources (or their hiring) may be offset by the increased efficiency that EDI provides.

Here is an example of how the electronic data interchange process works. A buyer prepares an order in his purchasing system and has it approved. Next, the EDI order is translated into an EDI document format called an 850 purchase order.

The EDI 850 purchase order is then securely transmitted to the supplier either via the internet or through a VAN (Value Added Network). The buyer’s VAN is a like an electronic post office that interconnects with the supplier’s VAN. The VANs make sure that EDI transactions are sent and received. The supplier’s VAN ensures that the supplier receives the order. The supplier’s computer system then processes the order. In the case of CovalentWorks’ clients, we provide VAN transportation and our servers provide all of the software and hardware required to process EDI documents. Only internet access and email are needed.

Data security and control are maintained through out the transmission process using passwords, user identification and encryption. Both the buyer’s and the supplier’s EDI applications edit and check the documents for accuracy.

Each trading partner has unique EDI requirements. These will include the specific kinds of EDI documents to be processed, such as the 850 purchase order used in the example above, 856 advance ship notices and 810 invoices. The fact is that most any business document that one company would exchange with another company can be sent via EDI. However each EDI document must be exchanged with the partner in exactly the format they specify.

Many partners will have an EDI implementation guide or kit that explains their specific requirements. Maps are required to translate the EDI documents from the trading partner’s format into the format that is useable by the receiving party. CovalentWorks handles all of the mapping and translation requirements for our clients.

EDI capability involves either buying or outsourcing the following components:

VAN, ASYNC, BISYNC and direction connection and Internet communications will be required by various partners. A server or PC, communication devices and peripherals will be needed as well as secured office space, monitored security, backups and redundant power. Additional software will be needed if integration of the EDI transactions with back office systems is desired. A VAN will need to be contracted for transmissions. Personnel must be trained in how to use the software and communication devices. Maps will then need to be developed.

CovalentWorks specialty is outsourcing all of the components of EDI for small and mid-sized companies. All our clients need is internet access and email. We take of everything - all of the software, EDI VAN transmission, hardware, communications and labor.

Go to the Frequently Asked Questions page for answers to questions about EDI, XML and B2B topics. You can choose from questions by suppliers ask and questions that buyers ask. Executive, Sales, Accounting, and Technology questions are addressed.

CovalentWorks white papers have more in-depth explanations of XML and EDI topics that may interest you. Go to the White Papers page to down load white papers.

Go to the Glossary page for explanations of over 100 of the most common terms and acronyms you may encounter as you automate B2B ecommerce processes.

CovalentWorks solutions are designed to help buyers and suppliers improve their efficiency. We have found that most efficiency gains can be measured. Our ROI (Return on Investment) Calculator is a spreadsheet template for measuring efficiency improvements and then calculating the value of increased efficiency to your business.