Jan 29, 2014 10:21 0 Comments Development Oret eave



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What is EDI?


Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in a standard electronic format between business partners.


By moving from a paper-based exchange of business document to one that is electronic, businesses enjoy major benefits such as reduced cost, increased processing speed, reduced errors and improved relationships with business partners.

§ Computer-to-computer– EDI replaces postal mail, fax and email. While email is also an electronic approach, the documents exchanged via email must still be handled by people rather than computers. Having people involved slows down the processing of the documents and also introduces errors. Instead, EDI documents can flow straight through to the appropriate application on the receiver’s computer (e.g., the Order Management System) and processing can begin immediately.

A typical manual process looks like this, with lots of paper and people involvement:

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The EDI process looks like this — no paper, no people involved:

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§ Business documents – These are any of the documents that are typically exchanged between businesses. The most common documents exchanged via EDI are purchase orders, invoices and advance ship notices. But there are many, many others such as bill of lading, customs documents, inventory documents, shipping status documents and payment documents.

§ Standard format– Because EDI documents must be processed by computers rather than humans, a standard format must be used so that the computer will be able to read and understand the documents. A standard format describes what each piece of information is and in what format (e.g., integer, decimal, mmddyy). Without a standard format, each company would send documents using its company-specific format and, much as an English-speaking person probably doesn’t understand Japanese, the receiver’s computer system doesn’t understand the company-specific format of the sender’s format.


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There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS and ebXML. And, for each standard there are many different versions, e.g., ANSI 5010 or EDIFACT version D12, Release A. When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version.

Businesses typically use an EDI translator – either as in-house software or via an EDI service provider – to translate the EDI format so the data can be used by their internal applications and thus enable straight through processing of documents.

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§ Business partners – The exchange of EDI documents is typically between two different companies, referred to as business partners or trading partners. For example, Company B may buy goods from Company A. Company B sends orders to Company B. Company A and Company B are business partners. And below flow diagram shows the typical Transaction Exchange between 2 companies A & B.

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What Comprises an EDI Document?

An EDI document is comprised of data elements, segments and envelopes that are formatted according to the rules of a particular EDI standard.

When you create an EDI document, such as a purchase order, you must adhere to the strict formatting rules of the standard you are using. These rules define exactly where and how each piece of information in the document will be found. That way, when the EDI translator on the receiving computer reads an incoming EDI purchase order, it will immediately understand where to find the buyer’s company name, the purchase order number, the items being ordered, the price for each item, etc. Then, that data will be fed into the receiver’s order entry system in the proper internal format without requiring any manual order entry.

The graphic below shows a sample purchase order in printed form and how it would look once it’s translated into the ANSI and EDIFACT EDI formats.

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In the EDI language, a single business document, such as a purchase order, invoice or advance ship notice, is called a “transaction set” or “message.” And, a transaction set is comprised of data elements, segments and envelopes.

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What is a Data Element?


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