What is Electronic Data Interchange (EDI)?

What is Electronic Data Interchange (EDI)?

In this article you will learn What is electronic data interchange? And How it works. This article will be very knowledgeable for you. So, to get knowledge on EDI you should read this article till end.

EDI or Electronic Data Interchange was developed by U.S. transportation industry in the 1960s. It was developed to make fast communication between two companies. The main objectives of EDI was to make standard communication with customer. But now EDI plays very important role in companies communication.

What is Electronic Data Interchange?

Electronic Data Interchange (EDI) is the computer-to-computer exchange of routine business data between trading partners in standard data formats.

Electronic Data Interchange (EDI) is the exchange of business information electronically between business partners in a structured format. Because of the structured format, electronic documents can be transmitted from one computer application to another computer application without manual intervention.

The conventional paper process includes substantially more human intervention to move business information from one company to another.

What is Electronic Data Interchange

The conventional process requires someone to handle a printed computer generated from and mail it. Then, the recipient re-keys the data back into another computer for their internal processing. The EDI process is a computer transmitting the information directly to another computer, eliminating the paperwork and human intervention.

I hope you learn nicely What is electronic data interchange? You should know one more thing which is key concept of EDI. So that you can get complete concept on EDI.

Key concepts of EDI  

Computer-to computer :  EDI is its most efficient from flows directly out of a senders computer system directly into a receiver’s computer system without any human intervention; however, it is not always possible for EDI to flows in this most efficient manner.

Routine business data :  EDI is used for routine business document like Purchase Order and Invoices. It is not used for non-routine business documents like complicated contracts or information meant humans to read and analyze.

Standard data format : A standard definition of the location and structure of the data is provided. Unstructured text is not EDI.

How EDI Works?

Purchase Ordering Example

  • The buyer enters order information into the production database, which generates a purchase order on the computer. The order information is then channeled through a number of interface programs.
  • The interface software programs perform edits checks on the document and direct the order data into predefined EDI intermediate files.
  • The EDI intermediate files contain information in a form that the EDI translation software can read.
  • The translation software is a set of program that translates the interface file data into a document formatting according to EDI standards that the supplier’s computer can recognize.
  • The electronic document now consists of a file that contains the order data in a predefined, recognizable order.
  • The communication software adds appropriate communications protocols to the EDI document in preparation for transmission via telephone lines.
  • Using a modem and telephone line, the buyers transmits the EDI purchase order to a VAN (Value added network). Think of this as a mailbox.
  • The communication software on the supplier’s computer picks up the document from the VAN, interprets and/or converts the communication protocols to open the electronic document.
  • The purchase order is now in a standard, recognizable format in a file and is available to the supplier’s computer.
  • The supplier’s translation software interprets the documents from the EDI format and places the order information in EDI intermediate file(s).
  • The EDI intermediate files contain the translated purchase order information.
  • The interface programs perform edits and checks before the data is integrated with the supplier’s production database.
  • The application software on the supplier’s computer can now process the buyer’s order.

Already you learn before What is electronic data interchange? and How EDI works? One question can come to your mind What are the benefits of using electronic data interchange? I am going to tell you the benefits below.

EDI Benefits 

There is no doubt that EDI can bring significant benefits to organizations. These can generally be classified into three categories.

  • Strategic
  • Operational
  • Opportunity

Strategic benefits include

  • Faster trading cycle
  • Ability to adopted new business process such as Just-in-Time manufacturing techniques.
  • Ability to win new business or retain existing customers leading to improvements in business efficiency.
  • Ability to response to highly competitive new market entrants.

Operational benefits include

  • Reduced costs – paper and postage bills cut – reduction in money tied up in stock – manual processing costs (e.g. associated with verification, keying and re-keying of document and the cost of manual filing system).
  • Improve cash flows.
  • Security and error reduction.
  • Acknowledged receipt.

Opportunity benefits include

  • Enhance image.
  • Competitive edge.
  • Improve corporate trading relationship.


If you have any question regarding”What is electronic data interchange“? and How it works you can ask me in comment. I hope you understand about EDI and its working process.

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