EDI Tutorial Learn About EDI

Author: Daniel Spivey

Article:
1) What is EDI?

EDI is an abbreviation for Electronic Data Interchange, which is
the sending and receiving of business documents via an
electronic network between companies. These networks can be
based on the Internet or private networks, so called Value Added
Networks for EDI (VANs).

A central concept of EDI is that the business documents that are
exchanged must be machine-readable. This means that a computer
must be able to interpret the EDI data that is sent or received.
To accomplish this, two factors must be present:

a) a standard for how the EDI data should be structured per
business document; and

b) a data parser to interpret the EDI data

There are two major, and several minor (industry specific or
geographic) EDI standards. The UN EDI standard EDIFACT developed
by the United Nations to be the basis of international trade. It
is used in Europe and most of the world. The other significant
standard is ANSI X12, developed by the American Standards
Council. This is used mostly in North America. In addition to
these two, there is the ODETTE EDI standard that is used mostly
within the automotive industry in Europe. The TradaComs EDI
standard is mostly used in Britain and began in 1982.

The EDI data parser or EDI interpreter is a software tool that
uses data transmitted over a network and makes it understandable
for a machine or humans. This tool can, for example, take data
transmitted as an EDI message and transform it into a purchase
order that a person can look at. This requires data
transformation, which is necessary if the data is to be read by
an accounting system or an individual.

The networks that the data travels through can be either private
networks for EDI, called VANs (Value Added Networks) or it can
be transmitted over the Internet. To send EDI data over the
Internet many companies use FTP (File Transfer Protocol), FTPS
(Secure File Transfer Protocol) or AS2/AS3 (Applicability
Statement 2 or 3). Sending EDI data over the Internet is by far
the most inexpensive since VAN charges can become onerous over
time. Wal-Mart was the fist company to utilize AS2
communications in a major manner for the transmission of EDI
messages.

To summarize, Electronic Data Interchange or EDI is a standard
for enabling businesses to transact their business
electronically, rather than by fax, telephone or email. EDI is
primarily used in fixed trading relationships, where the
partners will be doing business for some time. EDI came about
because it was necessary for businesses to become more
efficient, and to do this, business transactions needed to
become automated.

2) Why do I need to do EDI and what are the benefits?

Most companies start using EDI software to transact business
because a larger and more powerful trading partner that requires
EDI as a prerequisite of the business relationship mandates them
to do so. Some companies begin using EDI to make their business
processes more efficient, though these are in the minority.

As mentioned above, there are two major reasons to use EDI.
Firstly, because companies are forced to use EDI software, and
secondly because enterprises see that implementing EDI can
improve their business processes and make their operations more
efficient.

If you are like most companies who start using EDI because of a
larger trading partner, keep in mind that the reason they want
you to use EDI software is because transacting business using
EDI saves them time and money. The question is, will EDI save
you time and money, or is sending and receiving business data
via EDI just another pain you have to endure to maintain the
business relationship?

In the first phase of EDI adoption, few companies see the
concrete value of doing EDI as it actually may increase the
complexity of their business processes. This however, is because
most companies that begin using EDI utilize EDI software that
requires manual input. When the company takes the next step and
integrates their EDI data directly with their accounting or ERP
system the inherent potential of utilizing EDI will become
apparent. This removes the necessity for manual entry of data
between the EDI software system and other computer applications
that need the data. Since manual processes are removed, errors
due to manual entry in the EDI process will also disappear. This
leads to cleaner data, faster turnaround times, fewer fines from
the trading partner and improved cash management.

Some companies start utilizing EDI because the above benefits
are apparent to them. In these cases the company is often a
little larger. Since EMANIO has developed new technology to
cost-effectively facilitate the integration of EDI data into a
company’s backend systems, there is no longer any reason for a
company to utilize manual processes when transacting EDI. Using
integrated EDI software is now easier than using manual EDI
software.

Essentially, you need to use EDI to become more efficient in
your trading relationships. While some of your trading partners
may mandate that you use EDI software to do business with them,
this should not be the primary reason to consider using EDI. The
benefits to you in terms of cash and operational management are
significant. As mentioned before, cleaner data, faster
turnaround times and improved relationships with your customers
or suppliers will be the result of implementing EDI in your
organization.

3) What do I need to do EDI?

To be able to do EDI a company must acquire a few vital
components; EDI software, a method of communication over an
electronic network, and the trading partner’s specific
information of how they need the EDI to be sent to them. We will
explain each of these necessary EDI components in detail below.

A. EDI Software: this is primarily an EDI parser or translator
that functions as an interface between the EDI document that is
sent/received and the person entering the data manually into the
internal accounting or ERP system. EDI software can often
interface directly with internal systems using a process called
EDI integration. When an EDI message is received, it first comes
into the EDI software from the network of choice (FTP, AS2 or
VAN). The EDI software then validates the message, meaning that
it checks whether the trading partner who is sending the file is
a valid trading partner; that the structure of the file meets
the EDI standards and that the individual fields and segments of
data conform to the agreed upon standards. After the validation,
the EDI software creates a file (of fixed or variable length,
sometimes in XML tagged format). For environments that don’t
have EDI integration the received EDI message is printed and
manually entered into the accounting or ERP system. For
environments where the EDI is integrated, the EDI software
converts the EDI file into the proper data format that allows
the EDI data to be automatically imported into the accounting or
ERP system. The EDI document is then imported.



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