a standard format to use for document transfer.
Elements, segments, and envelopes
Remember when you were in school? You may have stressed over writing assignments. “I have to write my paper and use a style format that I don’t know.” You had to look up that format and follow the standardized guidelines that were already set for that style. Now, however, students have it easier. There are software programs that will automatically generate citations in any formatting style.
And so it is with EDI. There are standardized formats that, once agreed upon by two businesses, will generate documents in that language. These documents will follow “rules” that define exactly where all elements of a document will be placed and in what format. This allows the receiving computer to “read” the document correctly and respond according to the same “rules.”
Elements are the specific items in a document – a PO number, price, etc. And each of these elements is introduced by a type of code that identifies it.
Elements are organized into segments. A segment may be the company address or the PO number and date on the top section of a PO or an invoice, for example. Another segment may be the body of an invoice that describes the items purchased and the unit cost, and the bottom segment may include the order summary with a total.
Envelopes are obviously not what we normally consider to be containers for letters or documents. In this case, envelopes are the codes that indicate the beginning and end of segments of documents.
How EDI documents are prepared and transmitted
The information for a document is first collected and entered into the system.
The software then translates that information into the EDI format. For this step, businesses have two options. They can buy EDI translation software that is kept in-house, and I will require an in-house expert to map the data, manage, and maintain it. And translation software comes in varieties to accommodate large enterprises with heavy use to smaller businesses who may not need to transmit as much.
The other option businesses have is to use an EDI service provider. If this is the option, data is sent to the provider who then translates it.
Transmission of documents occurs by connecting to a secure internet protocol, connecting to an EDI Network provider who then sends it based on the Internet protocol the business partners have established.
Benefits of EDI transmission
Cost and efficiency are obviously the big benefits of using EDI.
There are any number of expenses associated with traditional documents, as companies conduct business with one another – paper, printing, and staff costs – even if those documents are generated through computer systems and then emailed or faxed to another company.
There are also the costs of correcting the human error, when changes must be made, when orders/invoices are lost, when phone orders are misunderstood, etc. EDI eliminates all of these indirect costs of doing business.
2. Accuracy and speed
Transmissions can be completed in minutes. Further, the quality of the data – eliminating poor handwriting and poor print quality – is clear. As well, there are no lost faxes or emails landing in a spam folder or incorrectly addressed.
3. Business efficiency
Overall, transmissions can be tracked in real-time, there will be improved cash flow, and ordering and delivery times are shortened. This can impact everything from inventory management to transparency to response rates. And the benefits for establishing and maintaining a more global presence are certainly enhanced.
Challenges of EDI
With all of these benefits, it may be difficult to understand that there are challenges inherent in this efficient and cost-effective method of supply chain management. But there are, especially for businesses that grow. Here are some that will have to be addressed.
1. Scaling the EDI program Itself
Adding customers (partners) means that there may be different EDI protocols, with unique requirements, software, and “rules.” Accommodating these differences will mean multiple EDI protocols may have t