EDI introduction

EDI is the electronic exchange of business documents between the computer systems of business partners, using a standard format over a communication network. EDI is also called paperless exchange.

Why do we need EDI ?

Business scenario :

1. A customer who wants to purchase an item creates a purchase order and then faxes or mails it to the vendor.
2. The vendor receives the purchase order and manually keys in a sales order.
3. The vendor's system generates a confirmation date that is sent back to the customer via fax or mail.
4. The vendor then ships the goods via a carrier. The carrier delivers the products to the customer.
5. When the goods are shipped, the vendor invoices the customer.
6. The customer makes the payment by check, and the vendor deposits the check in the bank.
7. Finally, funds are transferred from the customer's account to the vendor's account.

This simple scenario requires the exchange of various documents between several business partners at different times.

A business process is a series of actions or functions that bring about a business result, and as such there are some inherent problems with this scenario. They are

1. Is highly inefficient and laborious ·
2. Cannot be tracked easily ·
3. Gives no visibility into the process ·
4. Has a very long lead time ·
5. Includes redundant data entry at various points.

The electronic exchange of business documents in a standard format gave birth to what is now known as EDI.

Benefits of the EDI Process :

1.Reduced data entry errors: EDI does not involve data entry at multiple points. In the traditional process, a sender creates a purchase order on the system, prints the order, and then faxes or mails it to a trading partner. The receiver then rekeys the same information on his or her computer. The process is prone to data entry errors. This procedure is repeated when invoicing takes place. With EDI, data goes directly from one computer to another without involving a human being.

2· Reduced processing cycle time : The biggest advantage is the reduced processing time of the complete cycle. As soon as orders are entered into the system, they can be processed on the receiving side in seconds. There is a considerable savings in the processing time of document transfer.

3. Availability of data in electronic form : Data from EDI is in electronic form, which makes it easy to share across the organization.

4· Reduced paperwork : The entire EDI process can be handled without using a single piece of paper.

5· Reduced cost : Time is money. Any savings in time is directly linked to savings in money. The initial cost of an EDI setup is certainly higher compared to the paper process, but over a long period it is very cost−effective.

6·Reduced inventories and better planning : Companies do not have to keep a safety stock for the time taken with order processing. Changes to planning schedules can be communicated instantaneously. MRP (Material Requirements Planning) can take into account a shipment in transit as soon as an Advance ship notice (EDI 856) transaction is received.

7·Standard means of communication : Because EDI enforces standards on the contents of data,uniform naming standards and field sizes have emerged. Such consistency leads to clearer communication and less ambiguity.

8·Better business processes : Compared to traditional methods of exchanging business documents, EDI is certainly a better way of communicating with your trading partners. Companies are willing to share information and participate in inter−organizational issues. This environment enhances supply−chain management.

9·Competitive advantage: In many cases, companies that have implemented EDI have an advantage over their competitors, especially when dealing with government agencies or large corporations. (15.1)

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