Advantages of Electronic Data Interchange (EDI) in Business Operations

EDI

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in a standard electronic format between business partners.

Computer-to-computer– EDI replaces postal mail, fax and email. While email is also an electronic approach, the documents exchanged via email must still be handled by people rather than computers. • Having people involved slows down the processing of the documents and also introduces errors. Instead, EDI documents can flow straight through to the appropriate application on the receiver’s computer (e.g. the Order Management System) and processing can begin immediately.

Before EDI

After EDI

Business documents – These are any of the documents that are typically exchanged between businesses. The most common documents exchanged via EDI are purchase orders, invoices and Advance Ship Notices. But there are many, many others such as bill of lading, customs documents, inventory documents, shipping status documents.

Standard format– EDI documents must be processed by computers rather than humans.. • There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS and XML. And, for each standard there are many different versions, e.g. ANSI 5010 or EDIFACT version D12

Business partners – The exchange of EDI documents is typically between two different companies, referred to as business partners or trading partners. For example, Company A may buy goods from Company B. Company A sends orders to Company B. Company A and Company B are business partners

Benefits cost savings anyway: • Research has consistently shown that EDI costs at most one third of its paper-based equivalent • One report put the cost at 70 times less. A major American company reported a reduction in its order processing costs from $38/order to $1.35/order with EDI • The EU has reported that by taking 10 minutes less to process electronic invoices it saves 120 euro per invoice every year • GS1 UK found that UK grocers saved £14 on every electronic order

major benefits of EDI are often stated as speed and accuracy: • Transactions that used to take 5 days by paper can be completed in under an hour. An American automotive corporation reduced a key cycle time by 97% – a 30-day process was reduced to 24 hours. And a major retailer reduced order cycle time by 75% from 24 days to 6 days • Research has shown that with paper-based processes often as much as 5% of the data on an invoice is inaccurate. • More accurate data means that the entire supply chain is more efficient. Some estimates suggest that EDI can result in 30% faster delivery time to customers

increase in business efficiency is also a major factor • Automating paper-based tasks frees staff to concentrate on higher-value tasks. It provides them with the tools to be more productive. Research reports as much as a 50% savings on human resources from the use of EDI • The prompt processing of accurate business documents leads to less re-working of orders, fewer stock outs and fewer cancelled orders • Buyers can take full advantage of better payment terms and discounts • Sellers benefit from improved cash flow and reduced order-to-cash cycles • Shortening the order processing and delivery times means that organisations can reduce their inventory levels – research suggests by an average of 10%, a major benefit when you consider that inventory often accounts for 90% of product costs

the greatest EDI benefits come at the strategic business level: • EDI enables real-time visibility into transaction status. This in turn enables faster decision-making and improved responsiveness to changing customer and market demands, and allows businesses to adopt a demand-driven business model rather than a supply-driven one • Shortens the lead times for product enhancements and new product delivery • Streamlines your ability to enter new territories and markets. EDI provides a common business language that facilitates business partner onboarding anywhere in the world • Promotes corporate social responsibility and sustainability by replacing paper-based processes with electronic alternatives. This will both save you money and reduce your CO2 emissions

Advantages of Electronic Data Interchange (EDI) in Business Operations