Electronic Data Interchange (EDI) refers to the exchange of computer-to-computer business documents in standard electronic formats with business associates.
Moving from a paper-based exchange of business documents to an electronic version business owners can reap significant advantages such as lower costs and speed of processing reduction in errors and improved relations with business partners.
Although Electronic Data Interchange (EDI) has been used since the late 1960s, there are several organizations that are using their legacy systems to handle B2B transactions. Traditional B2B transactions such as Purchase Orders or Sales Order Invoice, Purchase Order, Advance Ship Notices and Functional Acknowledgement usually require a set of steps that must be processed. Processing these transactions requires numerous paper documents and lots of human involvement making them vulnerable to human error and mistakes. With the help of EDI, paper documents are eliminated, and human intervention is reduced.
EDI allows organizations to automate the transfer of data within the supply chain. This method ensures that crucial business data is delivered promptly. According to a report on the market from Dart Consulting, the estimated market value of EDI is projected to be $1.68 billion by the end of 2018 and projections to reach the level of $2.1 billion in 2020. What are the benefits of EDI over traditional methods of communication between businesses as well as information exchange?
Benefits of EDI
- Operating costs that are lower: EDI services reduce your operating costs by at least 35%, by cutting out the cost of printing, paper storage, filing postage, and retrieving documents. It significantly reduces administrative maintenance and resource expenses. EDI services provider’s support can also reduce other expenses like Matson Logistics which reduced their ASN fines by 12 percent through the switch to a more effective EDI solution.
- Increase business cycle speed: It is essential to be punctual when it comes to processing orders. EDI accelerates the business cycle by 61 percent because it permits processes that are automated, which significantly decreases the, if not completely eliminates, the time-consuming manual processes that require the entry, filing, and analysis of data. Inventory management is simplified and more efficient thanks to real-time updates to data.
- Reduce the chance of human error and improve the accuracy of records: In addition to their inefficiency manually-operated processes can also be susceptible to errors, usually caused by handwriting that isn’t legible keys, re-keying and keying errors as well as incorrect handling of documents.
- Enhance efficiency in business: Since human error is reduced the organizations will benefit from greater efficiency. Instead of being focused on routine and repetitive tasks employees can focus their time to more activities that bring value. The appointment of an EDI consultant also enhances the company’s trading partner relationships by facilitating the delivery of services and goods, and
- Increase the security of transactions: EDI software companies improves transaction security through securely sharing information across a range of security protocols and communications standards.
- Environmentally friendly and Paper-free: The transition in Electronic Data Exchange from paper-based transactions to electronic transactions can reduce carbon dioxide emissions, and encourage companies to take on social responsibility.
Benefits of Paper-Based Systems
A document management system that is paper-based can have its benefits for example:
- Simple manipulation: As paper is physical in nature, it is accessible and visible, a person who does not require any experience with computers is able to manage and work with paper. These documents can be stored efficiently in folders, files, and cabinets. Accepted as a legal requirement: Original document documents that are printed on paper are legally recognized as official and may be used as evidence in court. In reality, it is possible that the law will oblige you to keep certain documents in paper form for them to be considered legal.
- Data Security: Traditional file management offers advantages in security over EDI services and electronic file storage, but it also has its drawbacks. Electronic files are generally accessible via a network and it’s therefore possible for a thief to be able to access the electronic files via the Internet by using hacking techniques. Data on electronic devices can be harmed due to security issues in software, like computer viruses.
- Complexity: Traditional file systems are more straightforward than electronic systems, which could allow people who aren’t trained to work with data and modify it. Anyone can search through alphabetical filing cabinets to locate an item.
Limitations of EDI
- Perceived High Upfront Costs :
It is true that EDI services used to require substantial upfront investment has been a barrier in the past, especially for smaller businesses. However, like most technologies, EDI has become less expensive over time. Direct EDI services and systems have also become more mature with features that automate and accelerate internal business processes that can quickly cover more than the investment with time and money saved.
- Initial setup is Time-Consuming: Not only has EDI become less expensive, it has also become faster to deploy and integrate into existing applications and easier to use with Web EDI options that even non-technical users can operate.
- Too Many Standards: Many organizations also consider EDI to have too many standards and versions. This could limit smaller businesses in trading with larger organizations that use an updated version of a document standard. Here are some of the standards: UN/EDIFACT, ANSI ASC X12, GS1 EDI, TRADACOMS, and HL7. It is therefore imperative that a provider is chosen that supports a wide range of standards and commits to keeping up with new protocols in the future. All-in-one solutions like OpenText Freeway Cloud eliminate the need to know all the standards by having EDI standards built-in to the solution.
- Investing in System Protection: EDI consulting services may also require a heavy investment in computer networks. It will need protection from viruses, hacking, malware, and other cyber security threats if an on-premises system is chosen. However, many providers offer a cloud solution that includes system protection.
- Robust Data Backups of Systems: EDI software companies need constant maintenance since the business depends on it. Robust data backups must be in place in the event of a system crash. But again, if a cloud solution is chosen then this responsibility lies mostly with the provider.
Limitations of Traditional Paper system
- Storage Space is Not Enough: Documents that are paper-based can take up large amounts of space. The volume of papers will increase each day. Additionally, documents typically require storage nearby to ensure they are easily accessible.
- Security Concerns: No matter the size, for any business, it’s important to safeguard its data and other assets. One of the greatest risks to the security of information for companies is paper, as printed documents are easily destroyed, stolen, or lost however digital data can be protected with encryption and stored in electronic or hard disk devices.
- Prone to Damage: Manual documents are easily destroyed, stolen, or even stolen. An event like a fire or natural catastrophe can result in the loss of important documents. If you don’t own copies, when the files have been destroyed, there’s no way to retrieve the data returned which is not the case in Electronic Data Exchange.
- Document Transport: The process of transporting documents through paper-based systems is complex, slow, and inefficient. With a digital document administration system installed, you can easily add attachments to emails and instantly send the information.
- Editing issues: If you wish to alter the paper-based document then you’ll need to write the entire document over again. This process will have to be done each time you need to make further changes. Make a duplicate of your original documents in order to identify all changes which need to be made.
- High cost: One of the major disadvantages of paper-based document management systems is the cost associated with them. In addition to tons of paper, you’ll require more printers, photocopiers stationery, and other office equipment. These expenses increase and can be significant expenses for several companies.
- Limit collaboration and communication: When working with documents made of paper collaboration can be a challenge. If multiple department heads are required to draft a document, they will need several copies printed, complete all necessary changes in separate documents, and then share the versions with one another before they begin working on the final version. Document management software enables users to work together with ease and quickly and easily. They can also monitor all changes made.
- Environmental Damage: Utilizing more paper is harmful to the environment and doesn’t contribute much to boosting your business’ green credibility. A lot of employees today want to work for companies which are committed to sustainability. Many customers also favor eco-friendly alternatives, so try your best to attract and keep these employees.
- The investment in a digital document management software will decrease how much paper you use in your office and improve the efficiency of your work and efficiency. It also allows businesses to alter their entire method of data storage and management.
Traditional vs EDI
A traditional invoice and an EDI or e-invoice have the same aim – to obtain payment from a buyer – so they contain much of the same information. However, EDI invoicing makes for significantly easier procurement for the following reasons:
- Processing time: Paper-based invoicing can be a time-consuming process, with physical documents often taking days or even weeks to be received, processed, and paid by the buyer. On the other hand, an EDI invoice can be transmitted and received in real-time.
- Cost: Paper invoicing can be expensive owing to costs associated with printing, delivery, and manual data entry. EDI invoicing requires none of this, which saves both supplier and buyer money.
- Format and delivery: With traditional invoicing, a seller has to create and deliver a physical invoice to the buyer, either via mail or in person. Electronic Data Interchange invoicing involves the digital, near-instantaneous sending and receipt of an electronic invoice using a standardized format via a secure network.
- Accuracy: Paper invoices involve the manual entering of information by human beings, so they’re prone to error, including missing information, transposed numerals and the like. Because it uses standardized formats and automated data entry, Electronic Data Interchange invoicing reduces the likelihood of mistakes.
- Visibility and tracking: Old-fashioned invoicing can make tracking the status of payment difficult for trading partners, creating the potential for delays and disputes over money. With EDI invoicing, both buyers and sellers can see the status of any invoice at any time. EDI invoices can also be stored easily and without the hassle and added expense of paper filing and storage systems, making record keeping easy.
Electronic Data Interchange offers organizations a range of benefits over traditional invoicing methods. It provides faster processing, reduced costs, increased accuracy, better supply-chain visibility, and enhanced security.
By using it, businesses will see reductions in errors, disputes and delays and improved cash flow, putting them in better financial positions. Those seeking ways to stay competitive in the marketplace should look to EDI invoicing.