EDI is the process of exchanging business documents between companies using computers, which is faster and cheaper than traditional methods. It reduces human error, improves inventory levels, and reduces shipping costs. However, all parties must use the same method, and security is important.
Electronic Data Interchange (EDI) is the process of using computers to exchange business documents between companies. Previously, fax machines or snail mail were used to exchange documents. Mail and fax are still used in business, but EDI is a much faster way of doing the same thing.
EDI is used by a large number of companies. More than 100,000 companies have replaced more traditional methods with EDI. This new system has several benefits; cost is one of them. Exchanging computers with computers is much cheaper than traditional methods of exchanging documents. Processing a paper order can cost up to $70 USD (USD), while EDI costs $1 USD or less.
Since a computer processes EDI documents, there is also less chance of human error. Speed is another benefit. A paper purchase order can take anywhere from ten days to two weeks from the time the buyer requests it to the time the shipper submits it. Now the same order can be processed in less than a day.
These faster transaction times help maintain efficient inventory levels. They also contribute to better utilization of warehouse space and less out-of-stock issues. This in turn leads to a reduction in shipping costs as there is no need for last minute urgent delivery surcharges.
There are some downsides to the process. EDI only works if all the businesses the company is dealing with are using the same method. If change has not been made in some companies, other companies dealing with them may need to use EDI as well as more traditional methods. This can be expensive and time consuming. It may involve one staff member maintaining the mailing process, while another worker submits documents electronically.
The process of using EDI for purchasing is very simple. Once a purchase order is written, the document is translated into a specific format and sent to the supplier over the Internet. It must be ensured that the document used by both parties is in exactly the same format.
Security is an important issue for companies using EDI. Data security is controlled throughout the process using passwords, encryption and user identification. EDI has software that checks and edits documents for accuracy.
Basically, all that is needed to run this method of exchanging documents is a computer and Internet access. There are many companies that provide hassle free EDI software application packages. They have their own encryption software and the installation process can be completed in a few minutes. From a small initial outlay, companies can use EDI to improve efficiency, saving time, money and effort.
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