The fundamental reasoning behind EDI is the unification and automation of the communication beyond company boundaries.
In the substantial majority of cases the kind and configuration of corporate application systems (e.g. ERP systems) widely differ between cooperating companies. As a result, a trouble-free communication between the application systems is not possible and consequentially the need to perform a series of manual steps such as filing of invoice data emerges.
Within the context of EDI, data regarding purchase orders, dispatch notes and invoices are however automatically exchanged as structured messages between the business partners. The hereby deployed data format standards improve the automated communication between the systems by structuring the exchanged messages in way that allows to readout every information according to precise definitions. Thus, the preconditions are established to automatically translate the messages from the data format of the sender to the data format of the receiver and subsequently feed the data into the receiver’s system. The translation of data formats in an EDI process is generally called “Converting” and embodies one of the most important aspects of EDI processes.
The fundamental goal of the deployment of EDI in practice is the complete and fully automated communication between business partners in a way that no manual process steps are necessary between the initiation of a transmission in the sender’s application system and the integration of the data on the receiving side.
The unification and automation of the communication between business partners through EDI promises a number of advantages for all involved parties.
Improvement of data quality
By reducing the number of manual process steps in the processing of physical documents, the error rate of the data transmission, for instance while manually filing key information of an invoice, consequentially is reduced as well. Moreover, EDI can further improve the data quality by introducing automated check mechanisms and prevent that missing or false information is adopted in follow-up processes.
Increase of flexibility
The increased communication speed, attained through the automated, electronic transmission of messages, allows the communication business partners to rapidly react to internal and external influencing factors. Thus, for example a production plan can be adapted to a purchase order change without significant delay and especially without having to exchange and process a series of emails.
Foreshortening of business processes
The faster and more reliable transmission of necessary information for business processes improves and shortens the cycle times of these processes. This especially plays a key role in optimized production processes such as Just-in-time.
EDI enables the status tracking of data transmissions. This allows all involved parties to have access to information about sending and receiving time stamps as well as about the success of the message processing and the communication history at all times.
Simultaneous data integration in different business processes
Received information can simultaneously be distributed to all relevant places in a system. Data regarding a purchase order can, for instance, not only be captured in the ERP system, but also automatically trigger follow-up processes.
Avoidance of miscommunication
Inaccurate data as well as forgotten or delayed message transmissions can easily lead to misunderstanding and miscommunication between the parties. Not even EDI can completely prevent this from happening. However, the deployment of EDI and the resulting improved data quality and transparency vastly reduces the risk potential.
Relief and refocusing
By reducing manual and highly repetitive process steps the involved staff is relieved on one hand and supported to focus on the more complex areas of their scope of activities.
All the so far described advantages ultimately lead to cost savings. In addition to that paper, printing and sending expenses can be eliminated. Altogether it is to be assumed that EDI comes along with a high operating cost saving potential.