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Electronic Data Interchange- A smarter and cost effective way to trade

20 September, 2018

Let's talk about one of the ways businesses can work smart and be cost-effective whilst being environmentally conscious.  

EDI or Electronic Data Interchange is the virtual exchange of data or business documents, in an electronic format, with your customers and suppliers. The term EDI describes both the transmission of the data as well as the translation into a standard data format.

So, how does it work? What are its benefits? 

Let's look at the image and see if it answers any of your questions.

Electronic Data Exchange Process

Now, EDI software can be fully integrated with common accounting & ERP software, making it faster and more accurate to transfer information like purchase orders, bill of lading, customs documents, inventory documents, invoices, etc.

There are 5 simple steps to completing an EDI transaction: 

1. Once integrated with your ERP software, EDI software collects the necessary information to create an electronic file of the desired document;
2. The document is converted into the EDI standard format using the appropriate segments and data elements;
3. Your document is transmitted to your business partner either via the internet or through Value Added Network;
4. The document is translated and reformatted to make the file readable for the recipient;
5. Finally, the document is received and entered automatically into the recipient's ERP system. 

Each trading partner has unique EDI requirements that address their specific industry, region or standards. Almost any business document can be exchanged via EDI as long as it adheres to the specified format. Data security is maintained throughout the transmission process using passwords, user identification and encryption. 

One of the key benefits of an EDI solution is that it replaces a lot of manual processes with automated transactions, by setting up a communication network between the systems of the trading partners. Some other benefits are:

  • Enhanced data quality:
    Minimises data errors from lost mail and keying and re-keying. Streamlines account receivable and payable processes.
  • Strategic benefits
    Real-time visibility into transaction status enabling faster decision-making. Provides a common business language that facilitates business partner onboarding anywhere in the world.
  • Reduces cost and time:
    It has been estimated that the total cost of a manually received, processed & stored documents can be as much as $60/order. This can drop to as little $1/order (or less for high volumes) through the use of EDI. It also eliminates time associated with manually sending, receiving and entering orders.
  • Better Data Security & Audit trails
    Only accessible to authorized users, equipped with audit trails and archives to track use and ensure security. Transaction reports can be generated automatically, improving accuracy during audit activities.
  • Increased efficiency:
    Quick processing of accurate business documents leads to less order re-work, fewer stock-outs and fewer cancelled orders. Business-critical data is sent on time and can be tracked in real time. Sellers benefit from improved cash flow and reduced order-to-cash cycles.
  • Encourages greener environment
    Eliminates paper trails and ensures that paper usage is kept to a minimum.

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