Electronic Data Interchange – How ERP-Integrated EDI Can Benefit Your Business

John WaldronArticle, Blog

Electronic Data Interchange – How ERP-Integrated EDI Can Benefit Your Business

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Global business has gone digital — and so have customer demands. As such, any retail, ecommerce or manufacturing business needs to leverage the tools and technologies that enhance operational efficiency, improve supply chain management, and increase market competitiveness. This includes technology that makes key business processes faster and more efficient — which is why so many businesses utilise powerful and agile ERP software solutions like metasfresh to give them full visibility and control over all their operations.

Another important concern for modern businesses is their ability to seamlessly communicate and freely exchange critical documents with trading partners. Once again, technology is the great enabler — this time in the form of electronic document interchange (EDI) solutions, sometimes referred to as electronic document exchange.

EDI technology allows organisations to coordinate large swathes of their operations seamlessly — from sending and receiving purchase orders to invoices, advance ship notices, bills of lading, customs documents, inventory documents and more. All of which is actioned by automation — that is, without human intervention — speeding up processes, reducing errors, and increasing transparency and efficiency.

Let’s take a closer look at exactly what EDI is, how it works, what the benefits are, and how an ERP-integrated EDI will significantly enhance your business.

What Is Electronic Data Interchange?

EDI Basics provides a clear and succinct answer to this question.

“Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in a standard electronic format between business partners.”

What this means is that EDI replaces paper-based and manual exchanges of business documents via postal mail, fax and even email. In other words, EDI creates seamless and direct communication of key documentation between trading partners, as business information is exchanged paperlessly and quickly between each partner’s business system. EDI transmissions contain the exact same information that would be included in the paper version of the document. However, EDI removes the necessity for humans to handle the exchange and processing of documents. Instead, as EDI Basics explains, EDI documents flow straight through to the appropriate application on the receiver’s computer (e.g. the order management system) and processing begins immediately.

Whereas traditional, manual processes look like this with lots of paper and people involved…

Manual document exchange (no EDI)

A typical manual process with paper and people involved —Source: edibasics.com

…the EDI process looks like this — no paper and no people:

Electronic Data Interchange (EDI)

EDI process with no paper or people involved —Source: edibasics.com

This highly efficient process saves organisations huge amounts of money through the elimination of the repetitive cost-, labour- and time-consuming tasks of purchasing, printing, processing, sending and receiving paper documents.

The Standalone Benefits of EDI

EDI plays a key role in advanced supply chain management as it speeds up the flow of information — which is what makes the supply chain possible in the first place.

Today, the supply chain has reached such high degrees of complexity that the use of manual, paper-based and unstructured information exchange is no longer a viable option for companies that want to remain agile, competitive, and meet the demands of their customers and trading partners. Modern supply chains require all participants to provide each other with detailed forecasts and anticipated demand — quickly. Without EDI, this would be extremely difficult if not impossible.

As such, it’s no surprise that the global market for electronic data interchange solutions is growing. According to recent figures from Fortune Business Insights, the global EDI software market is projected to reach USD 3.45 billion by 2027 — from USD 1.54 billion in 2019 — exhibiting a CAGR of 10.7% over the forecast period.

The report notes that the growth of the market is primarily driven by the rising preference amongst organisations towards digital transformation and process automation.

In practice, the automation of business processes enabled with EDI implementation unlocks the following benefits to the organisation:

  • Reduction or elimination of paper-based document flow
  • Increased processing speed
  • Faster transmission times
  • Lower transmission costs
  • Increased information accuracy
  • Reduced data entry errors
  • Cost savings in document and data handling activities
  • Streamlined communication between trading partners — fostering stronger relationships
  • Faster order turnaround — resulting in happier customers, trading partners, and competitive advantage
  • Reduced waste, resulting in greener business practices

Importantly, since EDI documents are processed by computers — as opposed to humans — standard formats must be used so that each company’s computer system is able to read and understand the documents that are transferred.

There are several EDI standards in use today — meaning when two businesses decide to exchange EDI documents, they must agree on the specific EDI standard they will use. Utilising EDI signals to both existing and potential trading partners that your organisation is up-to-date, trustworthy, and uses standardised supply chain management practices. However, even though all EDI applications enable and promote collaboration through the use of trusted communication standards, it must be noted that not all EDI solutions are created equal. The technology has in fact been around for many years — and there are many older systems on the market that still require users to manually initiate EDI transfers, and even manually key in data at each end.

To realise the true benefits of EDI, organisations must select a solution that integrates directly with their ERP software — and in doing so will unlock even more benefits from the ERP-integrated EDI system.

Additional and Enhanced Benefits of ERP-Integrated EDI

While useful on its own, EDI becomes invaluable for businesses when it’s directly integrated with a powerful ERP like metasfresh. By integrating an EDI system into an ERP, a whole host of benefits are unleashed, including greater supply chain visibility, optimised inventory management, enhanced product traceability, faster order processing and agile decision-making.

An ERP-integrated EDI facilitates the transfer of large amounts of data without employee intervention. Indeed, manual data entry will be almost eliminated, as no one will ever need to type or even copy and paste information to send to customers or suppliers — nor type any received information back into the ERP system. This is because the two systems are in sync. Your ERP serves as the centralised information system for all products, pricing, inventory, sales transactions, deliveries, shipments, and more. As such, any information you need to send via the EDI can be located, selected and transmitted in just a few clicks. The advantages here are manifold — the risk of human error on data entry is minimised, huge savings on time and manpower are realised, transactions can be processed almost instantaneously, and the cycle time for orders is speeded up significantly.

To give you an example of how this might work in practice, consider a warehouse fulfilment centre. ERP-integrated EDI utilisation essentially creates a digitised and seamless supply chain collaboration network between trading partners. So, let’s say a customer sends an EDI message to a supplier with a purchase order (PO). However, this is all done automatically — with ERP integration, the system has been set up so that the PO is automatically generated and sent because the customer’s stock levels have reached a specified minimum. This happens continuously, meaning the amount of product in holding is maintained automatically — as the supplier already has the PO in their system, they can fill the order, with their ERP generating the associated invoice. The invoice is then automatically transmitted to the customer via EDI — and the invoice, along with shipment tracking and delivery confirmation, shows up in the customer’s accounts payable for payment. This whole process is accomplished without any human intervention to generate or transfer the PO or the invoice.

A further benefit of integrating an EDI with a modern and agile ERP platform is that you can take advantage of the ERP’s advanced analytics tools to gain a better understanding of both your internal processes and performance, as well as those of your suppliers. An ERP gives you the helicopter view of your whole operation — and with an integrated EDI, you will gain insights into how each of your trading partners are performing as well. This enables you to anticipate and adapt to changes in supply and demand quickly, while giving decision-makers the agility to respond to emerging challenges and opportunities in the now digitised, real-time supply chain.

Talk to us here at metasfresh. Since 2006 we have been developing our ERP software non-stop with open source components and under the open source licences GPLv2 and GPLv3. Our mission is to enable each and every company to access a powerful ERP system that supports digital transformation and fuels corporate growth. Get in touch today for more information and insights.

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