What is EDI?
Electronic data interchange (EDI) 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 will use the flexibility allowed by the standards in a unique way that fits their business needs.
Used in a variety of industries, over 160,000 companies have made the switch to EDI to improve their efficiencies. Many of these companies require all of their partners to also use EDI.
Overview of EDI benefits and drawbacks
The EDI process provides many benefits. Computer-to-computer exchange of information is much less expensive than handling paper documents. Studies have shown that manually processing a paper-based order can cost $70 or more while processing an EDI order costs less than one dollar.
- Much less labor time is required
- Fewer errors occur because computer systems process the documents rather than processing by hand
- Business transactions flow faster.
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.
One drawback is that companies must ensure that they have the resources in place to make an EDI program work; however, the need for buying and hiring these resources or outsourcing them may be offset by the increased efficiency that EDI provides.