EDI. It’s all about standardization, right? That’s true, it is. EDI is a mature technology that’s delivered major efficiencies to tens of thousands of enterprises through standardization of business document exchange. But, while the core advantages of EDI relate to standardization, there is an amazing variety of offerings in terms of EDI software and services. Whether you are new to EDI or a long-term user, this article will help you better understand your choices, so you can select the EDI system best-suited to deliver a strategic advantage to your business.
Change can be difficult. As your business expands, so too does the need to communicate efficiently with trading partners. For a small business, mailing, faxing, or even emailing paper-based documents is the standard. As transaction volumes increase though, these manual processes become an obstacle to efficiency and growth. Manually passing orders and other documents to trading partners is time-intensive. It’s also error prone. Another drawback is the introduction of delivery delays and slower payment. These limitations can even apply to businesses already using EDI, without proper optimization. A well planned and implemented EDI (electronic data interchange) system offers a solution.
An EDI-based approach to business communication will reduce operating costs and improve revenue potential. Because EDI uses standardized message formats, it requires less processing time. It also promotes accuracy, limiting costly errors. On a per order/transaction basis, EDI is simply a less expensive, much more lightweight approach. There is a tangible, calculable cost to every order or business document you process. EDI cuts these costs to a fraction of what they are with more manual processes.
Businesses using EDI solutions report a number of business gains beyond more timely and cost effective order processing. Electronic data exchange is nearly instantaneous. Cutting the slack out of the standard order flow means customers receive deliveries sooner. Quicker delivery yields improved customer satisfaction and retention. EDI also offers cash-flow advantages stemming from quicker payment. EDI processing of orders increases the number of data points in the supply chain and their visibility. With transparency and better supply chain management, your company can reduce inventory on hand. Reduced inventory can be a major source of cost savings. Carrying less inventory allows your business to improve the use of warehouse space and avoid stock shortages.
More and more, EDI means access. Many suppliers, and some very lucrative customers, demand their trading partners utilize EDI. For instance, if you want to do business with Walmart, you’ll need to communicate with EDI. Because EDI is such an effective way to cut costs, suppliers who require EDI communication are often the ones offering the most favorable pricing. Beyond simply helping you lower operating costs, EDI can help you tap new markets and form beneficial business partnerships.
EDI is built-on a simple concept. By standardizing document message formats, it’s easier and quicker to process documents than it would be if each document was in a unique format. The fact that it is an “electronic” standard introduces the expediency of communicating digitally.
The most common documents standardized by EDI include invoices and purchase orders. But, there is a huge variety of documents standardized by EDI. Advanced shipping notices, bills of materials, payment confirmations are but a few examples.
EDI also specifies standards for communication protocols. EDI incorporates AS1, AS2, and AS3 protocols, allowing EDI documents to be reliably transmitted using SMTP (mail), HTTP (web), and FTP (file transfer) standards.
Understanding EDI document flow is key to considering the different service and software offerings available to you on the market:
Given the number of steps in the EDI document flow, it’s not surprising that there are providers who focus on each step. There are also end-to-end solutions providers. In fact, some ERP systems include EDI as an integrated module that is part of the underlying system.
The first step of the EDI document flow is converting a business document into an EDI file. Many software solutions on the market provide EDI translation. An important consideration when reviewing EDI translation software is compatibility with your accounting/ERP software. Interoperability is the key concern when evaluating EDI translation offerings.
EDI VAN providers handle the delivery of the EDI document. The VAN provider will map the document to the recipient’s standards, provide testing services, and ensure proper file delivery.
One of the most important considerations when purchasing an EDI solution is the breadth of the service. Whether you are looking for translation software, a VAN provider to partner with, or a full ERP solution which incorporates EDI capabilities, there are a large number of options available to your company to consider. If you are looking to uncover the ones that are appropriate for your business, consider utilizing our free software search service.