EDI: An End to the Paper Chase

Electronic Data Interchange (EDI) involves "the computer-to-computer exchange of business transactions in a standard format." Typical EDI business transactions are: purchase orders, request for quotes, shipping authorizations, advanced shipping notices, invoices, funds transfer, etc.. If properly implemented, EDI allows a company to make money faster through reduced inventory and reduced operating expenses.

For most companies, the question is not if they will have to use EDI, but when and how soon. EDI is rapidly becoming a business requirement; all industries, including manufacturing, retail, healthcare, and insurance to name a few, use EDI to conduct their business operations. The Federal Government and many large industry sectors, such as the automotive industry, now mandate the use of EDI for most of their business transactions. For example, President Clinton has issued an Executive Order mandating that all purchases by the Federal Government for less than $100 thousand will be via EDI commencing in 1997.

Trends indicate that during the next three or four years, EDI will become the preferred way to exchange business information. Armed with a personal computer, a modem and some software, businesses can now communicate with customers throughout the world using standard document transmissions.

The basic components of EDI are:

EDI software products, computer and communications equipment are all commercially available. EDI software products link companies to trading partners and provide interfaces with accounting and inventory systems. Currently, there is a wide selection of EDI software available for all platforms, from personal computers to mainframes. The basic "hardware" required for EDI is a personal computer, a modem and a printer. Trading partners are the companies that you do business with. Standards provide for a common communications medium. The EDI standard used in the United States is the American National Standards Institute (ANSI) X12 format.

The most important thing to remember when considering an EDI System is that it is a "business decision." You should follow the same process that you would in purchasing any other piece of equipment or software for your company. There are hundreds of software products on the market and, because of this, it may appear to be more difficult than it needs to be. You should try to select the EDI software that meets your business needs based on a predefined set of evaluation criteria.

For equipment, you may be able to use equipment that you already have in your company. If you plan to purchase dedicated equipment, select the components that will address your EDI needs, now and in the future.

The obvious benefits from EDI are:

Reduced inventory

Shortened order cycle times

Less clerical errors

Increased productivity

Lower cost per transaction

Improved customer relations.

You should consider the above benefits, in addition to the capital costs, when deciding whether or not to implement EDI in your business. However, another very important consideration is that most of your current customers and potential customers will be using EDI. If you are not EDI capable you could lose your customers or, at a minimum, miss out on additional opportunities.