What is EDI?

Electronic Data Interchange (or EDI) refers to the use of computers in formatting and exchanging business information using internationally recognized standards and formats. Standards organizations throughout the world have defined hundreds of document types to create a universal language for companies to conduct business while using dissimilar systems and processes. Common business documents, such as the invoice, purchase order, production planning schedule, ships manifest, and customs declaration, have been standardized and are sent and received electronically over private secure networks (Value-Added Networks - VANs) and the Internet.

The prominent use of EDI continues to change many traditionally paper-based business procedures. Increasingly, improvements in technology have made EDI available for small and mid-sized companies to easily participate and take advantage of business benefits typically seized by larger members of the supply and demand chain. Large companies continue to expand the scope of information exchanged with suppliers and customers and rely on EDI to increase visibility, efficiency and response to market conditions.

Major advantages of EDI are less paperwork, reduction of errors, and faster exchange of business documents. Using EDI decreases paperwork, minimizes manual entry and re-entry of data, and eliminates the manual tasks of preparing hard copy and mailing documents, all of which help decrease the number of errors. Reducing paperwork volume is particularly useful in industries that use many documents, such as transportation, health care, and insurance. The greater the volume of transactions that can be exchanged electronically, the easier it is to justify EDI.

Using EDI, an order can reach a vendor within minutes of creation, leading to faster delivery times. Shortened delivery time allows reduced inventory which is of great benefit to inventory-driven industries such as manufacturing, retailing, and mass merchandising.

Without EDI

• Large volumes of paper are generated.

• Manual data entry into multiple systems is prone to error.

• A business cycle takes many days and weeks to complete.

To illustrate these drawbacks, consider a sample transaction cycle that starts with a purchase order from a Retail Organization and ends with a shipment and an invoice from the Supplier Organization.

Non Automated Realities:

• Latency: 60-120 Day + Turnaround for Order Processing

• Reduced Cash Flow, Performance, Profitability

• Errors: Manual transaction processing

• Incorrect item ordering, shipping, receiving. Delayed payment/reconciliation processes

• Visibility: Lack of supply and demand visibility

Limited planning capacities, manual shipping/receiving processes. Inability to be competitive in today's global economy

EDI Standards

To help facilitate trade and eliminate redundant business processes, EDI standards were created to govern the contents and format of electronic documents companies send and receive. These standards create a framework of rules that enable computer systems to translate, validate and interpret the electronic business documents in a "non-proprietary", interoperable way. An EDI standard defines business documents, such as purchase orders and invoices, and the data residing in the documents. There are many versions of EDI standards available for businesses to utilize. Some of the most prominent standards supported by TIE are ANSI X12 and UN/EDIFACT.

ANSI X12, sanctioned by the American National Standards Institute, is currently the predominant standard in North America. Some variants to this standard, such as VICS and AIAG, do not modify the base standards but have created and defined subsets of the standard for a specific industry. In the past, other standards such as WINS and TDCC have been incorporated into the ANSI X12 standard. UCS is a standard primarily used by the Grocery Industry in North America. UCS is actually ANSI X12 with extra documents defined for the industry.

UN/EDIFACT is sanctioned by the United Nations. Its name is an acronym for United Nations Electronic Data Interchange for Administration, Commerce, and Transport. UN/EDIFACT is an extensive set of business standards utilized in international trade. Because of its governance by UN/CEFACT, it is a true global standard that accounts for differences in how business is transacted in diverse countries and markets.

Other standards supported by TIE include: Tradacoms, GENCOD, ODETTE, and VDA

To take advantage of EDI, business partners (or trading partners) must agree on a standard that will be used for exchanging documents. For example, a business partner might define their Purchase Order as an ANSI X12 850 (EDI Purchase Order), Version 5010. ANSI X12 is the type of EDI, 850 is the EDI business document number, and Version 5010 is the standard edition that the transaction set is based on. EDI Standards are large by nature to give businesses the utmost in flexibility to define the information to be exchanged and most companies only utilize a subset of this information.

Implementation Guidelines of EDI

As industries and businesses define their specific usage of EDI, an "Implementation Guide" is published to give further clairity about the methods of communciation, neworks, and business processes to make it easier to start conducting business electronically.

EDI Transmission and Value Added Networks

Communication between trading partners is usually handled by a carrier. The carrier, also known as a third-party network or Value Added Network (VAN), acts like a postal service between trading partners, who are using standard communication protocols. In one session with a carrier, your EDI system can communicate with all your trading partners that use that carrier. This saves time and money that would otherwise be required for individual point-to-point communications with each trading partner.

EDI Data Structure

Individual electronic transmissions between trading partners are grouped in an interchange envelope, which is transmitted using a standard communication protocol like TCP/IP. Information associated with the envelope specifies who is sending and who is receiving the documents. EDI envelope types differ with different applications. Within each electronic envelope are functional groups, each of which contains documents of a single type, such as purchase orders. Functional groups are common in ANSI X12 standards. They are an option in UN/EDIFACT standards.

EDI documents include purchase orders, invoices, ship manifests, and hundreds of others defined by EDI standards. ANSI X12 documents are called transaction sets. UN/EDIFACT documents are called messages.