The Advantages and Disadvantages of Electronic Data Interchange (EDI)

Anyone who still remembers the time before computers came along and completely changed our lives will tell you how different the world is today. Not everything it created is better than it was, but we are forced to admit that it is much more efficient than it used to be. Electronic Data Interchange (EDI) is one of the things that has helped businesses. What is EDI and what are its advantages and disadvantages?

What is the definition of EDI?

The strict definition of Electronic Data Interchange in business is: Computer-to-computer exchange of business documents, created in a standard electronic format, between business partners. To understand how it came to be, you need to ask yourself: “What did it replace?” Before companies became reliant almost solely on computers, the whole process handled by EDI had taken many individuals, doing various tasks and it involved many services. Now, the documents are simply transferred from one computer to another; often without involving any human action.

How Does EDI Work?

The documents transferred are usually the results of the business being conducted between two companies. Therefore, it usually starts with a purchase order from one of the firms, which is then followed by an invoice. Later, a confirmation of shipment with a tracking number is sent out to the buyer, accompanied by customs documents, if the product is going to another part of the world. Usually, in the end, the last document shared is a confirmation of payment.

The exchange of documents has to be done in a way, where both computers understand each other. Like humans, machines have their own language. If someone speaks Chinese to an American, chances are the communication won’t exist. It is the same process with computers. That is why, both have to use the same software programs to be able to read and respond to the documents being sent and received.

What are the advantages of EDI?

Some of the advantages of using EDI are quite easy to figure out, as they are part of the reason why it exists in the first place. The most important one is to save time. Before, the life of a document from the moment it started being produced to the moment it reached the person who was supposed to receive it, could be quite long. Let’s take an example to better understand the difference between EDI and the way documents were exchanged before.

When a company decided to order a product, it had to send a purchase order to the supplier. First, the buyer would complete a document authorizing the purchase, which he would have to print (or type himself, in earlier days) and bring to the purchasing agent, for him or her to complete the purchase order. Back in time, once that P.O. would have been completed, someone would have brought it to a post office to be sent out. It would then have traveled all the way to the supplier through national post services. But just before EDI came along, that purchase order could also have been sent by fax, saving a lot of time as well. Once it got to the other company, it still had to go through the main secretary, who would have brought it to the right person, before it finally completed its journey. Today, all it takes is one click…

It also reduces the cost in many different ways. Now, only one person has to handle the document, and they only have to fill it and press “send” or even just save it in the system where it will be sent out automatically. Then, there is all the printing cost that is removed (ink, paper, time wasted waiting for the document to print and walking to the printer).

There is no doubting the efficiency of EDI. It works 24 hours a day, seven days a week. It doesn’t make mistakes (unless there was a programming error made by a person), and it guarantees that there is no repetition in the system.

It is pretty clear that the advantages of electronic data interchange are helping companies to have a better work flow, which makes the day to day processes more productive. So, are there any problems that would keep a company away from EDI?

What are the disadvantages of EDI?

Let’s start by answering the question we left open in the previous paragraph. Not only is there any problem big enough to keep a company from using EDI; it is simply impossible today to do otherwise. Businesses all us this technology and could not afford to have a business partner that could not do so.

Therefore, even if there are a few complications that may come with EDI, it is difficult to call them disadvantages. This method will ask for more rigorous standards in the way documents are processed inside the company, but although it might make hit harder for employees, it is still a positive thing at the end of the day. And it may also ask for investments at various stages, to update or to change the software, but it will still be a lot less costly than the way it was handled back “in the good old days”…

Carry F.

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