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Unlocking EDI: What It Is & Why It Matters

Discover what EDI is and learn how it can improve the operational efficiency of your business.

In most industries, business is impossible without the help of partners. You might supply other businesses with goods or resources that they need. Just as likely, you have partners that supply you with essentials, too.

Regardless of how those relationships play out, communication is a key aspect of how it all works. Every time you and a partner business work together, there is a slew of business documents that go back and forth, and managing those documents adds to the total workload for every business involved. Transferring those documents can also be difficult, and many businesses are looking for a more streamlined approach to this.

If you want a more efficient and capable way of transferring business documents between trading partners, there are standardized methods, tools, and resources that can help, such as EDI.

EDI, or electronic data interchange, is a communication method that has been formulated and standardized by a large number of businesses, and it can clean up supply chains, logistics, and business-to-business transaction communications. EDI can streamline your business in countless ways, helping you easily share business information with your trading partners with the simple click of a button.

But what is an EDI system, and how can it benefit your business? Continue reading to find out more about the EDI process and how to transmit EDI documents so you can make your business more efficient than ever.

What is EDI?

What is EDI software, and why is it so important?

Electronic data interchange (EDI) is a standardized way for companies to share digital information. EDI software eliminates the need for paper communication, which can save costs, increase productivity, expedite the exchange of information, and allow for improved business functionality in general.

While EDI can handle a wide range of data and communication, it is most commonly used for invoices, purchase orders, and advance ship notices, so it’s easy to see why many businesses would want to standardize these electronic documents.

EDI handles communication for specific purchase information, allowing businesses to exchange goods and services without the need for postal mail. EDI implementation is a common solution for any E-commerce website or anyone working in order fulfillment.

How does EDI work?

So, how do EDI transactions work, and what is EDI format capability?

Implementing EDI solutions into your business process is actually quite simple. There are countless options out there, but generally, EDI solutions work with or are built on top of SAP.

Within SAP, you can prepare the necessary documents and then send them via EDI. The other business will receive them in the universal format and can do with them as they please.

For example, you could send an email invoice directly from your SAP software. The receiving business gets the document automatically, and because you used EDI, they will have the resources to view and utilize the document. The exchange is automated and immediate.

EDI format capability allows for a simple and smooth exchange of business documents in a standard format. This eliminates the risk of any discrepancies between businesses, allowing for easy and quick communication.

Types of EDI

There are several different types of EDI, the most prominent of which include direct EDI, EDI via VAN, web EDI, mobile EDI, and outsourcing EDI.

Direct EDI is exactly what it sounds like. It’s a software solution that allows you to manage EDI communications yourself. Such software allows you to pick documents, send them to desired recipients, receive documents, and file them electronically. There is no extra tool or middleman necessary.

A VAN (value-added network) is essentially a service that takes care of EDI communication for you. Like SaaS, you connect with an EDI provider. You can send electronic documents to the VAN. The VAN will handle direct communication over EDI networks and ensure delivery.

For documents sent to you, the EDI will receive the documents and then send them to you according to a previously chosen method (such as email or any other preferred communication).

WebEDI is similar to VAN, but the mechanism is different. You’re still using a middleman service to handle EDI communication, but in this case, it is through web-enabled tools.

With WebEDI, you need to prepare your documents and log into the web portal to send them. Or, you can log into the portal and download documents that were sent to you via EDI. Your documents will be converted into an EDI message which you can then send via the web.

Mobile EDI is just like WebEDI, but you use a mobile app instead. It’s still a middleman service, but now you’re taking advantage of mobile access and features.

Lastly, with outsourced EDI, you hire a company to handle the EDI process for you. They might utilize specialized software or they might digitize paper documents that you send to them.

It all depends on the business model and what you need from them. One way or another, they take care of direct EDI communication on your behalf.

Benefits of EDI

There are many reasons to consider implementing an EDI solution into your business. For one, EDI streamlines communication between business partners and improves operational efficiency.

But the benefits of EDI don't end there. Some of the many benefits of EDI include:

  • Improves efficiency and productivity. Preparing and managing paper documents can be a major time sink. Fortunately, EDI removes a significant source of paper documentation. To get an idea of how much time this can save, compare the process of finding a file in a filing cabinet to using Google. Now multiply that by the scope of every business transaction in your organization.
  • Saves money: EDI software can save your business money in two ways. The first is that it lowers costs related to paper management, as digital solutions are usually less expensive than their paper counterparts. Additionally, EDI saves money by standardizing communication. You don’t have to spend extra money on a bunch of different software tools to keep up with each client or supplier.
  • Minimizes errors: Minimizes errors: The automation of EDI helps to eliminate the risk of manual data entry errors in your business system. This improves accuracy, which further lowers costs related to error correction and management. With an EDI, you’re lowering labor costs on multiple fronts and improving the accuracy of your business transactions.
  • Enhances customer service: Finally, EDI helps with customer service. You’re minimizing errors, helping customers save money, improving communication speed and efficiency, and automating important communication. Improved customer satisfaction can also help you retain more customers in the long run.

Challenges of EDI

Considering all of these benefits, it might be easy to assume that EDI is a comprehensive solution that only improves things. But in reality, it’s like any digital tool — benefits will depend on the application.

EDI comes with a few challenges, and understanding those before investing in EDI solutions can help you dodge common problems and maximize your benefits.

The first challenge is cost. If you don’t already have EDI resources in place, then incorporating them requires a from-scratch investment. You’re building up a new resource for your business. While you can manage these costs over time, you're still adding an expense that wasn’t originally part of your budget.

Technical requirements are another challenge. EDI is standardized, and that means that your technology has to be compatible with EDI standards. That might require you to purchase new hardware or software for direct EDI.

Or, you’ll have to invest in outsourcing resources to compensate. Either way, you have to satisfy the technical requirements before you can gain any benefits from EDI.

The third major challenge is changing standards. EDI has standardized protocols, and that means that it has to keep up with changes in technology. EDI is not restructured from top to bottom every year, but it is updated over time.

Whatever software you use for EDI will need to keep up with those changes, or your EDI communication will fail — which defeats the whole purpose.

While these are some common challenges of EDI, the pros far outweigh the cons. If you can meet these challenges, you can transition into EDI efficiently and enjoy the benefits from the start.

Why is EDI integration important in the workplace?

Benefits aside, why is EDI integration important in your workplace?

For starters, it might be a genuine necessity. If your suppliers and/or clients are utilizing EDI, it might be a case of keeping up or being left behind. After all, purchase orders and invoices are essential documents. If you can’t send and receive them according to business standards, your business will suffer.

On top of that, EDI can assist your workforce with a number of aspects of daily work. The automation tied to EDI can remove busy work from workers and enable them to focus on more important tasks.

EDI integration can also make information more accessible to employees as needed. It can roll into statistical tracking and data analytics. This makes it an integral tool for data tracking, data reporting, and data security.

Overall, EDI can streamline workflows that are often interrupted by slow communication issues and improve the efficiency of your business.

Improve your business processes with EDI integration

EDI is essential for your business if you want an automated exchange of electronic documents. But if you’re looking for EDI resources and aren't sure where to go, Mailchimp can help. Mailchimp is a digital provider with a wide range of tools and resources that you can use to manage your audience data and accomplish your business goals.

Take a look at everything Mailchimp has to offer and improve your business processes with EDI integration.

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