EDI Explained: Electronic Data Interchange Workflow

Tori Katz
March 28, 2024

Electronic data interchange(EDI) means exchanging information between companies using computers instead of paper. By sending EDI documents, companies save time and money and boost efficiency. The EDI solution also minimizes errors and helps to maintain solid relationships between companies. 

Expanding on the benefits of EDI and proving why fast-growing engineering companies should implement electronic data interchange is important. Let’s look at everything there is to know about EDI and why a busy director of engineering would need an EDI solution. 

Today’s article will discuss: 

  • Who should use EDI?
  • The EDI setup
  • EDI standard format
  • Benefits of using an EDI solution

Who Should Use EDI?

The main reason to implement an EDI standard is to streamline how a company sends a purchasing order. A proper EDI system allows a buyer to send a purchase order in real time without faxing, mailing, or manually plugging in data. 

Companies that anticipate explosive growth need to make use of computer-to-computer exchanges. Clients need reliability and speed, which starts with the company buying time. 

The EDI Setup

Now that you know fast-growing startups should execute EDI, let’s look at how it works. 

EDI software solutions store critical data within an ERP (Enterprise Resource Planning) system and use that data to create EDI documents. The ERP system is a type of software your company will use to manage day-to-day activities like accounting, project management, procurement, etc.

The EDI setup will contain critical purchasing details, current inventory, invoicing and billing details, and shipping information. When a company selects an EDI solution, it can integrate with the ERP system and create its EDI documents. 

When companies strike a deal with each other, they exchange the crucial information needed to do business. The EDI software then uses information like shipping addresses and pricing to create a new EDI order.

EDI Standard Format

EDI standard languages are crucial for implementing EDI solutions. The goal is to ensure all trading partners around the globe have the proper technology to interpret EDI documents. 

Sometimes an EDI standard is established for a specific industry. However, some EDI standards are developed for particular regions. When companies agree upon an EDI standard, purchase orders, shipping notices, invoices, and other documents must abide by the EDI standard language. The standard will dictate details like the order in which the information is presented and the minimum data allowed in a message or document. 

Some examples of these formats include the ODETTE (The Organization for Data Exchange by Tele Transmission in Europe) standard, used in the automotive industry. Another example is the UBL (Universal Business Language). 

What is ERP?

ERP, or Enterprise Resource Planning, is asoftware system that integrates and managescore business processes such asfinance, HR, supply chain, manufacturing, andCRM. It provides a centralizedplatform for data flow and communication acrossdepartments, enabling efficientdecision-making and resource allocation. ERPstreamlines operations byautomating tasks, improving process visibility, andenforcing standardizedpractices. It offers benefits like real-time insights,improved efficiency, andcompliance with regulatory requirements. However,implementing ERP can becomplex and requires careful planning and investment.Overall, ERP serves as avital tool for businesses to optimize theiroperations, enhance collaboration,and stay competitive in today's fast-pacedenvironment.

What is the difference between ERP and SAP?

ERP (Enterprise Resource Planning) is a broadcategory of software systems designed to integrate and manage various businessprocesses within an organization. SAP (Systems, Applications, and Products inData Processing) is a specific ERP software developed by the company SAP SE.While ERP refers to the concept and class of software solutions, SAP is aleading provider of ERP software.

The key difference lies in specificity: ERP isa general term encompassing various vendors and solutions, while SAP is aspecific brand offering a comprehensive ERP system. SAP ERP provides modulesfor finance, HR, supply chain, manufacturing, CRM, and more, with extensivecustomization options. Other ERP systems, such as Oracle ERP, MicrosoftDynamics, or Infor ERP, offer similar functionalities but may differ infeatures, implementation processes, and target markets.

 Discover the leading Top ERP eCommerce software solutions that can transform your business operations.

Benefits of Using an EDI Solution 

Operating Costs

Electronic data interchange will drastically cut costs for any booming engineering company. With EDI solutions, there is less need to dole out money for paper, printing, filing, storage, postage, and document shredding services. 

Speed and Efficiency

Computer-to-computer exchanges will always be faster than when a human is involved, no matter what the assignment is. 

When it comes to processing, ordering, and making purchases, time is money. Automation allows companies to skip time-consuming manual processes like comparing data, entering data, and filing documents. Using EDI can speed up a business cycle by up to 61%

EDI systems can also provide up-to-date alerts and updates so companies can see just how much time they’re saving. 

Security

Transaction security is an underrated benefit of using EDI. 

EDI setups guarantee secure transactions by following community protocols and adhering to security standards. 

Reduce Human Error

Let’s face it, the more human activity you include in a company-to-company exchange, the more likely you will make a critical mistake. 

Disregarding an EDI solution when your headcount is growing quickly and company processes need an upgrade is a poor decision. First, you must consider factors like illegible handwriting, resulting in poor document handling. 

Using EDI documents instead reduces the chances of having to re-order. An EDI setup will slash the margin of error by up to 40%

Final Summary

Electronic data interchange is a much more efficient way of purchasing orders, sending invoices, and generating different types of EDI documents. 

An engineering director should use computer-to-computer solutions, saving time and money and adding that extra layer of peace of mind. It’s extremely challenging to oversee a new startup company that’s already seen monumental growth, so it is essential to ensure you have the tools you need to streamline wherever possible. 

Read more about how ControlHub saves you time so you can focus on being a great director of engineering!

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