What is Electronic Data Interchange (EDI)? (2023)

As a concept, EDI (Electronic Data Interchange) isn’t a new one. In fact, it can be traced all the way back to the Berlin Airlift in 1948. Put simply, EDI systems automate and simplify the process of exchanging key business documents – such as invoices, purchase orders and shipping notices – principally with partners, suppliers and customers. EDI documents deliver a formal structure for the delivery of information to allow the data to be exchanged effectively.

So what is EDI? The most accurate EDI definition is the computer-to-computer exchange of business documents in a standard EDI document format between business partners. By moving from a paper-based exchange of business documents to EDI documents, businesses enjoy major benefits such as reduced cost, increased processing speed, reduced errors and improved relationships with business partners. EDI transactions are processed much faster and with less human intervention. In addition, the best EDI software and services can integrate into back-end systems such as ERP and accounting platforms to enable the end-to-end processing of key business documents.

(Video) What is EDI (Electronic Data Interchange) Tutorial | B2BGateway

Since its widespread adoption in business in the 1980s, EDI has become a core part of the IT infrastructure for businesses across a wide range of industry sectors. It continues to grow today. In the healthcare industry alone, the most recent estimates suggest the EDI market will be worth $5.9 billion by 2025 – an annual growth rate of 9.4%.

One of the reasons for the continued prominence of EDI technology is its ability to span business documents from several key business processes. For example, EDI payments and EDI invoices, rather than the paper variety, allow companies to process order information faster and more accurately. And, it’s within EDI payments and EDI invoicing that the technology developed to include EDI shipping documents for instance, and help give insight into global shipping transactions, warehouses and distribution centers.

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In addition, EDI goes beyond the exchange of structured data to allow organizations to benefit from EDI transactions across their supply chain. EDI technology also allows for secure file sharing – including Managed File Transfer – that can help departments such as engineering to exchange large CAD or Product Lifecycle Management (PLM) files.

What are the benefits of EDI?

Electronic Data Interchange software and services hold many benefits for those organizations that get it right. The best EDI solutions can generate dramatic increases in performance while delivering improved accuracy in the transfer of business-critical information. Automated processes, optimized for full effect, directly from computer to computer, can perform much more quickly than manual processes – and with a measurably higher degree of accuracy.

(Video) What Is EDI? An Overview

With paper documents replaced by EDI transactions, electronic logs built into the processes facilitate easy and quick EDI tracking and audit handling activity. This enhanced transparency of data helps businesses increase their ability to measure performance and instigate improvements throughout their supply chain. Benefits include:

  • Cost reduction
    Expenses associated with paper, printing, reproduction, storage, filing, postage and document retrieval are all reduced or eliminated when you switch to EDI transactions, lowering your transaction costs by at least 35%. A major electronics manufacturer calculates the cost of processing an order manually at $38 compared to just $1.35 for an EDI order.
  • Time saved
    The transfer and processing of EDI documents can take seconds or minutes instead of days, gaining time for executives to focus on more pressing tasks. Estimates suggest that EDI can speed up your business cycles by 61%.
  • Enhanced accuracy
    EDI invoices can be issued and processed with no need to transcribe the invoice when it’s received, resulting in a significant reduction in the potential for data entry error. Research shows a 30-40% reduction in transactions with errors—eliminating errors from illegible handwriting, lost faxes/mail and mistyping. Similarly, EDI payments that are transferred from the buyer’s computer through a secure network to the vendor’s computer do not need human contact throughout the process of the transaction.
  • Security
    Relying on electronic transmission, the EDI document doesn’t have to be passed through any insecure channels, such as post or third-party delivery services. It will be passed directly to its desired recipient promptly and securely. These secure file sharing capabilities build trust and cooperation across your trading partner community.
  • Improved efficiency
    The buyer gets rapid confirmation that their EDI payment documents have been received, further helping to speed up the ongoing process. Quick processing of accurate EDI documents leads to less re-working of orders, fewer stock outs and fewer cancelled orders. In addition, shortening the order processing and delivery times mean that organizations can reduce their inventory levels.
  • The complexity of EDI solutions
    The best EDI tools can lead directly to reduced cycle times, reduced overheads, enhanced accuracy and improved efficiency. In an era of digital transformation, EDI solutions have been a forerunner of using digital technologies to dramatically improve the performance of paper-based business processes. So why is EDI not part of every business? The short answer is that EDI can be complex. Any Electronic Data Interchange definition has to make note of the number of EDI standards and communication protocols there are. Common EDI standards include EDIFACT and ANSI X.12 but there are wide variety of flavors within a standard. For example, by the late 1990s, there were 100 different standards for X12 alone. In addition, many different industries developed their own flavour of EDI to suit their specific needs – such as ODETTE in automotive, RosettaNet in High tech and Tradacoms in retail.

What types of EDI communication models are there?

All EDI systems vary, as does each organization’s individual requirements, but it’s worth taking the time to determine the best EDI communications model for your business that will help you deliver an effective EDI program.

(Video) What is EDI in eCommerce ? (Electronic Data Interchange) || Simply Explain

  • Direct Connect
    Connecting directly with each business partner works well if your community size remains small and if everyone agrees on a single connectivity protocol. Your organization is responsible for all mapping, translation, technical support and reporting.
  • On-premises B2B software
    In an on-premises deployment, EDI software applications are stored securely at your offices and behind your firewall. You have complete control over all aspects of your EDI system including security, access and data integrity. However, your IT staff will require the skills and expertise to maintain and manged the system.
  • Value-Added Network (VAN)
    The EDI Network provider facilitates the exchange of electronic documents via its “document mailbox” service which all parties connect to. This approach relieves all community members of the responsibility for supporting all communications issues, ensures data security and non-repudiation. Furthermore, the “value added” capabilities in the best VAN providers, can and should include increased visibility, enhanced alerting and custom analytics to help optimize your business processes and enable you to make better business decisions.
  • Managed Services
    A B2B managed services provider receives your business documents directly from your ERP system (SAP, Oracle, etc.) and assumes responsibility for all the mapping, translation, technical support, data center operations and ultimately, for delivery and reporting.

Working with an EDI provider

Over the years, there have been a number of types of EDI solutions that have developed. These include web-based portal and online forms that let small businesses exchange key business documents with their large customers. However, the cost and complexity of EDI for larger organizations mean that more and more companies are looking to work with EDI providers. An EDI provider can take care of all the technical aspects of EDI – including EDI mapping and compliance – meaning the organization can quickly benefit from EDI transactions without the need for specialist EDI skills and resources internally.

Why choose OpenText for EDI?

OpenText operates the largest EDI network in the world with a suite of EDI and B2B Integration methods to help organizations improve their existing processes and adopt new ones.

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There’s dedicated software designed to create, send, receive, print and manage EDI documents, as well as integrate to accounting and other back-office systems. OpenText also offers a range of EDI translators and EDI mapping tools to convert messages from the data structures of enterprise applications into the Tradacoms, ANSI X.12 or EDIFACT standards.

With B2B Managed Services, organizations can outsource their EDI program with confidence and gain the ability to exchange a wide variety of EDI transactions with business partners, from POs and ASNs to EDI invoices and EDI payments.

(Video) What is EDI (Electronic Data Interchange)?

Move toward 100% digital connectivity with all your partners with B2B enablers that include everything from fax to full enterprise resource integration. OpenText offers a full spectrum of solutions depending on the size of your company.


What is meant by electronic data interchange EDI? ›

Electronic Data Interchange (EDI) is the electronic interchange of business information using a standardized format; a process which allows one company to send information to another company electronically rather than with paper. Business entities conducting business electronically are called trading partners.

What is EDI and example? ›

EDI, which stands for electronic data interchange, is the intercompany communication of business documents in a standard format. The simple definition of EDI is a standard electronic format that replaces paper-based documents such as purchase orders or invoices.

What is EDI and why is it important? ›

In its most simple form, EDI (Electronic Data Interchange) technology allows the computer-to-computer exchange of business documents in a standard electronic format between different business partners. The perks of moving to an EDI platform that specializes in EDI integration include: Reduced costs. Automated workflows.

What is EDI for dummies? ›

EDI stands for electronic data interchange (sometimes also referred to as data exchange). It is an amalgamation of computer systems and processes that allows manufacturers the ability to share business documents and a variety of transactional information with the vendors, suppliers, and brands that they work with.

What does EDI stand for MCQ? ›

What is EDI (Electronic Data Interchange)? Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in a standard electronic format between business partners.

What are the 4 major components of EDI? ›

A: The 4 major components of EDI are: standard document format, translation and mapping, preferred communication method and communication network to send and receive documents.

Where Can EDI be used? ›

Common examples of documents that can be sent using EDI are:
  • Purchase orders.
  • Invoices.
  • Shipping statuses.
  • Customs information.
  • Inventory documents.
  • Payment confirmations.
8 Jul 2020

What is EDI and its benefits and limitations? ›

EDI reduces your operating outlay by removing the costs of document retrieval, filing, mailing, paper, postage, printing, recycling, reproduction, and storage. EDI significantly reduces administrative, maintenance, and resource costs.

Why EDI work is important? ›

Authentic workplace EDI brings together people and ideas to help build stronger workplaces and ensures that employees have a workplace culture where they can perform at their best. It addresses the basic human need to feel safe, supported, and belong.

Which of the following are the elements of EDI Mcq? ›

Application layer, Transport layer, IP layer, EDI envelop.

What is EDI interview questions? ›

Interview Questions for EDI Analysts:
  • What information is required before an EDI system can be built? ...
  • Which software programming languages are you familiar with? ...
  • What techniques do you use to ensure an EDI system is accurate, efficient, and user-friendly? ...
  • How do you go about training end-users on a system you deployed?

What are the two EDI file types? ›

There are five most commonly used EDI file formats.
  • MHD – Message start.
  • STX – Start of Interchange.
  • END – End of Interchange.
  • MTR – Message end.

What are the three components of EDI? ›

The Components of an EDI System
  • A device on which to transmit the data.
  • An application or an outsourcing company that translates the data into a standardized EDI format.
  • A connection between the sender and the recipient.
  • Users to send and receive data.
26 Nov 2020

When was EDI used? ›

EDI was first introduced to supply chains back in the 1960s, when Ed Guilbert developed a form of electronic communication between shipment supply chains in the US army. Although it took until the early 90s for EDI to find wide-spread supply chain integration, EDI was a critical facilitator of early globalisation.

Which bank is an example of EDI? ›

Standard Bank, FNB, Absa, KPMG, Pricewaterhouse Coopers, Ernst & Young, Deloitte, Alexander Forbes, Capitec Bank, Santam Limited, Hollard Insurance Group, Allan Gray.

Which one is the following is best example for EDI? ›

EDI Examples

Other common EDI documents include advance ship notices (EDI 856) and invoices (EDI 810). Once the document is properly formatted, it is transmitted to the supplier through the Internet (HTTP protocol) or a Value Added Network (VAN). The supplier receives the EDI document and processes the order.

Which of the following is an example of electronic data? ›

Electronic Data means information, facts or computer programs stored as or on, created or used on, or transmitted to or from computer software (including systems and applications software), on hard or floppy disks, CD-ROMs, tapes, drives, cells, data processing devices or any other repositories of computer software ...

What are the two EDI file types? ›

There are five most commonly used EDI file formats.
  • MHD – Message start.
  • STX – Start of Interchange.
  • END – End of Interchange.
  • MTR – Message end.

When was EDI used? ›

EDI was first introduced to supply chains back in the 1960s, when Ed Guilbert developed a form of electronic communication between shipment supply chains in the US army. Although it took until the early 90s for EDI to find wide-spread supply chain integration, EDI was a critical facilitator of early globalisation.

What are the stages of EDI process? ›

The Basic Steps of EDI
  • Document Preparation. Information necessary to produce a business document (purchase order, invoice, etc.) is collected in an electronic file.
  • Outbound Translation. ...
  • Outbound Communication.

What are the three types of electronic data processing? ›

Examples of processing modes are:

distributed processing. Time sharing. Batch processing.

What are the 3 examples of data? ›

Data typically comes in the form of graphs, numbers, figures, or statistics.

How do you set up an EDI? ›

A Structured 10-Step Process for Successful EDI Implementation
  1. Step 1: Develop the Organizational Structure. ...
  2. Step 2: Undertake a Strategic Review. ...
  3. Step 3: Conduct In-depth Analysis. ...
  4. Step 4: Develop a Business-Focused EDI Solution. ...
  5. Step 5: Select the Correct EDI Network Provider (VAN) ...
  6. Step 6: Integrate EDI with the Business.

› order_inv › edi › what_is_edi ›

Electronic Data Interchange (EDI) is the electronic interchange of business information using a standardized format; a process which allows one company to send ...


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