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How EDI Works

Written by: Stephen Case on September 22, 2013

How EDI WorksThe popularity of the Electronic Data Interchange or EDI has been continuously increasing in the business industry by leaps and bounds and it is widely used by modern companies because of its capability to enhance the productivity and efficiency of the business process. Although its awareness in the business community is widespread, there are still a lot of people who does not understand how EDI works.

The common description and definition of EDI is that it is a standard used to exchange business documents and information electronically, from one computer to another. To give you an example of how EDI works, we will compare the manual process of sending documents against the automated process of sending it using EDI.

edi manual process

For typical manual processes, the sending entity (the buyer for this example) sends a business document to the receiving entity (the supplier for this example) by manually encoding the document in the sender’s computer system and then printing the document, so that the sending entity can send it through fax or mail.

As soon as the receiving entity obtains the document, he or she will have to manually encode it to their respective computer system in order to be processed and then will have to repeat the same activity all over again to send confirmation to the sending entity that the document has been received and processed.

This method is always subject to inaccuracy and even lost of data, because there are too many manual procedures involved in completing the task.

EDI Process

Alternatively, using EDI for the same process involves the sending entity to encode the document in their respective computer system that is integrated with EDI functionality. The document is then electronically sent to the receiving entity by passing thru the EDI system, which is then automatically encoded into the receiving entity’s computer system.

This method eliminates unnecessary manual activity, thus ensuring data accuracy and increasing the workflow speed of processing documents, saving both entities precious time and resources.

How EDI Works: 3 Step Process

STEP 1

Documents are prepared and encoded into the sender’s EDI capable computer system.

STEP 2

The document passes through the translation software that converts the document into an EDI standard format

STEP 3

The EDI formatted document is transmitted to the participating trading partner and is automatically converted into an accepted format used by their computer system.

 

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