Why Companies should consider adopting Electronic Data Interchange (EDI) solutions

Date Published: 23-06-2020

EDI in its simplest form is the exchange of standard business documents between organizations in a standardized format between computer systems. The aforementioned business documents can be Purchase Orders, Inventory status, Sales Orders, Advance Ship Notices, Payment Documents and invoices. EDI messages contain transaction sets which contain data variables which represent elements such as product numbers and quantity.

The use of EDI allows companies to automate the document exchanges intrinsically associated to supply chains. EDI solutions do this by integrating with the organization's Enterprise Resource Planning (ERP) systems. The data is mapped to the receiving organization's database schema to ensure the data is transmitted and received correctly. The ERP system is where the EDI solution can access all the data required to transmit the document required by your organizational trading partners.

Just as your organization has standards for doing business so do your trading partners, EDI solutions comfortably facilitate this by electronically transmitting the data/documents in the agreed-upon standard.

Let’s look at a scenario to better explain the use of EDI in daily business. We will look at the role of EDI in the transmitting of commonly used Purchase Order (PO) documents.

An organization’s purchaser officer will start off by looking at the system inventory status. The purchaser will then via a system capture the order data to generate the purchase order document. The purchase order document is then sent to the vendor/trading partner where it is then processed in the trade partner system. From this processing, an invoice document is generated which is then sent back to the buying purchasing agent. The purchasing agent will then capture the invoice into the organizations ERP system. Although this sounds straight forward there are many inconveniences in this process.

For example, the purchase order may not have been to the trading partner standard which results in corrections on the purchasing side. Also, because this process is manual the receiving trade partner order capturing staff can be busy which leaves the purchasers PO document in a pending state before processing has even started which further adds to the waiting time. Additionally, the purchasing officer has to manually follow up with trading partners to get the status of the purchase order sent.

Through the use of an EDI solution, the same process but some major natural delays due to human action required can be cut. The purchasing officer will still have to generate the purchase order document but will not be required to print the actual document and mail/email it. The EDI solution takes the data from the newly generated purchase order and electronically transmits it in a standardized format to the trading partner system. This happens instantly which means the trading partners ERP system updates instantly based on the data transmitted from the purchaser/sender. In response to the transmission, the trading partner system will respond with an acknowledgement of receipt.

The trading partner and purchasing organization have now both benefited from a quick and efficient transaction process between their organizations.

Other advantages of adopting EDI solutions into organizational supply chain processes are;

Reduced Error & Reduced Delays

Human error is a natural part of life, employees can be thorough and generally all-round diligent but unfortunately, we are all prone to minor mistakes here and there. Minor mistakes in an already admin intensive process can set back important deliveries and completions of purchasing arrangements by days.

Cost Saving

Due to moving everything electronically organizations naturally cut out paper costs associated with their intrinsic supply chain processes.

Accuracy & Efficiency

Naturally, because the data is just being captured once by the purchasing agent the risk of human error is greatly reduced. Because the EDI solution has access to the trading partner ERP systems the data is received and updated without the worry of duplicate data being created by accident due to the reduced human interaction. General business processes are increased in efficiency by increased

  • Payment processing speeds and timelines.
  • Automated inventory management.
  • Confirmed receipt of delivery to trading partners.
  • Clean data quality.
  • Improved turnaround time.

Organizations are all looking to run cleaner and more effectively, modernizing the intrinsic processes associated with the supply chain management process is a good first step.

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