What is Electronic Data Interchange (EDI)?
EDI, or Electronic Data Interchange is a system for intercompany communication of data in a standard format for effecting various business transactions. EDI replaces the faxing and mailing of paper documents.
EDI consists of a set of standards for structuring the data that is to be electronically exchanged between and within businesses, organizations, government entities, and other groups.
The standards describe structures that emulate documents, purchase orders and invoices, for example.
EDI documents use specific computer record formats that are based on widely accepted standards. However, each company may use the flexibility allowed by the standards in a unique way that fits their business needs.
The term EDI is commonly used to refer to the software, operations, and processes involved in creating, transmitting, and receiving EDI documents. EDI is used in a variety of industries. In fact over 80,000 companies have made the switch to EDI to improve their efficiencies. Many of these companies require all of their partners to also use EDI.
Quick EDI History
In the 1970s several industries began to develop common EDI programs for their companies within those industries; a third-party network often administered these systems. Some examples of these systems include ORDERNET, which was developed for the pharmaceutical industry, and IVANS, which was developed for the property and casualty insurance industry. While these systems were standardized for each industry, they likewise could not communicate with other industries' proprietary systems.
By 1973 the TDCC (Transportation Data Coordinating Committee) began developing set of standards for generic formats to handle this problem. Those standards have developed into the standards used today by the American National Standards Institute (ANSI).
How It Works
Since EDI uses a defined set of standards for transmitting business information, these standards allow data to be interpreted correctly, independent of the platforms used on the computers that transmit the data. When a sender transmits data, such as a purchase order, the EDI translation software converts the proprietary format of the sender's document processing software into a mutually recognized standard format. When the receiver obtains the data, the EDI translation software automatically converts the standard format into the receiver's proprietary document processing format. Because of the speed and accuracy of EDI, users find that the system saves time and reduces costs over paper-based business transactions.
Data Transmission Between Trading Partners
Trading partners are free to use any method for the transmission of documents. In the past one of the more popular methods was the usage of a modem to communicate through a Value Added Network (VAN). Some organizations have used direct modem to modem connections and Bulletin Board Systems (BBS), and recently there has been a move towards using some of the many Internet protocols, such as AS2 (Applicability Statement 2) for transmission, but most EDI is still transmitted using a VAN.
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