What is EDI?
What is EDI? EDI stands for Electronic Data Interchange, and is how businesses engage with one another to enable business-to-business communication. Examples of these types of communications are putting through purchase orders or submitting invoices. These communications might also be industry-specific. In the context of insurance, for example, claims reconciliation and claims payment use EDI messages. In the healthcare context, EDI might be used to communicate patient information like when patients are transferred from one hospital to another.
In general, EDI documents contain the same information that might be found in a paper document performing the same business function. For example, an EDI 940 ship-from-warehouse order is used by manufacturers to inform a warehouse that they must ship products to a retailer. It typically has both “'ship-to” and “bill-to addresses” as well as a list of product numbers and quantities. EDI is used for B2B communication in numerous industries such as healthcare, transport, engineering, etc.
The advantages of using EDI
According to Forrester Research, EDI continues to prove its worth as an electronic message data format. This research states that “the annual volume of global EDI transactions exceeds 20 billion per year and is still growing.” Moving to EDI has numerous benefits to businesses:
- Allows vendor control of inventory
- Improves transaction speed
- Improves visibility
- Improves document accuracy
- Reduces lead time
- Saves money
The importance of EDI standards
The technology behind EDI is 20-30 years old, and was designed to replace fax, postal mail, and email. Replacing human-to-human communication, whether through paper or electronic mail with automated EDI messages has been a cost-saver for many businesses. But because the EDI messages are automated, the messages must be in a standard format.
There are numerous EDI standards, including ANSI, EDIFACT, TRADACOMS and ebXML. For each standard, there are different versions, e.g., ANSI 5010 or EDIFACT version D12. This can create issues when businesses need to communicate with different EDI standards. The businesses will either have to agree on the EDI standard to use or employ some sort of translation service, whether in-house software or an EDI service provider. EDI standards prescribe both mandatory and optional information for any particular document and provide rules for the document’s structure.
When an EDI document is created, such as an invoice, the order of text and the order of the data fields within that text gives it meaning. That text must strictly adhere to the EDI standard or else the sending and receiving systems will not be able to understand the document. The define exactly where and how each piece of information in the document will be found. An EDI message will comprise one single business document, e.g. a purchase order, invoice, or advance ship notice.
Across many industries, the exchange of electronic document B2B messages continues to be the means by which key business processes are transacted. EDI is not going away anytime soon.
The disadvantages of EDI
EDI documents are not necessarily human-readable. Here is an example of an EDI message:
:IFT+3+NO MORE FLIGHTS'
Businesses often find that using EDI messages can add time and complexity to supply chain and partner onboarding processes, but since they are standard for B2B communication, it would be difficult to stop using EDI. The question facing many enterprises is how to stay innovative and agile while still retaining the ability for B2B communication using EDI message standards.
A new approach to EDI
MuleSoft is offering businesses a new approach to EDI, which provides next-generation functionality for organizations to address B2B and EDI use cases and transform how they compete through API-led connectivity. Our B2B connectivity product, Anypoint B2B, enables companies to deliver products to market more quickly, increase agility to respond to changing production and supply chain strategies, and improve margins by reducing operational costs.
Learn more about API-led connectivity and see how MuleSoft can help your organization increase agility and innovation, while adhering to standard EDI documents.