In today’s highly technologically advanced world, electronic transmission has become a norm. From text messages to phone calls and even business transactions, we utilize electronic transmission of data and information every day.
When it comes to business transactions, EDI has been at the core of streamlining and ensuring our businesses run seamlessly in this high-tech era.
Electronic Data Interchange (also known as EDI) has been way ahead of its time when it comes to running business processes and handling business-to-business (B2B) transactions. The future looks even brighter for EDI as it continues to improve and evolve.
EDI replaces traditional paper-based transactions and documents such as purchase orders, sales orders, invoices, etc. Through EDI software, organizations can share information from one computer software to another one in the receiving organization. This saves on the time delay that is inherent of using paper documents and mailing them from one organization to another.
How Does EDI Work?
Contrary to popular beliefs, EDI doesn't work similarly to sending a text message or an email. EDI transactions are defined by EDI message standards. EDI transactions are designed to be standardized and are independent of the communications used by companies or the software technology that sends and receives EDI data. The most common EDI standards are:
- United Nations rules for Electronic Data Interchange for Administration, Commerce, and Transport (UN/EDIFACT)
- Organization of Data Exchange by Tele Transmission in Europe (ODETTE)
- American National Standards Institute Accredited Standards Committee X12 (ANSI ASC X12)
- Trading Data Communications (TRADACOMS)
What Comprises an EDI Document?
You've probably heard the mention of the EDI document, and you’re wondering what it is. An EDI document isn’t like a normal email attachment. It is structured using the EDI standards mentioned earlier and must contain a specified minimum amount of vital data. An EDI document becomes useless if it doesn’t adhere to the EDI compliance requirements in the standards.
The standardization of EDI is what has made it last for as long as it has. Without EDI standardization, maintaining and scaling B2B data exchanges becomes a tall order.
An EDI document, also known as a transaction set/message, has three key components regardless of the EDI standard. These are:
- EDI Envelope
- Data Elements
Let’s break it down for you!
Similar to sending and receiving paper documents, the information in an EDI document is enclosed in an envelope too. Like a postal envelope that has the address of the recipient on the outside and the information on the inside, an EDI envelope does the same. Moreover, it is also possible to mail several documents in a single envelope. There are three EDI envelopes used to house your transaction when transmitting an EDI document i.e. Message envelope, Group Envelope, and Interchange envelope.
Each transaction set is placed in an individual message envelope. However, a group of transaction sets such as a group of purchase orders, or a group of invoices, is placed in a group envelope. All group envelopes sent from one sender to one receiver are placed in an Interchange envelope.
An envelope is made up of a pair of segments that delineate the start and the end of an appropriate section. The EDIFACT standard for instance uses the UNH and UNT segments for the message envelope, the UNG and UNE segments for the group envelope, and finally, the interchange envelope uses the UNA/UNB and UNZ segments.
In an EDI document, a segment is a group of related data. Each segment begins with a segment ID that describes the type of data elements that follows. Segments are made up of a group of data elements. The EDI standard that you use for each document will define a couple of things in the document's segment. For example, different standards define the mandatory segments and those that are optional and/or conditional (i.e. included only if another segment or element is included). The standards also determine the elements that may be included for each segment.
For every piece of information in a paper document, there is a corresponding EDI element. Each standard has a way of defining the elements in a unique standard dictionary. Moreover, the standards influence the required sequence of the segments and the elements, as well as the number of times a segment may be repeated.
Each segment begins with a segment ID that describes the data elements that follow. Once all the segments are pulled together into a specified sequence, they form a complete transaction set or electronic document.
EDI Data Elements
The data elements in an EDI transaction set are the individual pieces of information within the document. Elements are the smallest component in an EDI document. Data elements are what make up a segment in an EDI document. In the ANSI standard, for instance, the elements within each segment are separated by a data element separator, in this case, the asterisk ‘*’. Once they are combined and make up a segment, the elements are closed using a data element terminator, in this case, the tilde symbol '~'.
There are different types of data elements, each representing a unique type of data depending on the EDI standards. This allows the software to distinguish numeric data from text data or even the date and time data. The elements also utilize codes that must be observed with particular types of data e.g. there is a currency code element to indicate the currency if the element is the unit cost. They vary in length and character.
The data element types in a transaction set are specified by the EDI standard. The standards also determine the specific order of the elements. Some elements are used to describe others. These elements are called qualifiers, and they “qualify” the second element. Qualifier elements are often two to three-digit codes defined in EDI standards.
The future of the supply chain heavily relies on electronic data interchange to streamline B2B transactions. Most large organizations have integrated EDI into their system and have made it mandatory for all their trading partners so they achieve consistent benefits from all their transactions. For smaller organizations, EDI implementation allows them to interact and transact with larger organizations with minimal barriers.
EDI documents are at the core of the electronic data interchange, and they essentially allow seamless processing of information among different companies. EDI documents comprise three key components; the EDI envelope, data element, and segments. You must strictly adhere to the document formatting rules of the EDI standard that you are using. These formatting rules define where and how each piece of information in the document will be contained.
Ultimately, EDI documents are managed and interpreted by computers, so the transferred data must be formatted in a way that the computers of both parties can understand. When done properly, there are minimal communication complications, and the cost of redundancies or fines (chargebacks).
We understand that you have a lot on your hands running a successful business, and ControlHub helps you handle your procurement and supply chain needs efficiently. This allows you to focus on your core business functions and rest assured that you are in professional hands. Get in touch with us today, and let's transform your procurement to operate as effectively as your enterprise.