What is EDI?

Electronic Data Interchange, or EDI, is not a new technology and in fact has been around since the late 1960s. While EDI has benefited enormously from advances in technology, eg the introduction of the internet, EDI is not technology dependant. There are preferred ways to implement EDI in a company, but there are many approaches to choose from. The approach chosen should be driven by a companys business needs, not a particular implementation or technology. In its simplest form, EDI is the computer to computer exchange, between two companies, of standard business documents in electronic format. There are two key elements in basic EDI. First, electronic documents replace paper based ones. Second, the exchange of documents takes place in a standardised format. Using these two basic concepts, any business can enter the world of EDI and begin taking advantage of the speed and economy of electronic commerce, or e-Commerce.

In todays fast-paced business world, your business may already be moving in this direction, customers or suppliers may already be approaching you to begin trading information electronically. For the newcomer to EDI, it may seem a very confusing subject area. So what is a document? A document is any form of communication, usually paper based, sent between two companies, examples include:

Purchase Orders Invoices Shipping Notices Export / Import Notices Carrier to carrier waybills Funds transfer Design specifications Health insurance claims

EDI is essentially a data processing concept which is independent of communication protocols or transmission media. EDI is a logical outgrowth of the standard computerisation going on within companies over the last few decades. With EDI, the type of electronic communication between departments within a company can now easily be extended to reach out to other companies or trading partners.

EDI replaces human readable, paper or electronic based 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. Before learning about what makes up an EDI system and how to implement one, it is important to look at an example that highlights some of the key differences between traditional paper document transactions and EDI. One of the first places where many companies implement EDI is in the exchange of a purchase order, (PO). In the traditional method of processing a purchase order, a buyer or purchasing agent will go through a fairly standard procedure to create a purchase order, consisting of the following steps:

A buyer reviews data from an inventory or planning system The buyer enters data into a screen in the purchasing system to create a PO The buyer waits for the PO to be printed, usually on a special form After the PO is printed, the buyer mails it to the vendor The vendor receives the PO and posts it in their order entry system The buyer calls the vendor periodically to determine if the PO has been received and processed

When you add up the internal processing time required by the sender and receiver, and then add a couple of days in the mail, this process normally takes between three and five days. This assumes first that both the sender and receiver handled the PO quickly and that at every point along the way there were no errors in transcribing data from a form to a system.

Now consider the same document exchange when a company places its purchase orders electronically using EDI:

The buyer reviews the data and creates the PO, but does not print it EDI software creates an electronic version of the PO and transmits it automatically to the sender within minutes The vendors order entry system receives the PO and updates the system immediately upon receipt

What took up to five days with paper and the postal system has just taken less than one hour. By eliminating the paper handling from most of the stages of the process, EDI has the potential to transform a traditional paper based process to look like this:

The major benefits of implementing EDI within your business are discussed in more detail in the Benefits of EDI section of this Microsite but in summary EDI can help improve speed and accuracy of transactions, reduce costs and it provides improved flexibility when interacting on a daily basis with your trading partners or customers. To find out how to implement an EDI system, please choose the Implementing EDI button from the menu above. Types of EDI There are many different ways in which an EDI environment can be implemented across a trading partner community. Whether you are looking to implement EDI for the first time or expand your EDI infrastructure to support trading partners in other regions around the world, there are a multitude of EDI tools and connectivity options available to suit your technical capabilities and budget constraints. Once a company has automated a number of business documents such as Purchase Orders or Invoices, you may wish to integrate your EDI environment to other business systems. For example you may wish to populate an EDI document by extracting information from an accounting system or allow externally sourced information to enter an ERP system. Either way you will need to ensure that you have the correct technology and skills in place to achieve this. Implementing EDI for the first time can appear to be a daunting challenge for many companies however there are a number of ways in which EDI can be implemented across a business. For companies that have internal resources to manage an EDI infrastructure, EDI can be deployed by installing software which would then allow EDI information to be sent via a Value Added Network (VAN) or a point to point connection. For those companies that have no internal EDI resources then outsourcing the management of an EDI infrastructure or using web based EDI tools could be the preferred route to take. This section of EDI Basics highlights some of the ways in which EDI tools can be deployed across a business. Please select one of the menu options to the left to find out more.

Benefits of EDI Replacing paper documents with electronic ones will not necessarily require changing the way your company does business. Replacing a paper based purchase order with an electronic one will provide several obvious benefits. It will also have an impact on the way you order your supplies. It will mean replacing your current paper system with a very different way of doing business. Since changing the way your company conducts business is not a task you will undertake casually, you might wonder at this point why you should upset processes and procedures that work well. In todays global economy, every business faces constant pressures to improve the quality of its products or service, while at the same time tightly controlling or reducing costs. While IT has helped to automate or streamline internal processes, in many businesses the external process of exchanging information with customers and suppliers still lag far behind the internal procedures. The need for speed and accuracy in these external processes is becoming ever more critical. Implementing EDI Implementing an EDI system across a company and group of associated trading partners can be a complex activity to try and manage. This section of the EDI Basics Microsite highlights the various stages involved with implementing an EDI solution within your business and looks at areas such as organising an EDI development project, strategic analysis, development, piloting and finally deploying the EDI solution. Please review each step by selecting the appropriate button to the left. Step 1 - Develop the organisational structure for managing the EDI system In order to implement an EDI system it is important to have a dedicated person or team to manage the implementation process and liase with outside providers of EDI solutions Step 2 - Undertake a strategic review of the business Once an EDI co-ordinator has been appointed then a strategic review of the business should be undertaken to see which areas of the business will benefit from implementing the EDI solution first. Step 3 - Developing an EDI Solution to meet the needs of the business Once a specific process within the business has been targeted for automation via EDI, an EDI network provider and associated software needs to be chosen for implementation Step 4 - Integrating with other business systems across the company In addition to automating one part of a business process there may be a requirement to utilise information held in other business systems within the company. Integrating with

other back office systems can provide significant downstream cost and efficiency benefits. Step 5 Undertake mapping / data analysis of internal business processes To ensure the smooth flow of information between internal applications and trading partners, documents need to be mapped or linked to allow the information to be transmitted efficiently across a network. Step 6 - Establishing a pilot project with selected trading partners Once the basic EDI system has been implemented it is important to run a trial process to see how the system performs when trading with a small number of partners. Step 7 - Deployment of the EDI system amongst trading partners Once the trial project has been successful then the next stage is to ramp or recruit all the required trading partners to the new automated EDI process. This enablement of the trading partners is regarded as the final stage to implementing an EDI system.

EDI Resources This section of the EDI Microsite contains a number of resources which may help you to get a better understanding of EDI, the technology used, the types of documents exchanged, industry standards in use and a number of downloadable tutorials and white papers. Please select one of the options to the left.