Electronic Data Interchange (EDI) In Sap

INTRODUCTION TO ELECTRONIC DATA INTERCHANGE

All businesses need to exchange information with their business partners during their day to day activities. Electronic Data Interchange (EDI) as the name suggests is the exchange of business documents electronically between a business and its partners over a communication network using a standard format.

A customer might send a purchase order to the vendor with the details of the goods that he requires. On receipt of the purchase order, the vendor will produce a sales order in order to sell the goods to the customer. This will be followed by a delivery document and a billing document. The vendor will finally send the invoice to the customer along with the goods. On receiving the goods, the customer will produce the goods received note. The customer will then pass on instructions to its bank to make payment to the vendor. The bank will then issue the payment to the vendor.

In the above example, the various documents are exchange between the business and its partners like vendors, customers, banks, etc. Electronic Data Interchange allows these documents to be exchanged electronically using communication networks in internationally accepted standard formats.

ADVANTAGES OF ELECTRONIC DATA INTERCHANGE

Electronic data interchange provides multiple benefits to the businesses irrespective of the industry in which they operate. The main advantages of electronic data interchange include:

• REDUCTION IN DATA ENTRY ERRORS: In legacy systems, the data from the received documents needs to be manually entered into the computer. This manual entry is prone to human error. Electronic Data Interchange removes this problem by avoiding the entry of the same data at multiple stages of a business cycle manually.
• FASTER PROCESSING OF DOCUMENTS: Documents which are transmitted electronically can be processed as soon as they are received. Sending the documents manually by a courier service or post office will take a considerable amount of time.
• REDUCTION IN THE USE OF PAPER: Electronic Data Interchange allows all the information to be communicated electronically. This allows all business operations to be carried out without using a single piece of paper. This not only saves the cost incurred due to the use of paper but also makes the entire operation environment friendly. It is difficult to edit the content printed on a paper. In contrast, electronic data can be edited as many times as required.
• REDUCTION IN COSTS: Due to the above mentioned advantages, the cost of operations reduces as the efficiency of conducting in the business increases. Electronic data interchange allows the businesses to concentrate on the information that they need to communicate rather than concentrating on the logistics of sending the information.
• EDI DOCUMENTS ARE A LEGAL STANDARD: The documents transmitted and received in the electronic form are considered as legal documents and can be used for reporting purposes.

THE ELECTRONIC DATA INTERCHANGE PROCESS

The electronic data interchange process consists of exchanging information between a sender and receiver. Both the sender and receiver must have end applications which can process information transmitted electronically. The basic components of the electronic data interchange process are shown in the figure below.

• The sender is the entity or the business partner who wants to send the message and the receiver is the entity or the business partner to whom the message is to be delivered.
• Both the entities who want to receive and send messages electronically have application programs like SAP or other ERPs which can generate and process documents electronically.
• Since the two entities may use different application programs, the message needs to be transmitted in a standard format which can be understood at both the ends. This is accomplished by using a translator and a standard communication standard like EDIFACT or ANSI. The translator is usually not implemented as a part of the standard ERP since in that case the program needs to be modified every time a new business partner is added which makes use of a new application program.
• The sender generates the message to be sent by extracting information from its application program and then transfers the message to the translator.
• The translator then translates the message into a universally accepted standard format like EDIFACT, ANSI, etc.
• The message in the standard format is then transferred to the destination translator over the standard communication medium like the Internet, VAN, VPN, etc. The network that is use for business communications must be reliable and secure. It should allow the retransmission of failed documents and should have good performance characteristics.
• At the destination side, the translator translates the standard EDIFACT message into a format that can be understood by the application program at the receiving side.
• The translator then forwards the translated message to the application program at the receiving side. The application program at the receiving side processes the incoming documents by carrying out the necessary postings in the ERP system.
• This way the message generated by the sending application program is received and interpreted by the receiving application program.

The above-mentioned process is a standard process utilized for Electronic Data Interchange. The sender and the receiver could be a business and its vendors or customers, or it could be a business communicating with its bank, etc.

SAP EDI PROCESSES

The same entity or business partner can act as a sender as well as receiver at different times. This results in two types of SAP EDI processes:

• OUTBOUND PROCESSES: The outbound process is used to send information from the SAP system to an outside entity like a vendor, customer or a bank. This involves the creation of an application document and its subsequent conversion into an intermediate document. The intermediate document is then converted to the EDI standard format. The message in the EDI standard format is then transmitted to the receiver and the transmission status is reported back to the sending SAP system.
• INBOUND PROCESSES: The inbound process is used to receive information from an outside entity like a vendor, customer or a bank. This involves the receipt of any EDI document which is subsequently converted into an intermediate document. The intermediate document is then converted into the application document which is processed by the receiving SAP system.