EDI Explained: Electronic Data Interchange Workflow

Tori Katz March 28, 2024

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Electronic data interchange (EDI) means exchanging information between companies using computers instead of paper. By sending EDI documents, companies save time and money and boost efficiency. The EDI solution also minimizes errors and helps to maintain solid relationships between companies.

Today’s article will discuss:

Who should use EDI?
The EDI setup
EDI standard format
Benefits of using an EDI solution

Who Should Use EDI?

The main reason to implement an EDI standard is to streamline how a company sends a purchasing order. A proper EDI system allows a buyer to send a purchase order in real time without faxing, mailing, or manually plugging in data.

Companies that anticipate explosive growth need to make use of computer-to-computer exchanges. Clients need reliability and speed, which starts with the company buying time.

The EDI Setup

Now that you know fast-growing startups should execute EDI, let’s look at how it works.

EDI software solutions store critical data within an ERP system and use that data to create EDI documents. The ERP system is a type of software your company will use to manage day-to-day activities like accounting, project management, procurement, etc.

The EDI setup will contain critical purchasing details, current inventory, invoicing and billing details, and shipping information. When a company selects an EDI solution, it can integrate with the ERP system and create its EDI documents.

When companies strike a deal with each other, they exchange the crucial information needed to do business. The EDI software then uses information like shipping addresses and pricing to create a new EDI order.

EDI Standard Format

EDI standard languages are crucial for implementing EDI solutions. The goal is to ensure all trading partners around the globe have the proper technology to interpret EDI documents.

Sometimes an EDI standard is established for a specific industry. However, some EDI standards are developed for particular regions. When companies agree upon an EDI standard, purchase orders, shipping notices, invoices, and other documents must abide by the EDI standard language. The standard will dictate details like the order in which the information is presented and the minimum data allowed in a message or document.

Some examples of these formats include the ODETTE (The Organization for Data Exchange by Tele Transmission in Europe) standard, used in the automotive industry. Another example is the UBL (Universal Business Language).

What is ERP?

ERP, or Enterprise Resource Planning, is a software system that integrates and manages core business processes such as finance, HR, supply chain, manufacturing, and CRM. It provides a centralized platform for data flow and communication across departments, enabling efficient decision-making and resource allocation. ERP streamlines operations by automating tasks, improving process visibility, and enforcing standardized practices. It offers benefits like real-time insights, improved efficiency, and compliance with regulatory requirements. However, implementing ERP can be complex and requires careful planning and investment. Overall, ERP serves as a vital tool for businesses to optimize their operations, enhance collaboration, and stay competitive in today's fast-paced environment.

What is the difference between ERP and SAP?

ERP (Enterprise Resource Planning) is a broad category of software systems designed to integrate and manage various business processes within an organization. SAP (Systems, Applications, and Products in Data Processing) is a specific ERP software developed by the company SAP SE. While ERP refers to the concept and class of software solutions, SAP is a leading provider of ERP software.

The key difference lies in specificity: ERP is a general term encompassing various vendors and solutions, while SAP is a specific brand offering a comprehensive ERP system. SAP ERP provides modules for finance, HR, supply chain, manufacturing, CRM, and more, with extensive customization options. Other ERP systems, such as Oracle ERP, Microsoft Dynamics, or Infor ERP, offer similar functionalities but may differ in features, implementation processes, and target markets.

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Benefits of Using an EDI Solution

Operating Costs

Electronic data interchange will drastically cut costs for any booming engineering company. With EDI solutions, there is less need to dole out money for paper, printing, filing, storage, postage, and document shredding services.

Speed and Efficiency

Computer-to-computer exchanges will always be faster than when a human is involved, no matter what the assignment is.

When it comes to processing, ordering, and making purchases, time is money. Automation allows companies to skip time-consuming manual processes like comparing data, entering data, and filing documents. Using EDI can speed up a business cycle by up to 61%.

EDI systems can also provide up-to-date alerts and updates so companies can see just how much time they’re saving.

Security

Transaction security is an underrated benefit of using EDI.

EDI setups guarantee secure transactions by following community protocols and adhering to security standards.

Reduce Human Error

Let’s face it, the more human activity you include in a company-to-company exchange, the more likely you will make a critical mistake.

Disregarding an EDI solution when your headcount is growing quickly and company processes need an upgrade is a poor decision. First, you must consider factors like illegible handwriting, resulting in poor document handling.

Using EDI documents instead reduces the chances of having to re-order. An EDI setup will slash the margin of error by up to 40%.

Final Summary

Electronic data interchange is a much more efficient way of purchasing orders, sending invoices, and generating different types of EDI documents.

An engineering director should use computer-to-computer solutions, saving time and money and adding that extra layer of peace of mind. It’s extremely challenging to oversee a new startup company that’s already seen monumental growth, so it is essential to ensure you have the tools you need to streamline wherever possible.

Read more about how procurement software saves you time so you can focus on being a great director of engineering!

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