Understanding the concept of EDI
Electronic Data Interchange or EDI is the computer-to-computer exchange of business documents, which are shared in a standard electronic format between business partners.
EDI has proved to be quite beneficial ever since the evolution from a paper-based exchange of business document to one that is electronic. The main benefits include reduced cost, increased processing speed, reduced errors and improved relationships with business partners. For example, Company A and B are business partners, where Company A may buy goods from Company B. Company A sends orders to Company B.
EDI replaces postal mail, fax and even email. This reduces the involvement of people that slows down the processing of the documents and also introduces errors.
EDI documents can flow straight through to the appropriate application on the receiver’s computer and processing can begin immediately. An EDI translator is used that helps them to translate the EDI format into a data that can be used to process the documents.
These are the documents that are typically exchanged between businesses. The most common documents exchanged through EDI are purchase orders, invoices and advance ship notices.
A standard format must be used so that the computer will be able to read and understand the documents. A standard format describes what each piece of information is and in what format, it might be in the form of integer, decimal, mmddyy.
Commonly used EDI standards include ANSI, EDIFACT, TRADACOMS and ebXML. When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version.
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