EDI for Rookies, Part 2

Electronic Data Interchange (EDI) is an effective tool for more and more of today’s businesses. However, just like any other technology system, EDI has benefits and disadvantages that must be weighed before deciding to implement an EDI system. In EDI for Rookies, Part 1, we outlined the basics of what EDI is and how it works.

In this installment, we’ll look at the advantages and drawbacks of EDI.

Advantages of Implementing an EDI System

Implementing an EDI system has three main advantages:

1. Increased Speed
2. Higher Accuracy
3. Cost Savings

Speed

One of the most obvious benefits of implementing an EDI system is an increase in productivity thanks to the lightning quick speeds of data transmission provided by the system. Processing an order or request no longer takes days; with an EDI system, orders are often processed and shipped the same day they are received.

In many businesses, EDI can be set up so that data flows directly into the accounting or ERP system. This makes data entry, tracking, analysis, and production efficient and nearly effortless. It also produces a reduction in man-hours in nearly every department, including marketing, shipping, and quality control.

Accuracy

A second major advantage to EDI is accuracy. Because EDI transmits the same data to multiple destinations after a single data entry session, there are fewer data entry errors. The data is entered once, double-checked, and put to work. There is no need to enter the same data multiple times, opening the door to human error.

Cost

Many businesses take an in-depth look at the cost effectiveness of implementing an EDI system, and in most cases, executives decide in favor of implementing the system. An EDI system not only saves money by reducing costs related to paper consumption and postage, but the increased productivity that results from the use of an EDI system has far-reaching effects.

EDI systems often reduce the necessary numbers of data entry personnel required prior to the initiation of the system. This reduces the number of man-hours paid out by the company.
In addition, because EDI streamlines productivity and processes requests in a fraction of the time necessary with traditional methods, customer satisfaction is greatly increased. This results in more repeat business, as well as business acquired through word of mouth recommendations, as the company gains a reputation for quick delivery of goods. Fewer errors in processing information guarantees a greater percentage of customers receive exactly what they order, when promised.

Because EDI systems integrate with other departments within a company, critical information is accessed in nearly real-time results. This ensures that information gathered for analysis, tracking, and marketing is accurate, up to date, and reliable, making marketing and analysis efforts more effective.

EDI is often ideal in inventory control and the ordering of raw materials used in production. Because these requests are processed as soon as an order is placed or a product is sold, inventory and material counts are more accurate, resulting in less resources collecting dust on shelves. This makes better use of the company’s resources and keeps production flowing smoothly.

Other advantages may include environmental friendliness, since paper consumption is greatly reduced by using an EDI system. In addition, utilizing an EDI system may enable a company to do business globally, since data is transmitted in minutes, around the globe if necessary.

While EDI systems have a multitude of desirable benefits, they do have a few drawbacks to consider as well.

Drawbacks of EDI

Expense

Instituting an EDI system has the obvious drawback of an added up-front expense of obtaining the software, installing the system, and training personnel. This cost can be compounded if additional software currently utilized by the company must be altered to integrate with the new system. In addition, some businesses may need to upgrade their infrastructure to accommodate the increased strain of an EDI system. There is also the obvious necessity of purchasing and maintaining compatible systems or web services to enable EDI.

Resources

Regardless of the EDI system used a company will need to build up expertise in EDI processing to accommodate customer requirements and changes.

Regulations

For some businesses, EDI systems have recently resulted in an increase in supervisory employees and committees to oversee the EDI process. These companies, which are subject to the United States’ new Health Insurance Portability and Accountability Act (HIPAA), must ensure that information transmitted over an EDI network is secure and kept confidential. This presents new challenges for laboratories, physicians, hospitals, and other health care providers and their associated health care institutions.

EDI is a powerful and valuable tool for many businesses. Utilizing today’s technology enables various companies to reach business goals that were only dreams before implementing EDI.
While EDI offers attractive benefits in the forms of saving time and money, as well as increasing productivity, efficiency and customer satisfaction, it also poses a significant problem for some businesses. EDI implementation is right for many businesses, but must be considered on an individual basis.

Electronic Data Interchange is a complex business tool with the power to transform the way you do business.

EDI for Rookies, Part 1

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.

To trade EDI documents you must have translation software, and either a Value Added Network or VAN (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 EDI for Rookies, Part 2, 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.