EDI FAQ

Electronic data interchange (EDI) is commonly defined as the application-to-application transfer of business documents between computers. Many businesses choose EDI as a fast, inexpensive, and safe method of sending purchase orders, invoices, shipping notices, and other frequently used business documents.

EDI is quite different from sending electronic mail messages or sharing files through a network, a modem, or a bulletin board. The straight transfer of computer files requires that the computer applications of both the sender and receiver (referred to as "trading partners") agree upon the format of the document. The sender must use an application that creates a file format identical to your computer application.

When you use EDI, it's not necessary for you and your trading partner to have identical document processing systems. When your trading partner sends a document, the EDI translation software converts the proprietary format into an agreed upon standard. When you receive the document, your EDI translation software automatically changes the standard format into the proprietary format of your document processing software.

Save Time and Money

EDI is a tremendous cost - and time-saving system. Since the transfer of information from computer to computer is automatic, there is no need to re-key information. With no data entry, the chance for error drops to near zero. Activity based costing studies have estimated that processing a paper purchase order costs the company $70. Processing an EDI purchase order reduces the cost to less than a dollar.

Improve Customer Service

EDI is also a method of improving customer service. The quick transfer of business documents and marked decrease in errors allow you to fill orders faster. KMart and other retailers have implemented a program called Vendor Stock Replenishment (VSR). VSR requires that vendors maintain appropriate inventory levels in all stores. With VSR, you don't risk having the store run out of your product while you wait for a purchase order. You send stock as your EDI system reports it is necessary and automatically bill the client. It cuts days, even weeks, from the order fulfillment cycle and ensures that your product is always on the shelf.

End Repetition

EDI documents are stored in a mailbox. You can look at the documents in your mailbox at any time. If your customer wants a copy of an invoice, instead of calling you they simply check their mailbox. Imagine the time savings from not having to copy and fax/mail copies of invoices or purchase orders.

Expand Your Customer Base

Many large manufacturers and retailers are ordering their suppliers to institute an EDI program. When evaluating a new product to carry or a new supplier to use, the ability to do EDI is a big plus. Keep in mind, too, that these same companies tend to stop doing business with suppliers who don't comply with EDI.

There are other uses for EDI as well. Universities use EDI to exchange transcripts quickly. Auto manufacturers use EDI to transmit large, complex engineering designs created on specialized computers. Large multinational firms use EDI to communicate between locations.

EDI starts with a trading partner agreement between you and your trading partner. You make joint decisions about the standard to be used, the information to be exchanged, the network carrier (called a value-added network or VAN), and when information will be sent.

You create a document, such as an invoice, in your business application. The EDI system software automatically reformats the invoice into the agreed-upon EDI standard. The translator creates and wraps the document in an electronic envelope that has an ID for your trading partner.

The communications portion which should be part of the EDI software dials the phone number for the network. The envelope containing the document is then transmitted to the VAN. The VAN reads the ID on the envelope and places it in the correct mailbox.

Your trading partner's modem calls the network and retrieves everything in the mailbox. Their EDI system opens the envelope and translates the data from the standard form to the format read by their application. Accounts payable creates a check from the electronic invoice. The payments can also be handled via bank transfer and an electronic payment advice

The key to efficient EDI is to input the data only once. The EDI system does the rest of the work. Data moves without intervention from your business application to your trading partner's application with no additional steps to slow the process. It's that easy.

If a number of applications are mended together however, problems are likely. It is important that a system is developed by one company and that the components were made to fit each other.

To do EDI, a small to medium sized business should purchase a turn key solution with all necessary components to do EDI. It is not economically feasible for a company to purchase a generic translator, a communications program and a program to allow importing and exporting to accounting system. Because the components are most often written by unrelated parties the components don't fit properly and maintenance costs are often very high.

You will also need a PC with a modem to dial point to point or to a 3rd party mailbox system You may also need a mailbox with a Value Added Network (VAN) although there is a trend away from the use of such services.

It is very important that your business application seamlessly integrates with your EDI system software. Without integration there is no economic benefit. In fact, the inputting of data will dramatically increase.

Conventional EDI systems used generic mapping programs to describe the relationship between the data fields in the business application and the EDI standards. The mapping process was very involved and  usually required a substantial investment. Edisoft products provide maps as an integral part of the application and are invisible to the end user.

For large scale EDI systems the mapping utility is a very useful tool although it serves little purpose to small and medium sized companies. The use of a mapping utility requires customized integration.

If both the EDI translator and business application are on the same type of computer, the data will move faster and more easily from one to another.

Integrated systems often will cost $5000 to $10000. These systems reduce the paperwork within an office and are therefore a great investment.

Fees vary from software company to software company. Aside from the costs, you can expect the following ongoing charges:

Maintenance fees. Most companies charge an annual maintenance fee usually a percentage of the EDI systems list price. This fee should include software updates, standards updates, technical support, and customer service.

VAN charges: The VANs bill you for transmitting data, similar to making a long distance phone call. Some also bill you for connect time. A fast modem helps to lower transmission costs.

Mailbox costs. Most VANs charge a monthly fee for maintaining a mailbox on their network. Some base billing on the document (25 cents per document transmitted); others charge based upon the number of characters in each document.