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EDI Basics
Need to know more about EDI and what it's all about? You're in the right place! Take a look at the info below and feel free to contact us with any questions.
What is EDI?
Electronic Data Interchange (EDI) is the electronic exchange of business documents, from computer to computer, in standardized formats. EDI is used to exchange many kinds of business documents, usually between two companies and sometimes between two parts of the same company.
By using EDI to exchange business documents, companies eliminate the need to create and send traditional paper documents to each other. In doing so, documents can be exchanged much more quickly and without the need for any human involvement at all. Because of its speed and accuracy, EDI can save companies valuable time and money.
EDI documents are machine-readable versions of the traditional human-readable documents they replace.
Companies Use EDI to Send and Receive:
| 850 Purchase Orders |
870 Order Status Reports |
| 810 Invoices |
816 Store Lists |
| 812 Credit / Debit Memos |
852 Product Activity Reports |
| 846 On Hand Inventory Data |
754 Shipping Logistics Instructions |
| 940 Fulfillment Orders |
856 Shipment Notices |
| 855 PO Acknowledgements |
and more... |
Want to learn more about the structure of an EDI document?
EDI replaces human readable or paper documents with machine readable, electronically coded documents. With EDI, the sending computer creates the message and the receiving computer interprets the message without any human involvement at all.
An EDI message is comprised of a set of data elements. Each data element represents a single piece of information in the transaction such as the price or item number. Individual data elements are combined together to form a group of elements known as a data segment. One or more data segments positioned between a header and trailer form a transaction set. A transaction set is the EDI unit of transmission. A transaction set often consists of details that would normally be included in a conventional printed business document, such as a purchase order.
View the EDI Terminology Glossary for definitions of common EDI terms.
Who Uses EDI?
EDI is used by tens of thousands of companies in many major industries including automotive, aerospace, distribution, retail, transportation, manufacturing, finance, health care, and publishing.
Sage MAS ERP software users that exchange documents using EDI tend to be in the distribution, manufacturing or grocery industries. Most often, Sage MAS users wish to do business with a large customer (generally a big retailer such as Sears or Wal-Mart) that requires suppliers to use EDI.
EDI isn’t a new concept; companies have been using forms of EDI since the 1960s.
Want to learn more about the history and evolution of EDI?
The ideas behind EDI have been around since the 1960s when transportation companies began using standardized documents to exchange data. These companies eventually formed an organization known as the Transportation Data Coordinating Committee (TDCC) to study the problems of inter-company data exchanges. In the early 1970s, businesses in other sectors were developing proprietary systems to exchange invoices and purchase orders electronically. These businesses quickly recognized the economic advantages of fast, efficient and accurate information exchange, but their use of proprietary systems meant that a company doing business with three of these early trading partners needed three different system interfaces. A significant move towards standardization came in 1978 when the TDCC, having been renamed the Electronic Data Interchange Association (EDIA), received a charter from the American National Standards Institute (ANSI) and became the ANSI X12 Committee, which gradually extended and replaced the standards created by the TDCC. Today, the ANSI X12 Committee continues to develop EDI standards and related documents for national and global markets.
View the EDI Terminology Glossary for definitions of common EDI terms.
Why is EDI Used?
As mentioned above, businesses often become aware of a need for EDI when a customer or supplier makes a request for the business to start using EDI for business transactions. In some cases, the only way to conduct business with another company is by using EDI.
Whether or not EDI is a requirement for establishing a business relationship, there are a number of important benefits of using EDI. EDI can increase business transaction efficiency by speeding up throughput, streamlining inventory, and enabling the automatic processing of documents. Furthermore, data integrity improves and reconciliations are simpler.
EDI can also provide a strategic advantage. Having the capability to engage in EDI makes suppliers very attractive to retailers and other companies who buy goods and services. In a situation where several suppliers offer similar products, being EDI-enabled can be an important differentiator.
EDI Provides Many Benefits
- Business transactions occur in less time and with fewer errors than traditional, paper-based exchange
- Business transaction data is available immediately for use in internal applications, such as Sage MAS
- Eliminates the errors associated with copying data from one paper document to another, or for keying the data into a business application screen
- Companies save money by purchasing and carrying less inventory because manufacturing is closely tied to actual demand, allowing for just-in-time delivery
- Because electronic invoices are received quickly, buyers can take better advantage of discount terms. Sellers, in turn, can receive payments sooner, improving their cash position
- By doing away with paper forms, postage costs and the expenses and space involved in paper-based record storage are reduced
- In addition to improving speed, cost and accuracy, EDI can improve operational efficiencies, increase awareness of business data throughout the company, and tighten relationships with trading partners
Although many companies don't view EDI as a strategic weapon, it certainly can be used as one. Having the capability to engage in EDI is a marketing tool, because it makes suppliers attractive to retailers and other companies who buy goods and services. In a situation where several suppliers offer similar products, being EDI-enabled can be an important differentiator.
EDI can also be used to form alliances between companies that provide advantages over competitors in several ways, including the ability to offer the lowest market prices and the best customer service. Such alliances also can lead to newer or more innovative services.
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