Electronic Data Interchange, the future of intercompany communication

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What is the Electronic Data Interchange or EDI system?

Thanks to EDI technology, which stands for Electronic Data Interchange, nowadays the exchange of commercial documents with customers and suppliers is faster, simpler and more efficient, whereas previously it was based on sending and receiving by post, fax or email. The key factor of Electronic Data Interchange revolves around the possibility to send information to another company only electronically.

What is Electronic Data Interchange? EDI is a defined protocol for intercompany communication in a standard format of data typically associated with company documents. It is a technology that has been around for a long time, but is quickly getting more visibility in the whole process of the digital transformation concerning the Internet of Things (IoT), the Artificial Intelligence and the Robotic Process Automation (RPA) as it makes a paperless exchange possible and helps companies to manage the flow of information and documents efficiently and automatically.

There are many business documents that can be exchanged through the EDI system, especially purchase orders and invoices. This latter process helps to better understand the potential of Electronic Data Interchange within an organisation: in fact, while until a few years ago a company created the invoice using a computer system, printed a paper copy of the document and sent it to the customer, today this whole process concerns only the transfer of information from the seller’s computer to the customer’s one.

In 1996, the National Institute of Standards and Technology defined the Electronic Data Interchange as a “Computer Exchange to computer of a standardised format of business information. The EDI system involves a sequence of messages between two parties, one of which can act as originator or receiver: in this relationship, the formatted data representing the documents can be transmitted from the originator to the receiver by telecommunication or physically transported on electronic media of memorisation”.

Thus, Electronic Data Interchange eliminates the manual process of the document management and exchange, as documents pass directly from the sender’s to the recipient’s IT application, allowing the immediate sharing of data without having to wait hours or even days.

EDI improves workflow, makes the information exchange faster and more secure, provides greater data accuracy, drastically reduces paper consumption and avoids losses due to errors or delays. Additionally, it helps companies in the digital onboarding process making the exchange of information quick and secure with business partners.

How does Electronic Data Interchange work?

The process of sending documents through the Electronic Data Interchange system consists of three stages:

  1. the preparation of documents;
  2. their translation into EDI format;
  3. their transmission through secure and proper networks.

EDI transmission can be of two types:

  • Point-to-point or direct connections – this type of transmission occurs when two machines or computer systems connect without any intermediary on the internet, using secure protocols;
  • VAN (Value Added Network) – this type of transmission takes advantage of a third-party network capable of managing data transmission, ensuring users a secure technical interface.

Electronic Data Interchange message standards, such as ODETTE, TRADACOMS, GS1, Peppol, and the Accredited Standard Committee (ASC) X12, define the location and order of information according to the message formats. When information is missing or delivered to the wrong place, the documents may not be processed correctly, which is why it is essential to have appropriate governance processes and skills to ensure data quality.

What are the benefits related to Electronic Data Interchange?

By leveraging on digitalisation and automating the business documents exchange between two or more partners, Electronic Data Interchange eliminates manual steps and provides firms with benefits like speed, accuracy, efficiency and costs reduction.

Here are some of the key benefits of Electronic Data Interchange for businesses. EDI:

  • Promotes secure document exchange with trusted technology by reducing or eliminating manual data entry errors;
  • Simplifies transaction processes by reducing delivery times and speeding up request processing;
  • Facilitates the retrieval of documents, reducing the cost of printing, archiving and reproducing of documents, therefore it promotes sustainability and reduces polluting emissions by replacing paper-based processes with electronic alternatives;
  • Increases productivity and operational efficiency as automating document exchange allows staff to focus on more important and strategic activities;
  • Allows organisations to make quick decisions and better respond to customers and market requests, helping companies adopt a demand-oriented approach;
  • Makes it easier and cheaper to do promote business growth and partnerships.
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