EDI Transactions
If you work with purchasing or sales, you will inevitably come across EDI exchanges. A typical abbreviation for Electronic Data Interchange is EDI, which stands for Electronic Business Data Interchange.
Businesses use EDI transactions, a kind of electronic commerce, for things like electronically sending purchase orders to other businesses. EDI transactions were intended to function independently of business communications systems or software used to produce EDI data.
EDI Formats: EDI operates according to standards that specify the format requirements for every message.
There are four EDI standards: ANSI ASC X12, which is used in North America; TRADACOM, which is used by British retail companies; ODETTE, which is used by European automakers; and UN/EDIFACT, which is the only internationally recognized standard and is primarily used outside of North America.
For businesses, EDI deployment is crucial as it may drastically lower document shipping costs.
Costs vs. Benefits of EDI
In order to print, fax, or mail a paper purchase order to the vendor, resources are needed. EDI automatically transmits the electronic document to the vendor thereby lowering the cost of mailing the PO. There have been studies done on the cost savings of implementing EDI. For example, an Aberdeen group report from 2008 noted that sending an EDI-enabled purchase order (PO) in the US only costs $23.83, compared to $37.45 for producing and sending a paper PO.
Not every business uses EDI. Implementing and maintaining the technology needed to carry out EDI is expensive. Setting up resources for each trading partner a business wishes to use EDI with may be prohibitively expensive for smaller businesses or businesses without technical resources.
Even though they claim to utilize EDI, some businesses may be able to electronically accept orders but not be able to immediately put those orders into their sales systems. The EDI orders are printed out and manually input into their computer systems.
This problem is typical if organizations have old order systems that do not have the functionality to receive or produce EDI orders.
EDI How It Works
There are a lot of methods EDI messages are delivered between trade partners. The most prevalent way was to employ a value-added network or VAN. This enabled firms to submit a signal which was then evaluated by the VAN and then transmitted to the proper recipient.
More recently a new method for EDI transmission is being used. This is called AS2, which stands for Applicability Statement 2, and was championed by Wal-Mart, who requires all of their vendors to use this method. Using AS2, the EDI documents are transmitted across the internet and the security of the document is achieved by encryption and the use of digital certificates.
There are dozens of EDI documents that can be implemented by a company and their trading partners. Under the ANSI ASC X12 standard, EDI documents are part of a series, for example, such as an order series, a warehousing series, or a financial series.
In addition, a number of series that relate to specific industries such as government, insurance, mortgage and automotive.
Many companies will only implement a small number of EDI documents with their trading partners, commonly in the ordering series, material handling series and the delivery series.
For example a company who is implementing EDI between themselves and a third party logistics company may only implement five EDI documents such as an EDI 940 for a warehouse shipping order, EDI 943 for a warehouse stock transfer shipment advice, EDI 944 for a warehouse stock transfer receipt advice, EDI 945 for a warehouse shipping advice, and EDI 947 for a warehouse inventory adjustment advice.