In its simplest form, EDI or ““Electronic Data Interchange” is used to exchange documents between trading partners. However, as we have previously discussed, EDI is a bit more complicated than that. EDI represents a set of standards, outlining formats for information that can be electronically exchanged between two parties. For example, it allows for easy communication between locations, for big box retail stores it helps track and update inventory, it enables the sharing of information between vendors and distributors and can even be used to transmit financial information and payment in electronic form (Electronic Funds Transfer or EFT).
As you can see from the above there are many reasons why a company would benefit from using EDI. Frequently larger companies require their trading partners to follow EDI standards in order to do business with them. This makes it easy for large companies to communicate electronically with multiple other businesses no matter what types of systems these companies are using. Having a universal format for specific document types makes it easy and to submit and receive information – assuming you have the proper systems in place to translate that information. Every type of EDI transaction will require some level of integration between two or more systems.
There are a couple different options when it comes to EDI translation services available, and the one you choose will depend on how many EDI transactions you deal with on a regular basis and how automated you want the process to be. The first option, with no automation, is where the information flow is facilitated by a web portal and requires manual data entry. The second option which does involve automation, is where the flow of information is facilitated by a third party EDI middleware company. Alternatively, some businesses may choose to internally customize a system to manage the automatic flow of information which would be option three.
If you choose either of the latter options, you will need to make sure that the EDI middleware system or custom system you have developed, can properly integrate into your back-end ERP system. This integration will allow the import and export of transactions between your ERP system and approved EDI trading partners.
For more information and for specific examples of how EDI works, download our Whitepaper: What is EDI. This document also takes an in-depth look into which EDI translation option is best for your business.