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What is EDI (Electronic Data Interchange)?

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Introduction :

Electronic Data Interchange (EDI) is a computer-to-computer exchange of business documents in a standard electronic format between two or more trading partners. It enables companies to exchange information electronically in a structured format, eliminating the need for manual data entry and reducing the cost and time associated with paper-based transactions.

EDI was first introduced in the 1960s as a way for companies to exchange business documents electronically. Over time, the standardization of EDI formats and protocols has enabled businesses to integrate their internal systems with those of their trading partners, improving efficiency and reducing errors.

EDI transactions can include purchase orders, invoices, shipping notices, and other business documents. The EDI standard defines the format and content of these documents, ensuring that they are easily interpreted by both the sender and the receiver.

EDI has become an important part of many businesses, particularly those in the supply chain and logistics industries. It allows for faster and more accurate processing of transactions, leading to improved customer satisfaction and increased profits.

It is the world of the Internet, knowingly or unknowingly, everyone is attached to the internet and is dependent on the internet. Today, almost all the work is done through the Internet. Digital India is one example of how everything is going to be done through the internet in the upcoming years, not only in the upcoming years, even right now, most of the exchange of communication is done with the help of the internet, whether it is chatting on Whatsapp with friends or sending important information through the mail, all the work and communication is mostly done through the net. 

What is E-Commerce?

E-Commerce stands for Electronic commerce, which means buying or selling goods through the Internet. The biggest advantage of E-Commerce in this era is Time Savings, not only that as a customer, one major advantage is that the customer receives a lot of discounts on the products they want to buy. 

In terms of business, a businessman not only can expand the market all over the country but also all around the world. Businesses also do not need to put too much effort into Branding. 

One major thing that comes to play its role in E-Commerce is communicating professionally. Let’s learn about this in further detail,

Electronic Data Interchange (EDI)

Electronic Data Interchange (EDI) is a computer-to-computer exchange of business documents in a standard electronic format between two or more trading partners. It enables companies to exchange information electronically in a structured format, eliminating the need for manual data entry and reducing the cost and time associated with paper-based transactions.

EDI was first introduced in the 1960s as a way for companies to exchange business documents electronically. Over time, the standardization of EDI formats and protocols has enabled businesses to integrate their internal systems with those of their trading partners, improving efficiency and reducing errors.

EDI transactions can include purchase orders, invoices, shipping notices, and other business documents. The EDI standard defines the format and content of these documents, ensuring that they are easily interpreted by both the sender and the receiver.

EDI has become an important part of many businesses, particularly those in the supply chain and logistics industries. It allows for faster and more accurate processing of transactions, leading to improved customer satisfaction and increased profits.

Imagine writing a letter to your friend while communicating every time, Can not imagine right? Since today humans live in an era where they can very easily communicate through the internet. Now, imagine the same case with businesses, where communication and exchange of very important documents are constantly required, doing this the old way, it will take forever for the messages to reach the other party, but also the documents will pile up as there is a lot of information that is needed to be stored and kept. It is a tedious and cumbersome process indeed, this is where EDI plays its role. 

Electronic Data Exchange is the direct exchange of data and important business documents through the Internet and in a very professional manner. Two different companies sitting at the extreme corners of the world can very easily interchange information or documents (like sales orders, shipping notices, invoices, etc) with the help of EDI.

EDI Documents:

The most common documents exchanged via EDI are:

  • Invoices
  • Purchase Orders
  • Financial Information letters
  • Transaction Bills
  • Shipping requests and notifications
  • Acknowledgment and feedback
  • Transcripts
  • Claims
  • Business Correspondence letters

EDI Users:

  • Central and state government agencies
  • Industry
  • Banking
  • Retailing
  • Manufacturing
  • Insurance
  • Healthcare
  • Automotive
  • Electronics
  • Grocery
  • Transportation

History of EDI

Edward Guilbert is known to be the father of electronic data exchange, introduced EDI back in the 1960s in the supply chains. The US Transportation industry implemented EDI for better communication among different companies. In 1985, the UN created EDIFACT EDI for better reach of Global technology. Approximately 12000 companies started using EDI in the US. The US grocery and automobile industry very swiftly accepted EDI due to the easy process and standard form of data exchange. In today’s time, with following EDI’s compliance, the big and major companies are using EDI for their communication among businesses.

Examples of EDI include Purchase orders, invoices, shipping statuses, payment information, and so on.

How EDI works?

The data or the information that one company sends the other first gets prepared to be sent, then the information/document is translated into EDI format. The document is then connected and transmitted to the other business, the connection is direct and point to point. 

Uses of EDI :

EDI is widely used in various industries for exchanging business documents electronically. Some of the common uses of EDI are:

  • Order Processing: EDI allows companies to exchange purchase orders and sales orders electronically, eliminating the need for manual data entry and reducing errors.
  • Invoicing: EDI can be used to exchange invoices electronically, reducing the time and cost associated with paper-based invoicing.
  • Shipping and Receiving: EDI can be used to exchange shipping notices and receiving documents, enabling companies to track the movement of goods in real-time.
  • Inventory Management: EDI can be used to exchange inventory information, enabling companies to manage their inventory levels more effectively.
  • Supply Chain Management: EDI is used extensively in the supply chain management process, enabling companies to exchange information with their suppliers, distributors, and customers.
  • Healthcare: EDI is used in the healthcare industry to exchange patient data, claims, and other healthcare-related information between healthcare providers, insurance companies, and government agencies.
  • Financial Transactions: EDI can be used to exchange financial transactions such as payment advice and remittance advice, reducing the time and cost associated with manual payment processing.

Advantages of EDI:

There are several advantages to Electronic Data Interchange:

  • The paper usage reduced: The expense of storing, printing, recycling, reduces up to the maximum amount due to the EDI.
  • Improved quality of Data: The data entry errors are reduced due to EDI.
  • Speed Increases: The best advantage is the increase in the speed of the data interchange. With everything going online, the speed of the information transfer increases exponentially.
  • Security: By following the Protocols and the standard rules, the security of all the important documents is always secure and safe.
  • Information accuracy: Since the information exchanged is based on standards agreed by the sender and receiver both, the correct information is always transferred regardless of where they belong to.
  • Less Cost: With very less errors, fast response time, every thing becoming automated, and no use of paper, the cost automatically reduces.

Disadvantages of EDI:

  • The initial setup of the EDI is very Time-consuming.
  • EDI standards keep on changing after some amount of time.
  • A very systematic and proper back up is required as the entire data relies on EDI.
  • The setup and maintenance of the EDI is very Expensive.


Last Updated : 17 Mar, 2023
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