What Is EDI and How Can It Help Your Business Grow?

By: Ronald Franklin

Published On 02/27/2017

Every day, companies around the world inundate one another with pieces of paper. Documents such as purchase orders, invoices, and shipping notices are the life blood of global commerce. But they can also be the source of avoidable errors and excessive costs.

For example, getting a purchase order from a buyer into the hands of a seller has historically been a labor-intensive manual process. The buyer has to print or fill in a purchase order form and mail it to the supplier.The supplier must receive that piece of paper (if it doesn't get lost in the mail) and get the informationaccurately entered into an order entry system. Then the supplier must send the buyer an acknowledgment that the purchase order was received and is being processed.

All this takes time, costs money, and is subject to human error every step of the way. Now there's a better way to conduct this type of business-to-business (B2B) communication: electronic document interchange or EDI.

What Is EDI?

With EDI, instead of human beings filling in forms manually and sending them through the mail, the information is exchanged electronically using a standardized format. In the case of a purchase order, for example, the buyer can fill in a form on a computer screen, then send it off to the seller with the touch of a key. When it is received by the seller's computer, it can be automatically checked for completeness and accuracy, and entered into an order entry application, and an acknowledgement sent back to the buyer -- all without human intervention.

There are some obvious advantages to this automated process. First, by eliminating steps in which humans must manually enter, transcribe, or check the information, the opportunities for errors in the process ("to err is human") are significantly lowered. Workers are freed up to devote their time to more productive tasks. And of course, with much of the work being handled by computers, the entire process is much faster. Ultimately, fewer errors and greater speed and efficiency translate into significant cost savings.

The Cloud Is Making EDI More Accessible

When EDI was first introduced, the cost of equipment, software, and the expert staff required to set up and run the system were prohibitive for all but large enterprises. However, with the advent of the internet, EDI has become a real possibility for smaller companies, especially with the software as a service (SaaS) model, in which services can be purchased on a subscription basis for a monthly fee.

If your company is still sending and receiving pieces of paper through the mail, maybe it's time to check out how EDI can streamline your operations, improve your efficiency, and save you money.