Rookie’s Guide

If you are new to EDI and wondering how it can help your business or corporation, you’re not alone. Electronic Data Interchange is a rapidly growing industry.

EDI has helped countless companies streamline productivity and save time and money. For these reasons and more, many businesses are looking at EDI as a possible investment to help reduce overall costs and make productivity more efficient. But before you can decide if EDI is a good fit for your business, you need to know what EDI is, how it works, and the major advantages and drawbacks of an Electronic Data Interchange system.

So, What is EDI Anyway?

EDI is "an enabling technology that provides for the exchange of critical data between computer applications supporting the process of business partners by using agreed-to, standardized, data formats”.

Electronic Data Interchange, or EDI, is the electronic transmission of information within network. Strings of information separated by delimiters are shared between computers. (This may or may not take place with the use of the Internet.) Bite-sized nuggets of information such as purchase order details or laboratory results are grouped together and defined as separate chunks of information by a delimiter, such as a comma, and sent electronically to a set destination. This is done with the assistance of an EDI software program.

EDI systems have traditionally been expected to transmit information quickly, but today’s EDI systems also provide dynamic, critical transactions that form the backbone of business. Today’s EDI systems are often responsible for replenishing stock, shipping products, scheduling production, and replenishing raw materials in addition to reliably sending data in seconds.

This fast electronic transmission eliminates the need for paper purchase orders that must be delivered through the traditional postal mail system, making communication fast and cost-effective.

How Does EDI Work?

EDI systems transmit data electronically with the aid of computers. This transmission process can be done via the Internet (AS2), or through another system of networks such as an LAN, FTP, or any another system preferred by the connected parties.

EDI works similarly to email, but this process actually pre-dates the popular use of the Internet. All data is transmitted in a standardized format. In the United States, this agreed upon format is called ASC X12 or ANSI ASC X12, in Europe the standard is EDIFACT.

EDI is similar to the process of doing a mail merge in Microsoft Word. The object is to get revenue-related documents (sales orders, invoices, etc.) from one computer system to another electronically. The sender exports the data of a sales order for example to a supplier. A “translator” application is used by the supplier to “map” the incoming data into a format that your computer system will understand so that it will end up in your system as if you typed it yourself.

In order to trade EDI documents you must have translation software, and either a Value Added Network (an EDI mailbox service) or software that allows you to send EDI documents using your Internet connection.

Another way to do EDI is to use a web based EDI system in which you log in to your EDI mailbox and get your EDI documents just like you would email. You must then type the data into your business system. If you must send EDI data, you then type invoice information for example into a form that resides on the web based EDI system.

EDI utilizes technological advances and standardized information systems to streamline business and reduce waste. When business moves at the speed of light, EDI is often running in the background to keep production in motion.

In Rookie’s Guide to EDI: Part II, we’ll cover the benefits and drawbacks of implementing an EDI system to help you better understand how EDI is used in today’s business world.