Electronic Data Interchange or EDI software enables two or more businesses to exchange data securely in agreed formats, even if they use different ERP systems and applications.
Critical data such as purchase orders and invoices are moved between trading partners electronically, avoiding manual intervention such as document re-keying and data entry errors. Document exchange under a manual system can take days, versus minutes when sent via electronic data interchange software. The security provided by EDI software is another major benefit.
Let’s compare document exchanges between trading partners using paper versus EDI.
The Retailer raises a Purchase Order (PO) in their ERP system
The PO is either emailed, faxed or mailed to the Supplier.
The Supplier receives the PO and manually enters it into their sales order system
If goods are out of stock, the Supplier calls or emails the Retailer to discuss the options available.
The Retailer and Supplier update their ERP systems accordingly for the new quantities and or prices.
The Supplier prints an invoice and encloses it with the shipment and/or sends it separately by email, fax or mail to the Retailer
The Retailer manually enters the invoice into the Accounts Payable system after manually reconciling the invoice to the order.
If errors appear on the invoice compared to the PO, the Retailer’s Accounts Payable Department calls the Supplier to get the error corrected, delaying payment to the Supplier.
The exchange of paper documents can often take a week to process. If there are errors caused by manual data entry, the time can be greatly increased.
EDI (electronic data interchange) Process
The Retailer’s procurement system automatically generates a PO when inventory reaches the re-order level
The Retailer’s ERP system sends the electronic PO file to EDIStech via a secure EDI internet connection. This is for non-cloud based ERP systems. For Cloud based ERP systems, EDIStech retrieves the PO via an API.
EDIStech’s EDI software translates and validates the data before sending the PO to the Supplier’s ERP system via a secure internet connection or via an API connection.
Within minutes the sales order system uploads the PO file which is now in the file format that the Supplier’s ERP system accepts.
The Supplier sends a Purchase Order Response (POR) to EDIStech, who translates this data and sends the file to the Retailer. The POR instantly advises the Retailer on what goods can be supplied.
The Retailer uploads this POR into their system as it is in the correct format. The Retailer’s warehouse is now fully aware of what stock will arrive.
The Supplier creates an invoice and sends this file to EDIStech.
EDIStech’s EDI system validates the data on the invoice to the Retailer PO and translates the invoice file into the format the Retailer can accept.
EDIStech’s EDI software sends the invoice to the Retailer who passes the invoice for payment as it is fully reconciled.
The EDI data transfer can be completed within minutes.
Facts about EDI Software
A few facts about EDI versus manual paper based system;
Paper based document processing systems average $14 per transaction versus $7 for electronically processed documents (i)
Up to 60% of manually generated invoices are incorrect, costing between $40 and $400 to reconcile (ii)
Up to 3.5% of a business’s sales can be lost through Supply Chain information inefficiencies(ii)
(i) Stanford University Global Supply Chain Management Forum