What is Electronic Data Interchange ?
Electronic Data Interchange (EDI)- Computer-to-computer exchange of normal business transactions including payments, information exchange and purchase order requests. The most basic EDI line is a computer-to-computer link. The second level incorporates an application-to-application design where individual companies link at least one in-house system to the EDI interface. The most elaborate version of EDI actually transforms the way business procedures are executed to gain optimal productivity.
The EDI process provides many benefits. Computer-to-computer exchange of information is much less expensive than handling paper documents. Studies have shown that manually processing a paper-based order can cost $70 or more while processing an EDI order costs less than one dollar.
- Much less labor time is required
- Fewer errors occur because computer systems process the documents rather than processing by hand
- Business transactions flow faster.
Faster transactions support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs through fewer emergency expedites.
Paper purchase orders can take up to 10 days from the time the buyer prepares the order to when the supplier ships it. EDI orders can take as little as one day.
One drawback is that companies must ensure that they have the resources in place to make an EDI program work; however, the need for buying and hiring these resources or outsourcing them may be offset by the increased efficiency that EDI provides.