What is EDI? - Pros and Cons

Electronic Data Interchange, or EDI, can be defined as the exchange of information between computers in a standardized manner either within or outside an organization. EDI standards are referred to as ANSI X-12 or the EDI x12 standard developed by the Data Interchange Standards Association.

Each company uses specific formats based on accepted standards in their EDI documents. Standards do allow flexibility too so companies can tailor them to suit their particular business needs.

EDI solutions are employed in a wide variety of industries - manufacturing, retail, finance, healthcare and more.

Read on to learn more about EDI along with the pros and cons of implementing EDI at your company.

EDI messages involve actual transactions, not simple exchanges of text like an email

Transaction sets are what we in the business refer to as EDI messages. A set consists of a string of data elements that each represents one fact. Examples include price, quantity, product number, etc.

To give you some idea of how the EDI process works, consider a purchasing manager who is preparing an order for their store in their purchasing system. After doing this, the order is translated into an EDI document or an EDI 850 (purchase order) specifically. Other common EDI documents include advance ship notices (EDI 856) and invoices (EDI 810).

Once the document is properly formatted, it is transmitted to the supplier through the Internet (HTTP protocol) or a Value Added Network (VAN). The supplier receives the EDI document and processes the order.

Individually, we interact with EDI applications all the time. Electronic Funds Transfer (EFT) between different financial institutions - direct deposit of paychecks, debit of individual bank accounts through purchases and ATM withdrawals - are good examples.

EDI implementation has many advantages, many of which may seem obvious.

First, electronic exchange of information is much cheaper than traditional paper documents. In fact, one study has shown that a purchase order using paper can cost $70 or more to process. The same order costs less than a $1 to process using EDI. Documents can also be processed much quicker - paper orders can take up to 10 days from start to finish while EDI can take as little as one day.

Electronic processing also reduces errors, which can extend the time of processing an order and cost you money.

One drawback though - implementing EDI does cost some money and requires expert EDI consultants or an IT staff to make it work. But costs can be offset by increased organization efficiency.

Need to make your business run more effectively?

Are you ready to join the nearly 200,000 other businesses who have been successful at implementing EDI at their companies?

EDI consultants at Innovative Architects can assist you in this solid business investment.Contact us and get started today!