What is EDI (Electronic Data Interchange)?
What is EDI? (Electronic Data Interchange)
Electronic Data Interchange (EDI) is a technology that allows the exchange of commercial information between organizations in a structured digital form based on regulated message formats and standards. Any standard business document exchanged between companies (for example, purchase order, invoice, shipment plan, request for goods availability) can be transferred using the EDI standard and, when both parties have completed the necessary preparations, called the testing and certification phase.
What is ANSI X12, EDIFACT, HIPAA, HL7, RosettaNet
ANSI X12, EDIFACT, HIPAA, HL7, RosettaNet, – these are all different standards to exchange electronic business documents. Some of these standards have been developed for use in a specific industry, according to its special needs. Other standards are developed and widely used, based on geography. For example, the EDI ANSI X12 standard is developed by the American National Standards Institute (ANSI) and commonly used in North America. The EDIFACT is widely and commonly used in Europe. HIPAA (Health Insurance Portability and Accountability Act) is designed specifically to comply with healthcare law. HL7 standard (Health Level 7) is the standard to exchange medical information. RosettaNet is mostly used in the high technology industry.
Exchanging EDI (electronic data interchange) documents between trading partners, improved a lot the supply chain management, by increasing efficiency, simplifying transactions and importantly, increase the speed with which a transaction is processed.
EDI is significantly different from regular email, in which information is transmitted in an unstructured format. What is the difference? For example, you need to submit a purchase order via e-mail, you will probably type the document first, and send it as an attached file. You do not have a 100 % guarantee that your e-mail will be received, correctly understood and processed promptly. Moreover, you need to re-enter the same information in another business system (accounting, ERP or warehouse management).
EDI guarantees the delivery of your business information and, thanks to its structured format, the understanding of electronic documents by all participants in the exchange process. EDI software first processes the information, then translates it into a “readable format”, and then data can be imported directly and automatically into your business system. The result – no manual input, a quick exchange of business information, and a full understanding between trading partners.
Which EDI communication protocol to choose?
One of the most important aspects of exchanging EDI documents is the way information is transferred from one business partner to another. In most cases, trading partners themselves determine which transmission method (communication protocol) they will use. Here are some of the most commonly used communication protocols in the EDI world:
VAN (Value Added Network)
VAN is the third party in the process that transmits and stores information in an electronic mailbox until it is received by one of the parties. Since the EDI message contains the destination’s address, the VAN routes the message to the recipient’s box.
Despite its advantages, VAN EDI was not widely distributed due to the high price. Thus, many suppliers communicated with their customers via fax, telephone, and mail, as could not afford the significant costs that VAN required.
As a result, there were failures, such as lost or unread orders and invoices, late deliveries of goods, etc.
With data exchange via the Internet, large and small companies have the opportunity to communicate with their trading partners electronically.
Direct connection allows you to transfer data directly to a business partner. Types of direct connections include VPN (Virtual Private Network), FTP (File Transfer Protocol) sFTP (Secure File Transfer Protocol), and AS2, which encrypts data before sending it over the Internet.
The AS2 standard is used to securely transfer EDI and XML documents over the Internet via HTTP. The primary principles behind the AS2 standard are security and secure data transmission over the Internet.
The AS2 standard provides the possibility of almost continuous data transfer since direct HTTP transfers are used. In the AS2 standard – data security is provided by S/MIME via HTTP (Hypertext Transfer Protocol) or HTTP/S (HTTP secure), also using MDN. The AS2 standard provides real-time synchronous data transfer with instant delivery messages. Today, leading retail chains and manufacturers use the AS2 standard. The list of companies includes Wal-Mart, Target, Lowe`s, Wegmans, Procter & Gamble, Hershey Foods, Campbell`s and many others.
What are the advantages of EDI?
- Eliminates the need to use email, fax, or telephone to transfer documents.
- Significantly reduce the processing time of documents (enterprises that have implemented EDI, reduce the document processing time by an average of 80%)
- Eliminate/reduce the number of errors in the document flow due to the almost complete elimination of manual data entry.
- Fully control the “order-delivery” process.
- Monitoring the status of documents (sent, accepted, etc.) allows you to control the execution of the order.
- Elimination of document loss incident – ensures that all documents (Orders, etc.) will be delivered to the supplier on time.
- Reduction of costs associated with paper workflow: man-hour spending, office supplies, and equipment.
The most used UN/EDIFACT Messages
ORDERS – Purchase order (order for delivery of goods or services) – an electronic message that is analogous to an order for the supply of products. It is formed and sent by the buyer to the supplier.
ORDRSP – Purchase Order Response (order confirmation) – an electronic message in which the supplier confirms, corrects or rejects the delivery for each commodity item. Dispatched by the supplier to the buyer.
DESADV – Despatch advice (notice of shipment) – an electronic message that is analogous to the consignment note. This message is generated at the time (or before) the supplier sends the goods. This message indicates the actual (shipped) quantity and range of goods delivered to the buyer.
RECADV – Receiving advice (delivery notice) – an electronic message that contains information about the actually accepted product, as well as it may contain information about the reasons for not accepting the goods. This message is generated at the time (or after) the physical acceptance of the goods by the buyer.
INVOIC Invoice – an electronic message that is similar to a paper invoice.
PRICAT – Price/sales catalog message (product catalog) – an electronic message that contains information about the goods and their price characteristics. This message is generated by the supplier when the price, assortment changes.
PROINQ – Product inquiry (price list request) – an electronic message containing a list of products for which price information is required. Sent by the buyer as necessary to obtain product information.
COACSU – Commercial account summary (the act of review of mutual accounts) – an electronic message that is an analog of the accounting document “Act of reconciliation of mutual settlements”
COMDIS – Commercial dispute message (commercial discussion) – an electronic message that contains information about the discrepancy between the quantity, prices, and VAT rates. Dispatched by the buyer upon detection of an inconsistency in the invoice (INVOIC).