If you’ve been speaking to a supplier, a customer, or an IT person about exchanging information between your business and those of a supplier or a customer, usually a retailer, there is a good chance they’ve mentioned the acronym EDI, but what is EDI?

What is EDI?

EDI means Electronic Data Interchange which is the exchange digitally of documents between companies.  This process replaces faxes and mailing, and is a lot faster and immediate with the possibility to back up and secure data exchanged.  The types of documents usually exchanged through EDI are purchase orders, invoices and shipping documents.  They are the life blood of the retail and wholesale industries in particular, and are linked to EPOS (Electronic Point of Sale) and stock management systems to automatically order stock from suppliers while producing the paperwork between them automatically so that orders can be fulfilled within a short period of time for shelves to be restocked.

Benefits of EDI

EDI has become necessary to remove humans from the communication process because inevitably humans slow down a communication process and although they check and double check things there is also more chance of error.  So EDI dramatically simplifies the order process between two companies, and should speed up the process with less errors taking place with typically 30% less errors than a manual system.  There is also a saving in money terms because administrators are less likely to be required in both businesses transacting the data.  While before large admin and accounts teams submitted and handled orders, invoices and shipping notices these are now all automated by EDI saving lots of money and headcount.  Typical savings are around 35% of a transaction cost.

From the retailers point of view the service provider to their end consumer is much improved when EDI is adopted because they can state live stock quantities, realistic delivery dates, and are less likely to have empty shelves where stock hasn’t been re-ordered.

Another advantage of EDI is that it helps companies to reduce CO2 emissions by removing paperwork from the transaction process, which has positive environmental impact and reduces carbon footprint.

Security of transactions is also greatly enhanced through EDI because humans are no longer involved there is less chance of corrupt practices.  Data can be stored on a cloud and be transacted via encrypted channels to result in a more secure interchange of data for both parties.

How EDI Works

EDI is run by software that is connected to the ERP system and accounting software so that it can update stock, and accounting data.  There are two main ways of interchanging data with EDI which are point to point and value added network.  Point to point interchange or direct EDI as it is also called uses an internet connection and a file transfer protocol to send the documents directly between the two parties.  Whereas a value added network, or VAN, uses a third party as an intermediary to send and translate data between the two end parties so that their systems can both read the data.