Blog Post
Even though it's been promised for many years, the idea of a paperless office has not yet become a reality for many businesses, as they still have to handle piles of invoices, sales orders, and other important documents by hand. It’s a slow, inefficient, and error-prone process that can hold your company back. One solution businesses often consider is Electronic Data Interchange (EDI). Continue reading to explore the functionalities of EDI, determine if it is the most suitable option for your company, and understand how the use of contemporary and adaptable digital ordering automation can improve effectiveness, reduce expenses, and speed up expansion.
What's EDI?
Electronic Data Interchange (EDI) is a process and a set of standards and protocols that enable different business systems to exchange documents electronically. It replaces communication methods like postal mail, fax, and email and streamlines digital ordering by optimizing the creation, sending, and receiving of PO-backed sales orders, order acknowledgments, and Accounts Payable invoices.
EDI was first introduced to the business world in the 1960s and is now becoming outdated due to its complex setup, strict format requirements, and sensitivity to errors. Its reliance on specialized systems can lead to data silos within an organization, making the integration and flow of information between different business areas challenging. Today, order automation solutions powered by AI and Machine Learning, such as Conexiom, bridge the digital order gap by offering a unified view and enhancing the adoption of digital ordering.
How Does EDI Work?
It’s important to note that EDI is mainly useful for exchanging documents with high-volume customers. The typical EDI exchange between compatible companies looks like this:
Data Collection
Employees create documents through manual data entry, or by exporting a file from an ERP, spreadsheet, or database. An EDI translator or mapping application converts them into an electronically transmittable EDI format using protocols like X12 or EDIFACT for encoding. The system also stores the documents in a database, allowing for easy searching, viewing, and retrieval.
EDI Message Transmission
An EDI router manages the transmission of documents, sending them via a secure network or over the internet, automatically routing outbound and incoming EDI to the appropriate systems.
EDI transmission can be done in two main ways:
- Direct EDI: Also called point-to-point EDI, this involves a single secure connection between two computers or systems over the internet.
- Value-added networks (VANs): These are private networks run by a third-party EDI network provider. Acting like an electronic post office, they allow partners to send and receive data via mailboxes.
Data Reception
When the recipient's EDI system receives the document it converts the data into the company’s standard format so its ERP, or other systems, can process and store the information correctly.
Historically, EDI only worked if your customers also had the appropriate EDI software in place. However, modern tools like Conexiom allow you to maximize your investment in EDI and enable non-EDI customers to enjoy the same benefits.
Watch our recent webinar: How to Use AI-Enhanced Automation to Extend EDI to Emailed Transactions
The 3 Types of EDI Software Solutions
There are three main approaches to implementing EDI: On-premises, cloud-based, and managed services. Which solution will work best for you depends on your budget, internal IT capabilities, security requirements, and how much control you need over the system and your data.
Here’s a summary of the three main types of EDI software:
1. On-Premises EDI Software
EDI software can be installed directly on your company systems on-premises. While this allows you full control, it also means that your business is responsible for the maintenance, tech support, and security of the platform. An on-premises implementation requires a lot of technical expertise and can become expensive due to licensing, staffing, and maintenance costs.
2. Cloud-Based EDI Software
This approach runs EDI on external infrastructure in the cloud. Cloud-based EDI providers use a subscription model which means there are no upfront costs. The provider handles maintenance and security, making this solution more accessible for small and medium-sized businesses. However, you have limited scope for customization and little control over the system's operation and updates. You're at the mercy of a third-party provider who may or may not prove reliable in terms of uptime, regulatory compliance, and cyber-security. Subscription costs and fees for additional services or data volume over time can become significant if your business expands.
3. Managed EDI Services
This is similar to cloud-based EDI, but the provider manages all details of EDI implementation, administration, and maintenance, including encoding/decoding documents, transmitting data, and resolving issues. Managed EDI services free up your internal resources but suffer the same disadvantages as cloud-based software.
Top 6 Features of EDI That Boost Profits
When exploring digital ordering solutions, it helps to know what EDI features will most benefit your business and your bottom line. Here are some of the most important capabilities to look for when weighing up your options:
1. Integration with Existing Business Software
Any solution you choose should be compatible with your existing software stack and data formats. For example, the EDI platform should be able to seamlessly exchange data with your ERP, CRM, and accounting software.
2. Data Mapping and Transformation
As businesses often have unique data formats and field names, EDI data mapping capabilities are essential to correctly interpret in-house fields and formats and convert them to the relevant EDI standards.
3. Faster Onboarding of New Partners
An ideal solution should offer prebuilt rules and templates to expedite the onboarding of any new partners who also choose to adopt EDI.
4. Scalability and Customizability
Your EDI software should offer features that are customizable according to your current needs. Flexibility to add more features in the future is also useful to ensure scalability. However, being able to scale is one thing, but whether it'll be necessary is another. Ask yourself how many of your customers or suppliers would be willing to implement EDI? If the answer is ‘not many’ or you’re not sure, you need to explore alternative solutions that deliver the same results.
5. Real-Time Data Handling
While traditional EDI processes and transmits documents in batches, modern EDI features solutions that allow for instant data exchange in real time. This gives a boost to your company’s speed and efficiency and enables quicker response times, better coordination, and agile decision-making.
6. Data Validation and Error Handling
To ensure accuracy and smooth operations, your must-have EDI features should include data validation checks on EDI files before transmission. It should also be able to detect errors in EDI documents, pause processing, and alert relevant personnel to investigate and remedy any issues.
What are the Benefits of EDI?
The features of EDI offer numerous advantages to organizations that need to streamline their digital ordering processes, enhance data accuracy, and improve efficiency.
Here are the four key benefits of implementing EDI:
Reduces Costs
An effective EDI solution can help you cut costs by reducing or eliminating the manual labor required for paperwork, as the system can replace most data entry, scanning, printing, and mailing tasks. It also minimizes your expenditure on couriers, paper supplies, toner, and ink.
Boosts Speed, Efficiency, And Productivity
One of the main features of EDI is that it allows real-time data transmission, reception, and processing, which accelerates the information flow between partners. As a result, you can expect to enjoy more rapid order fulfillment, reduced inventory costs, fewer delays, and an accelerated cash flow.
Enhances Accuracy
EDI ensures accuracy with automatic data validation checks and error detection. Using standardized formats minimizes the chance of errors creeping in during data transmission. In turn, this reduces the need for error correction and rework that can lead to expensive delays.
Improves Traceability and Reporting
EDI integration with other IT systems, along with audit trails, logs, and records of EDI transmissions, allows issues quickly to be identified, traced, and resolved. This detailed documentation of your processes is also useful for ensuring compliance and preparing for audits.
H2: What are the Challenges of EDI?
EDI has a lot to offer your business, but it doesn’t come without some drawbacks. If you’re searching for a digital ordering solution, here are the main disadvantages to bear in mind:
High Startup Costs
Installing and configuring the hardware and software required is complex and involves high startup costs. You'll also need to cover the expense of training employees to operate the new system and budget for tech support and maintenance costs.
Time-Consuming
Correctly implementing an EDI solution can be a lengthy undertaking involving installation, testing, and adjusting your operations. The whole process can last up to six months.
Requires Specialist Skills
The complexity and fragility of EDI means you need either in-house or third-party developers who specialize in EDI system installation, support, and maintenance.
Legacy Integration
If your business depends on older, legacy systems, you may find it challenging to correctly integrate them with your EDI platform without spending significant time and resources.
Rising Cost of VANs
Using a VAN can quickly add up as most require a monthly or annual fee, and can charge additional costs depending on workload and usage.
Requires Partner Implementation
EDI features are only useful for a company if enough of its customers or vendors have also implemented them and agreed on what standards and protocols to use to ensure cross-compatibility.
Translate EDI Orders Into Your ERP System With Conexiom
EDI isn't the only way to achieve a streamlined digital ordering solution. Conexiom’s automated order system uses AI and Machine Learning to bring EDI-like capabilities to emailed, printed , orfaxed orders without the extra investment, complexity, or coding.
Conexiom’s flexible and seamless integration capabilities provide total visibility from the moment orders are received. Our platform uses a sophisticated mapping process to allow orders from any source to flow into your existing ERP system and can accurately process unstructured documents.
For example, our platform can detect and process a purchase order emailed by a new customer, capture all the essential data with 100% accuracy regardless of format, and automatically route the order to the appropriate channel in under 2 minutes.
Graybar Electric replaced their manual order handling systems with Conexiom and processed 83,000 documents with 9.5 million line items in just six months.