Electronic Data Interchange means for companies to exchange business documents, such as purchase orders, ship notofications, invoices and many other.
EDI eliminates the need for sending paper documents through traditional means — including mail, faxes or e-mail — it is a major contributor to creating a “paperless” office environment.
EDI messages adhere to a set of rules and regulations governing the flow of electronic data, known as “protocols.” The use of standardized data formats allows computers to exchange various business documents without companies needing to customize their hardware or software system.
EDI can be formally defined as ‘The transfer of structured data, by agreed message standards, from one computer system to another without human intervention’.
EDI standards were designed to be independent of communication and software technologies. EDI can be transmitted using any methodology agreed to by the sender and recipient.
There are four major sets of EDI standards:
Today, EDI is used by a large number of businesses. EDI has a number of benefits. Cost is one of the main benefits. Processing one paper based order usually costs between US$ 50.00 and US$80.00, depending on the complexity of the order, where as processing the same EDI based order will cost less than $2.00.
Another benefit is time. A paper order can take up to 2 weeks from the time it is issued by the purchasing entity, send to the vendor and entered into the vendors system and shipped. The same order can now being processed in less than a day. This in return will allow to keep more efficient stock levels, better use of warehouse space which in return means reduced warehousing cost and improved cash flow.
► Faster sell-buy cycle time
► Improved Cash Flow
► Reduced Order Lead Time
► Reduced Inventories
► Ability to have Just-In-Time (JIT) Production Runs
► Improved Customer – Vendor relationships