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.