Electronic data Interchange (EDI)

 

Introduction

What is EDI?

For several hundred years, commerce has been based upon the movement of written documents. These documents contained the information that one company needed to convey to another company in order to do business. Over a period of time the documents started to take on standard names such as Invoice, Credit Note and Order. However, the documents were certainly not of any standard layout. They did not need to be because the recipient was always a human being and humans have the ability to read, interpret and rationalise. About all that could be said of an invoice document, for example, was that it would contain header information about the parties involved, detail lines about the products, quantities and prices, and finally some totalling information.

In the early 1950s, computers started to be used by large companies for their accounting and payroll needs. Throughout the following decades, computers rapidly took over task after task until they were involved not only in accounting, but in production, administration and all other areas of commerce. But one thing did not change. The computers still produced printed documents in various non-standard formats.

This situation was not too bad for those sending a document but was much worse for the receiver. Many documents must be sent from one company’s computer to their trading partner’s computer. Computers cannot easily read written documents, and getting them to understand what they have just read is an almost impossible task, so the receiving company would have to employ personnel to re-key the information from the received documents into the company’s computer system.

 

Definition of EDI

1)    Computer to computer exchange of standardized business information is called “EDI”

2)    EDI is the controlled transfer of data between business & organizations via established security standards . EDI consists of standardized electronic message formats, for business documents such as purchase order ,request for quotations , invoices , bills receiving advices & so on.

 

Benefits

  • Save money : The cost of paper & paper processing is incredible high compared to a properly implemented EDI program 
  • Save time: EDI saves time over proper processing since transfer of information is automated 
  • Improve customer service: 
  • Expand your customer base : with improved customer service , you can expand customer base 
  • Inventory Reduction :  EDI permits faster & more accurate filling of orders , helps reduce inventory  
  • Saves Man Power : 
  • Better decision making : EDI provides accurate information & audit trail for transactions 
  • Fast method : It is used for sending invoices , purchase orders , custom documents , Repots, bills 
  • Improvement in overall quality : using EDI we keep better record keeping , reduction in processing time 
  • Reduces paperwork 
  • Reduces data entry errors

 

Advantages of EDI

 

1. Cost Cutting

Minor costs reduction are postage and stationery costs. Major savings are staff costs. The cost savings need to be offset against the system development and network costs.

2. Shortened Ordering Time

Orders are directly sent into the network and the only possible delay is the amount of time  the supplier retrieves messages from the system.

3. Fast Response

4. Accurate Invoicing

An e-Invoice is automatically matched against the original order (made by the customer) and cleared for payment, eliminating any sort of queries.

5. EDI Payment

Payment can also be made by an EDI system. Electronically matching against the relevant invoices.

6. Elimination of errors

It eliminates the source of errors – the customer will get what the customer asked for.

 

Disadvantages of EDI

 

  • Too many standards : There are too many standards bodies developing standards document formats for EDI
  • EDI is too expensive: Some companies are only doing business with others who use EDI. If company wants to do business with such organizations they have to implement EDI
  • Limit your trading partners: With EDI you can find limited group of people can do business with you

 

EDI trade cycle

 

 

 

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