Understanding the benefits of EDI (Electronic Data Interchanges)

Posted on 22nd Jun 2021

While Electronic Data Interchange (EDI) has been in use since the late 1960s, there are still many organizations that use their existing legacy systems for processing B2B transactions. Traditional B2B transactions like Purchase Order, Sales Order, Invoice, Advance Ship Notice, and Functional Acknowledgement often involve a series of steps to process. And processing these transactions involves many paper documents and a great deal of human intervention, which makes them prone to mistakes and human errors. But with the use of EDI, paper documents are eliminated and human intervention is minimized.

EDI enables organizations to automate the exchange of data between applications across a supply chain. This process ensures that business-critical data is sent on time. According to a market report by Dart Consulting, the estimated market size of EDI is expected to reach $1.68 billion by 2018, with projections reaching as high as $2.1 billion by 2020. But what are the advantages of EDI over traditional forms of business communication and information exchange?

To better understand these benefits, let’s take a look at some of them:

Benefits of EDI
Lower operating costs
EDI lowers your operating expenditure by at least 35% by eliminating the costs of paper, printing, reproduction, storage, filing, postage, and document retrieval. It drastically reduces administrative, resource and maintenance costs. EDI support can lower other costs as well, such as Matson Logistics who reduced their ASN fines 12% by switching to a more efficient EDI solution.
Improve business cycle speeds
Time is of the essence when it comes to order processing. EDI speeds up business cycles by 61% because it allows for process automation that significantly reduce, if not eliminate, time delays associated with manual processing that requires you to enter, file, and compare data. Inventories management is streamlined and made more efficient with real-time data updates.
Reduce human error and improve record accuracy
Aside from their inefficiency, manual processes are also highly prone to error, often resulting from illegible handwriting, keying and re-keying errors, and incorrect document handling. EDI drastically improves an organization’s data quality and eliminates the need to re-work orders by delivering at least a 30% to 40% reduction in transactions with errors.
Increase business efficiency
Because human error is minimized, organizations can benefit from increased levels of efficiency. Rather than focusing on menial and tedious activities, employees can devote their attention to more important value-adding tasks. EDI can also improve an organization’s customer and trading partner relationship management because of faster delivery of goods and services, as well as
Enhance transaction security
EDI enhances the security of transactions by securely sharing data across a wide variety of communications protocols and security standards.
Paperless and environmentally friendly
The migration from paper-based to electronic transactions reduces CO2 emissions, promoting corporate social responsibility.
While many businesses are enjoying the advantages of EDI, some companies are still hesitant to try it because of a few limitations.

Limitations of EDI
Perceived high upfront costs
It is true that EDI used to require substantial upfront investment has been a barrier in the past, especially for smaller businesses. However, like most technologies, EDI has become less expensive over time. EDI systems have also become more mature with features that automate and accelerate internal business processes that can quickly cover more than the investment with time and money saved.
Initial setup is time consuming
Not only has EDI become less expensive, it has also become faster to deploy and integrate into existing applications and easier to use with WebEDI options that even non-technical users can operate.
Too many standards
Many organizations also consider EDI to have too many standards and versions. This could limit smaller businesses in trading with larger organizations that use an updated version of a document standard. Here are some of the standards: UN/EDIFACT, ANSI ASC X12, GS1 EDI, TRADACOMS, and HL7. It is therefore imperative that a provider is chosen that supports a wide range of standards and who commits to keeping up with new protocols in the future. All-in-one solutions like OpenText Freeway Cloud eliminate the need to know all the standards by having EDI standards built-in to the solution.
Investing in system protection
EDI may also require a heavy investment in computer networks. It will need protection from viruses, hacking, malware and other cyber security threats if an on-premises system is chosen. However, many providers offer a cloud solution which includes system protection.
Robust data backups of systems
EDI needs constant maintenance since the business depends on it. Robust data backups must be in place in the event of a system crash. But again, if a cloud solution is chosen then this responsibility lies mostly with the provider.
Despite being a decades-old technology, EDI continues to be the dominant protocol in the B2B world. EDI hasn’t changed much over the years, but the systems that exchange EDI documents between businesses have mostly moved to the cloud, become cheaper, easier to use, and more feature-rich.

By: OpenText