EDI - Electronic Data Interchange

EDI is used in some form by hundreds of thousands of companies around the world to exchange business information with business partners.

EDI related topics on this page include:

EDI is a term used to describe computer to computer exchange of information - usually via private networks. Business documents such as Purchase Orders and Invoices are sent and received in a standard electronic format. This lets other computers understand and use the content included in EDI documents.

XML is also about computers exchanging information - but assumes that the exchanges are taking place via the Internet.

The benefits of using EDI

EDI benefits include:

  • Fast, accurate, and dependable business transactions
  • Shorter order-to-payment cycles
Companies using EDI enjoy a competitive advantage over non-EDI companies because of:
  • Increased opportunities through quicker and wider spread of information related to buying/selling opportunities.
  • Better record-keeping, fewer data errors, reduced information processing time, standardised interpretation of data, and reduced unproductive time.
  • Reduced inventory due to faster and more accurate order processing
  • Reduced communication costs due to - less hard copy paper distribution time, no "lost" documents, and reduced postage and handling costs.
  • Reduced order time because orders can be processed much faster.
  • Improved customer satisfaction because of faster response times and a reduced reliance on paper.
  • Reduced billing cycles because orders are delivered more quickly.
  • More accurate information about business processes to help identify efficiency improvement priorities.

EDI - Step by Step

The EDI process works as follows:

1 - A buyer completes an electronic Purchase Order form on their computer. When the buyer completes all the information, it is saved in a standard format that has been agreed to by the Buyer and the Seller.

2 - The Buyer sends the Purchase Order to the Seller. The Purchase Order is sent to the Sellers' mailbox. EDI documents often travel via several networks, including the Internet, before they reach their destination mailbox.

3 - The Purchase Order is held in the Sellers' mailbox until the mailbox receives a command from the Sellers' computer. The Sellers' receive command downloads all documents waiting in the mailbox.

4 - Once the Purchase Order is received by the Seller, the Sellers' vendor's computer generates an electronic receipt to let the Buyer know that their Purchase Order was received. The receipt is generated automatically. The next time the Sender sends/receives their mail, the receipt is sent via the network to the Buyer.

5 - The Confirmation Receipt is stored in the Buyers mailbox waiting for the next time the Buyer sends/receives their mail. The Buyer's receive command retrieves all waiting mail messages from their mailbox - including the Purchase Order Confirmation Receipt.

The overall process is simple, but the simplicity depends on Buyers and Sellers using a common standard for different types of documents.

Both parties need to agree on the types of documents that they will send to/from each other. They also need to agree on naming conventions for data fields within each type of document. Also, while some types of data are useful to both parties, there are likely to be snippets of information that do not overlap. What to do about or with these data fragments needs to be resolved when they are sent/received also needs resolution - before error-free EDI transactions can occur. XML technology is designed to minimise the problems while still providing the same ease of use as a mature EDI system.

EDI and XML - how do they compare?

EDI is a well-established technology for automating order processing and document interchange between computer applications.
XML is an emerging standard designed to simplify Web-based e-commerce transactions between computer applications.
EDI enables highly secure document exchanges.
XML documents typically need to be encrypted to maintain security levels.
EDI documents are typically in a compressed, machine-only readable form.
XML is an open human-readable, text format.
EDI documents are typically sent via private and relatively expensive value-added networks (VANs).
XML documents are typically sent via the Internet - i.e. a relatively low-cost public network.
EDI traditionally requires customised mapping of each new trading partners document format.
XML is designed to require one customised mapping per industry grouping, so most companies will be able to work to one format and use XML.
EDI typically requires dedicated servers that cost from US$10,000 and up.
XML requires a reliable PC with an Internet connection.
EDI can involve high on-going transaction based costs keeping up the connection to the EDI network and keeping the servers up and running.
XML in Internet-based has low ongoing flat-rate costs using existing Internet connections and relatively low-cost Web Servers.
EDI-based transactions account for the bulk of value of goods and services exchanged electronically.
XML processes relatively low transaction values.
EDI is estimated to be limited to 300,000 companies worldwide and about 20% of their suppliers because of operational costs and complexity.
XML appears to have no upper limit in terms of numbers of users.
EDI was traditionally built from the ground up in semi-isolation without being able to share resources with other programs.
XML is being developed in a world of shared software development populated by many low-cost tools and open source projects.

See Also: XML - What's involved?

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