3/24/09

EDI – Pros/Cons

Electronic Data Interchange

Electronic Data Interchange (EDI) refers to the transmission of electronic data between

organizations. Although this sounds similar to e-mail EDI is more sophisticated and useful when

it comes to making payments, organizing invoices, or exchanging shipment forms. EDI can also

be used within businesses for cross departmental communication and documentation. EDI can

be defined as “The transfer of structured data, by agreed message standards, from one

computer system to another without human intervention.”1

PROS:

EDI has many advantages and although it has been in existence since 1960 it did not

gain large popularity until more recently namely the late 80’s and early 90’s. EDI’s two major

advantages are that of increased efficiency and cost savings. 2 EDI allows for quicker

transactions and fewer errors than traditional paper. EDI decreases a company’s cost of postage

and storage of company records, these costs can be quite substantial for companies with large

transaction volume. EDI can reduce the cost of storage of manufactured materials by closely

tying in actual demand with manufacturing production, allowing for a just-in-time delivery

method which can prove beneficial not only for the company but also the consumer. EDI can

eliminate much of the human error that occurs during the recording of all business transactions

1
http://en.wikipedia.org/wiki/Electronic_Data_InterchangeaZSBN M,.
2
http://ecommerce.hostip.info/pages/380/Electronic-Data-Interchange-EDI-ADVANTAGES-EDI.html
which leads to further cost savings. Many companies such as Target and Proctor & Gamble use

EDI for their store inventory, ordering, and delivery.

CONS:

Although EDI has many advantages it also comes with a few disadvantages. EDI contains

a complex file format that is only able to communicate with other EDI formatted computers. If

two businesses are trying to transact an order and one does not have EDI they will either need

to find some other way to record transactions such as paper, or they will need to purchase EDI

interface software to facilitate communication with their current system. This can be very

costly, especially for small companies and businesses. The cost of integrating EDI may limit the

potential of some of these small companies to do business with large vendors or

manufacturers. Another disadvantage to EDI is that it must be monitored for errors by a system

administrator, who will inevitably require a salary therefore increasing payroll cost.

Overall, EDI is a powerful system management tool that can help a business function

more efficiently in any industry or field. It can be a powerful marketing tool used to attract the

business of other EDI formatted companies, manufactures, and distributors. EDI can

significantly reduce costs on storage and postage helping companies to realize greater profits.

Although it has added cost of managing and integrating, the benefits surely out way the

drawbacks.