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EDI - Electronic Data Interchange

The term EDI (Electronic Data Interchange) describes the process of electronic data exchange between two companies.

Definition EDI

The abbreviation EDI stands for Electronic Data Interchange and translates as "electronic data interchange". EDI describes the electronic process of standardized data exchange of information between two companies. The EDI system is linked to the ERP system of the respective company, thus providing a point-to-point connection and the perfect solution for faster, secure and paperless data exchange. The EDI platform is mainly used in the field of logistics and supports, for example, in the area of orders. The digital information is sent encrypted to the recipient, who can decrypt and read the documents in the appropriate EDI format. 

How does EDI work?

EDI messages are used to exchange all relevant data between two business systems. The process is as follows: 

A file is created in Business Partner A's ERP system, which is then converted to the desired EDI standard using EDI software. In the next step, the EDI document is transmitted to business partner B. The recipient (business partner B) receives the EDI message, converts it into its own target format and can then process it.

Since the data from the source system is automatically converted into the standardized EDI format of the respective company, the ERP systems of the business partners do not have to be compatible. With classic EDI, all data is automatically transferred from the ERP system and processed. 

EDI data exchange

In order to use an EDI system, interfaces to all systems of a company must be created. This includes the ERP software or other software solutions. The systems of the business partners must also be connected to the EDI software. The EDI interface connects the ERP system with the EDI converter to the EDI Clearing Center, so that the data transfer can run smoothly. By linking the EDI software with the ERP system, the business process is supported and optimized. 

Setting up this EDI communication is very complex and costly, but brings a high ROI. Smaller companies therefore often turn to WEB-EDI as a SaaS solution, because it works independent of location and does not involve installation costs.

EDIFACT

EDIFACT is an EDI solution and one of the international EDI standards. EDIFACT is the abbreviation for "Electronic Data Interchange for Administration, Commerce and Transport" and was published by the United Nations in 1986 and includes over 200 different message types. More than 300,000 companies worldwide use EDIFACT to send EDI messages.

Benefits of EDI

EDI supports companies and business partners and is especially important in the area of supply chain management, because the digital exchange of information improves the supply chain: a high time saving as well as digital and faster business processes contribute to an optimal supply chain. Moreover, the electronic data exchange is just-in-time and the recipient can open the electronic documents in his preferred format without any problems. The EDI system speeds up the delivery of data, while electronic communication also reduces manual intervention and associated errors. With the help of EDI, external exchange of data with business partners can be easily managed within the IT systems, and is therefore a good solution to handle business processes of different companies in the shortest possible time. 

Benefits of EDI at a glance:

  • Fast and error-free data transfer
  • Easy communication
  • Better supply chain management
  • Reduction of lead times
  • Cost savings
  • Increased processing speed
  • Improved cooperation

Disadvantages of EDI

Both parties have to agree on the same system, which is why the use of an EDI solution always involves costs and therefore does not always pay off for small and medium-sized companies. Since the EDI format has to be maintained every 10 years, this is often associated with a high IT effort. For small to medium-sized companies, the use of EDI is therefore often too expensive and too time-consuming.

Disadvantages of EDI at a glance:

  • High complexity
  • High costs

EDI Alternatives

An alternative is, for example, a so-called software-as-a-service solution (SaaS) for the digital connection of suppliers. This solution also enables the digital exchange of documents, but is less complex and more cost-effective. For example, suppliers without their own EDI system can also participate in the digital data exchange.