What is EDI in ERP? Standing for Electronic Data Interchange, it’s a standardized method of exchanging electronic business documents from one computer to another.
Whether you’re considering ERP software with embedded EDI or an ERP system integrated with an EDI solution, you’re on your way to effectively tying together your front-end and back-end business activities.
Today, we’re taking a closer look at the role of EDI in ERP and why it’s so important.
What is EDI?
These include, but are not limited to:
- Advanced shipping notices
- Purchase orders
- Sales orders
- Inventory documents
- Payment documents
- Shipping status documents
- Functional acknowledgments
Typically, these types of documents are transferred between two different companies, called business or trading partners. For instance, Company A might supply goods to Company B, and Company B will send purchase orders to Company A.
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In years past, partners would exchange key documents via fax, postal mail, or email. However, with computer-to-computer EDI integration, you can eliminate the need for such systems.
While EDI integration has been around in some form since the mid-1960s, enterprise software integration has only recently become available.
Early systems were very simple and usually disconnected from other internal systems. They were also extremely time-consuming, requiring employees to work hundreds or even thousands of hours to map individual data fields.
Now, however, there are modern tools and processes that make this process quick, easy, and seamless.
Still, many companies continue to rely on their legacy systems to process B2B transactions. The process is often slow, inefficient, and error-prone.
However, with the right EDI system, you can automate the exchange of business-critical data across your supply chain.
EDI vs Email
At this point, you may be wondering: Isn’t email electronic? Why isn’t it a viable means for document exchange?
While it’s true that this is an electronic approach, it still requires the mediation of humans. Any time there is manual effort involved, it slows down the process and introduces the risk of errors.
On the other hand, EDI allows computers to handle the exchange from start to finish. Once it leaves the sender’s internal system, the document can travel directly to the designated application on the receiver’s internal system. From there, processing can begin immediately. The paper trail is eliminated, and human intervention is greatly minimized.
EDI vs API
Often, EDI is compared to an Application Programming Interface, or API.
While both systems transmit data between business partners, API is different than EDI in that it can be difficult to establish communication standards.
On the other hand, EDI operates based on documented standards that govern communication and data exchange. For instance, an EDI 850 PO is universally understood to be a purchase order transaction.
At the same time, EDI is also customizable to fit your business. The solution that your company installs is meant to differ from the one down the block.
While there are some human-readable data formats, such as JSON/REST, that are relatively easy to implement, your EDI software should also be able to map to your partner’s preferred format. These adjustments can be performed during the system setup.
4 Benefits of EDI
1. Lower Operating Costs
With EDI, there’s no need for any of the following:
- Document storage
- Document retrieval
As such, you can greatly reduce your associated administrative costs. Meanwhile, your resource and maintenance expenses are likewise lowered.
2. Increased Efficiency
When you’re less focused on manual, menial tasks, you can devote more effort to value-added activities. This boosts performance and efficiency, allowing you to deliver goods and services faster than before.
3. Faster Business Cycles
When it comes to order processing times, your business can’t afford to lag. The process automation that EDI provides can speed up your business cycles and greatly reduce any time delays associated with manual data entry.
Thanks to real-time updates, your inventory management approach is more streamlined and efficient. Plus, due to the sophisticated security standards and communication protocols that govern EDI, your transactions are also more secure.
4. More Accurate Records
Manual document processing isn’t just inefficient. It’s also error-prone, primarily due to issues such as keying errors, handwriting illegibility, and improper document handling.
When you implement EDI, you’ll notice an uptick in data quality, along with a reduction in rework. Your records are more accurate and accessible when they pass through fewer hands.
What is EDI in ERP?
Today, most EDI solutions are designed to integrate seamlessly into platforms from the top ERP vendors as well as lesser-known vendors. In fact, many of these vendors provide embedded EDI.
Alone, EDI can facilitate easier document exchange between your business and its partners, but when integrated with ERP, these capabilities are expanded.
Industries that are already embracing this integration include manufacturing, transportation, and retail spheres, among others.
Here are a few reasons to include this functionality in your upcoming implementation.
1. Easier Data Synchronization
Once EDI and ERP are implemented, users from two different companies can display the same type of data in their respective ERP systems. Years ago, these documents would be in paper form.
For instance, your business would have had to send a paper shipment order to your warehouse partner, informing them that it’s time to ship a specific product to your retail partner.
Now, it’s easy to synchronize this data electronically, including information such as:
- Destination address
- Billing address
- Product numbers and quantities
Rather than wait for a paper fax to arrive, a business can simply log into their ERP system to retrieve the same details.
Whether your company processes dozens of orders a month or thousands, this is a welcome benefit.
2. Improved Supply Chain Visibility
With your EDI and ERP systems in sync, you have even deeper visibility into your supply chain operations.
Essentially, EDI integration enables you to:
- Process orders more quickly
- Minimize lead times
- Shorten the order-to-cash cycle
In addition, it’s easier to onboard new EDI-enabled customers through ERP connectivity.
3. Easier Communication
With EDI, employees can facilitate a seamless data exchange both internally, as well as with customers. In fact, virtually all paper-based activities can be reduced.
This keeps procurement costs low and the buying process streamlined. You’re able to share more data with your trading partners because the process is quicker, easier, and more responsive than before.
4. Higher Customer Service Levels
If your customers have any questions regarding document processing or billing, how do you handle them now?
If all your documents are still in paper form, the retrieval and exchange process can be time-consuming. This alone could be enough to make an already-frustrated partner even more upset.
With EDI, you can use your ERP solution to quickly find and share the data you need. This allows you to answer questions and clear up any discrepancies as quickly as possible. Prompt resolution increases service levels, boosting overall customer satisfaction — and your bottom line.
5. Faster Order Processing
With an integrated EDI and ERP solution, your company can be more agile, responsive, and productive.
These features are especially beneficial when it comes to your order fulfillment processes. When these are streamlined and efficient, you can close more deals and deliver a major boost to your sales numbers.
Subsequently, your manual efforts will decrease, allowing you to amplify the return on your investment.
6. Access to Larger, National Partners
Are you looking to land a partnership with a bigger partner? If so, keep in mind that many will mandate a specific EDI implementation to take the place of traditional, human communication.
Relying on mail, phone, or even email as a primary form of data exchange could mean losing out on these valuable opportunities.
Will You Leverage the Power of EDI?
What is EDI in ERP? In short, it’s a function that can save your company time, money, and partnerships.
If your company regularly processes a large volume of documents across various business partners, then EDI integration could be essential to your ERP implementation.
Even small businesses that plan to expand in the future can leverage EDI to simplify and streamline their manual efforts.
To learn more about this solution and decide if it’s right for you, reach out to our team of ERP consultants below.