Electronic Data Interchange [EDI]

It enables the firms to exchange business information faster, more cheaply and accurately than possible using paper based documents. The whole point of EDI is to enable your company to communicate with other applications that are always on the distal end of some long distance link and always “black boxes” from the viewpoint of your own network and applications.EDI is the electronic exchange of business documents in a standard, computer processable, universally accepted format between trading partners. It is a standard for the electronic exchange of business documents, such as invoices and purchase orders. Edi consists of standardized electronic message formats for common business documents such as purchase order, request for quotation, bills of lading, invoice and similar documents. These electronic documents enables in one company to talk to computers in another company without producing paper documents. To set up EDI, a company must have computerized accounting records and establish trading partners who agree to exchange EDI transactions. Use of electronic data interchange thus eliminates the human effort required to read, sort and physically transport such documents. It requires the co‐operation of trading partners. It also requires various mechanisms, which guarantee that the data, which leaves the boundaries of one corporation, arrives at the gates of the other without changing in any particular.

Benefits of EDI

• Lower Processing cost :
The cost of the processing EDI documents is much lower than processing paper documents

• Improves the overall quality of data :
Improvements in overall quality can be achieved through better record keeping, fewer errors in data, reduced processing time and less reliance on human interpretation.

• Helps to reduce inventory level:
Inventory level can be reduced.EDI permits faster and accurate filling and exchange of orders which helps to reduce the unwanted level of inventoty.

• Data is entered only at the source :
Transfer of information from computer to computer is automatic and there is no need of feeding data frequently. Helps to manage information system effectively and efficiently.

• Customer relations can be improved :
Customer relations are improved through better quality and speed of services.Business relations with trading partners can also be improved.

Working of EDI

1. Preparation of electronic documents
The first step in the sequence of EDI is the collection of information and data. The way to collect the required information should be same as the way to do it in the traditional system. However, instead of
printing out the data on paper in tradition, the system has to build an electronic file or database to store those data. In the case of companies who already use computer to issue their documents like purchase orders, they may already have some sort of databases which store those information, then they fan start with the next step described below.

2. Outbound translation
The next step is to translate the electronic file or database in to a standard format according to the specification of the corresponding document. The resulting data file should contain a series of structured transactions related to the purchase order for example. If more than one company is involved in the particular transaction, individual files should be produced for each of them.

3. Communication
Then the computer should connect and transmit those data files to the pre arranged Value Added Network [VAN} automatically. The VAN should then process each file and route the appropriate electronic mailboxes according to the destination set in the file.

4. Inbound translation
The designated company should be able to retrieve the file from their electronic mailboxes in a constant period, and then reverse the process by translating the file from the standard format into the
specific format required by the company’s application software.

5. Processing the electronic documents
The internal application system of the designated company can process the received documents now. All the resulted documents corresponding to the received transaction should use the same processes or steps to transmit back to the transaction initiator; the whole cycle of the electronic data interchange can they be completed.


1.High cost:
One of the severe criticisms levelled against EDI is its high cost. EDI applications are costly to develop and operate.

2.Limited accessibility:
EDI applications do not allow consumers to communicate and transact with the suppliers in an easy and a direct way,as Networking facilities require certain software to access and communicate forms through EDI.

3.Rigid requirements:
EDI applications require highly structured protocols,software etc for information interchange.EDI insists up on transactingparties to follow rigid agreements about the structure and meaning of data. These agreements are time consumingto negotiate,rigid and difficult to maintain.

4.Partial solutions:
EDI applications suggest only partial solutions to organisation in their transacting process.Complete automation of transacting process is difficult to materialise in the constantly changing business environment.There will be time gap between placing order for products and the final settlement of bills.This may lead to discrepancies between transactions.

5.Closed world:
The scope of EDI application is very limited.The concept of closed world is outdated consequent on the popularity of WWW makes it easier for organisations to enter into open web related market place.


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