EDI stands for electronic data interchange and it is defined as the electronic (computer-to-computer) exchange of business information which is converted into a standard format which all systems understand. EDI provides you an efficient order management and order fulfilment process by reducing manual data entry and human error, and the automatic translation of purchase orders, invoices and ship notices makes for streamlined business processes.
Businesses are increasingly requiring their suppliers, distributors and vendors to communicate with them via EDI because it streamlines and improves operational efficiency. It eliminates the need to email, fax or phone about orders and transactions resulting in better speed and accuracy. For large retailers like Amazon, Target, Walmart, Home Depot, etc., EDI is a requirement that must be complied with before a business relationship can be established.
Since EDI transactions take place between computer systems; eliminating the need for people or paper; it ensures that your and your partners’ business systems are speaking the same language resulting in a seamless data exchange.
How does EDI work?
With the implementation of an EDI solution, the order processing cycle is shortened tremendously. Previous processes such as printing, mailing, and faxing are eliminated and instead information is exchanged electronically between companies that use different systems. EDI involves these steps:
Preparing the EDI document: create the file to be sent to a trading partner.
EDI translation: this is a two-way process. Data from a regular document is translated into the EDI standard format so it can be sent to a trading partner and EDI format received from a partner is translated into information understood by various business systems.
Transmitting EDI documents: once data from your business system is translated into the standard format, it is sent to your trading partner.
There is a huge list of EDI documents that can be implemented by a company, but most companies only implement a few important ones that are appropriate for their type of business. For example:
- Purchase Order (850)– this communicates which items the buyer wants, their quantity, pricing, shipping instructions, etc., to the seller. The PO automatically flows into the order management system and initiates the fulfillment process.
- Purchase Order Acknowledgement (855) – this is generated by the supplier’s system upon receipt of a PO and it lets the buyer know that their order has been received and that no further action is required on their part.
- Advanced Shipping Notice (856) – this document is sent from the seller to the buyers as soon as the order is shipped and it contains a lot of details about the shipment including UPC codes, quantity, number of pallets, shipping addresses, etc.
- Invoice (810) – after an order has been fulfilled, an invoice is generated and is sent by the seller to the buyer to request payment. With EDI in place, Pos and invoices can be compared automatically, and errors can be flagged.
How does EDI help manufacturers?
Although EDI is used by a vast number of businesses and the manufacturing industry is not the only one that relies on it, we cannot ignore the fact that it has become an essential component for manufacturers to communicate effectively with their trading partners. EDI improves communication through automation which helps manufacturers free up resources for important tasks like product improvement and innovation, looking for new business opportunities, quality control and delivering better customer service.
There are numerous benefits the manufacturing industry can reap from implementing and embracing EDI data exchanges. The benefits are even greater when the EDI solution is integrated with their other business systems like ERP, CRM, etc., because they help automate information transfer between systems and greatly enhance overall productivity.
Benefits of an integrated EDI solution
Growth Opportunities: Due to the automation and efficiency that an integrated EDI offers, manufacturers can increase operations without having to hire and train personnel. Also, since some large organizations mandate the use of EDI, it expands the manufacturer’s opportunities to build new trading relationships.
Improves Communication: A lot of manufacturing transactions take place across time-zones or globally, which requires personnel working round the clock. EDI eliminates the need for human intervention and expedites receiving and processing orders.
Improves Efficiency: Helps address challenges like incorrect labels, shipping wrong products, inappropriate packaging, late deliveries, etc., which reduces the effort required to prepare orders for shipment and increases efficiency.
Automated Solution: Helps automate the movement of data within various stages of the warehouse process in single and multiple warehouse environments. It can also automate business processes by replacing order processes, transactions and communications that were accomplished with paper or fax in the past.
Single Portal Advantage: Users have access to all purchase order information (incoming and outgoing) from one location and it eliminates re-keying of data between the EDI portal and other business solutions.
Collaboration: Exchanging transaction data real-time helps Accounting, Order Desk & Warehouse staff to collaborate and increase productivity.
Analytics: Captures financial data which can be used to make informed business decisions related to revenue and profitability in real-time.
Other benefits include improved response times, reduced costs in operational efficiency, reduced delays in processing orders, and the reduction in use of paper.
How Do I Get Started?
If you are considering becoming EDI compliant and are new to it, you should look into getting an outsourced, cloud-based EDI because it can get you up and running quickly, it requires no hardware or software on your end, it is supported and maintained by experts, and it scales as your business evolves and grows.
For information on your available EDI options for BatchMaster Software, contact us today.