What is EDI?
Do you want to exchange documents digitally with customers and business partners? Or are you planning to automate your entire supply chain? Then you may have heard or read the term EDI in this context. The acronym stands for "Electronic Data Interchange" and refers to the electronic exchange of documents.
EDI solutions are used by companies around the world to exchange business documents electronically. This involves sending digital documents from the sender's computer to the recipient's computer. This communication is based on previously agreed standards for data exchange, the so-called EDI message standards.
What does EDI mean?
An EDI system is used to exchange electronic data. When two companies exchange business documents according to an industry or general EDI standard, they use a common language. This EDI data is understood by the electronic systems of both companies.
Instead of communicating the recipient's address to a shipper by phone or e-mail, as was previously the case, a shipper can transmit the corresponding data digitally using EDI data. The communication systems of the shipper and the forwarder communicate directly with each other and in the same language - using the EDI standard agreed upon by both business partners. Thus, the entire flow of information along the supply chain can be accelerated.
Numerous universal or industry-specific EDI message standards are available to business partners for electronic data exchange. For example, the United Nations developed the industry-independent standard EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport) back in the 1980s. The American National Standards Institute has developed the cross-industry EDI standard ANSI X12.
In addition, there are a number of industry-specific EDI message standards:
- EDI standards of the automotive industry: In Germany, carmakers and their suppliers use the EDI standard of the German Association of the Automotive Industry (VDA). The European automotive industry uses ODETTE (Organization for Data Exchange by Tele Transmission in Europe).
- EDI standard in finance: The SWIFT (Society for Worldwide Interbank Financial Telecommunication) message standard is used for secure communication via the SWIFTNet telecommunications network, which is used by thousands of banks around the world.
- Healthcare EDI standard: The industry-specific HL7 (Health Level 7) messaging standard is used for the electronic exchange of medical, financial and administrative data between healthcare information systems.
How does EDI work?
Using electronic data interchange, business documents of all kinds can be securely exchanged between business partners as structured data, such as purchase orders, order changes, order confirmations, delivery bills, invoices and credit bills, bills of lading, customs declarations and much more. No manual effort is required, such as entering the data into a system.
Communication via EDI connection also works between ERP (Enterprise Resource Planning) systems from different manufacturers. This then requires special EDI software and an EDI interface in each case. In addition, a special ERP connector is required to integrate the ERP system and EDI software. With the help of the EDI converter, the outgoing data is converted into the agreed message format and then transmitted.
Why are EDI messaging standards important?
The EDI message standards for electronic data interchange are the prerequisite for enabling business partners around the world to exchange electronic business documents automatically. The agreed EDI standard also defines how messages are created and transmitted. With the help of EDI message standards, electronic business documents can be exchanged automatically, quickly and securely.
Benefits of EDI
In everyday business, electronic data exchange using EDI standards has many advantages:
- More speed: EDI solutions allow business documents to be transmitted more quickly and internal processes to be accelerated, reducing turnaround and processing times.
- Lower costs: The cost of transmitting electronic data is significantly lower than transmitting it in paper form or over the phone. You also save on personnel costs for handling the data and can reduce warehousing costs, for example through just-in-time approaches. The data, which is available more quickly and in a structured form, also provides you with important business insights.
- Greater efficiency: When business documents are exchanged electronically, less manual data entry is required and companies can reduce the number of paper documents. As a result, the company can work more efficiently and use its resources in a more targeted manner.
- Higher quality: Automated exchange of electronic business documents promotes data quality by eliminating data entry errors and increasing the accuracy of information. This also eliminates the need for rework to correct erroneous data.
Electronic data exchange via EDI standards also has strategic advantages for companies. Since important information is available more quickly in structured form, it can be incorporated into decision-making processes and business intelligence. As a result, various analyses (productivity; target/actual comparison; stock/goods inventory), simulations and forecasting processes are possible. Using electronic business data, companies can optimize diverse processes, from purchasing and warehousing to cash management.
Implementation of EDI
The benefits of exchanging business documents electronically speak for themselves. Then all that remains is for you to create the conditions in your company for an EDI implementation tailored precisely to your requirements. It's best to take a step-by-step approach to implementing an EDI solution:
- Analyze requirements:
Together with your EDI implementation partner, you should first clarify which business processes and documents the EDI solution should support. What data should be exchanged? Choose processes and data that strategically add the most value to the EDI implementation. - Equip project team:
EDI implementation is most successful when the responsible project team has the necessary skills and resources. This includes support from senior management. - Select an EDI solution:
To ensure that your data and documents are transferred automatically, you need suitable EDI software that supports the agreed or industry-standard message standards and your IT interfaces. Check which configuration of EDI makes the most sense for your company: hosted in the cloud, as an on-premise installation, or a combination of both. Often, it is not necessary to build your own EDI infrastructure, which ties up resources in the company. - Gather information for implementation:
For EDI implementation, you will need a GLN (Global Location Number). This number is a kind of identification document of the company for national and international business transactions. You should also determine the exchange format for your EDI implementation. Also, name contacts in your company for your implementation partner and make written agreements. - Integrate systems and data:
First, you need the necessary infrastructure if you are installing EDI on-premise, or a communications link for your EDI provider if you are outsourcing EDI. Furthermore, you need EDI interfaces at your own ERP system. You also need to map the individual business processes in the EDI system. Templates for such EDI mappings are provided by most EDI vendors. - Start with pilot project:
Select a suitable pilot project to test together with your EDI partner whether the EDI system has been implemented correctly and all prerequisites have been met. During the course of the pilot project, fine-tuning is still possible in one or two places. After successful implementation of the pilot project, you transfer the electronic communication to productive operation. - Keep an eye on change management:
The automated exchange of electronic documents often leads to significant changes in affected functional areas: Working methods and personnel deployment change. You should therefore actively accompany the entire EDI implementation with change management, from planning to productive operation. In this way, you involve all those involved and affected in the company.
If your company proceeds step by step and creates the necessary conditions, nothing should stand in the way of a successful EDI implementation. With the help of a competent partner, you can easily overcome the organizational and technical hurdles.
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Disclaimer: We are always committed to providing products and services that feature world-class privacy, security, and compliance. However, the information contained in this blog does not constitute legal advice. We therefore recommend that prospective customers and clients do their due diligence and assess compatibility with applicable laws for themselves.