Electronic Data Interchange, or EDI, is the term used to describe computer to computer exchange of business documents in a standard electronic format between business partners (What Is EDI? 2015.) By switching from an exchange of business documents that is paper-based to one that is based on electronics, businesses are able to benefit in many ways including a reduction in costs, an increase in the speed of processing, fewer errors and as a result, enhanced relationships with partners in business. This paper will elaborate on the benefits and drawbacks of EDI.
EDI provides many savings in costs by eliminating the processing of paper and reducing the amount of paper used as well. There are also savings in regards to time and eliminating repetition; documents are able to be transferred more quickly and efficiently. Errors in processing can be reduced, which allows business to be conducted more competently. Finally, more efficient processing will likely improve customer service, which can result in an expansion of a customer base because of satisfaction with the products (Information Assurance, 2011.)
The advantages of EDI can be described in technical terms. There are, for example, fewer interfaces, optimized processes, a higher degree of automation, and a reduction in costs (Continental, 2015.) The efficiency component of using EDI occurs because there are no paper documents that are being transferred between companies; as a result, documents and data can be delivered quite rapidly (Knapp, 2013.) There is an increase in fast communication that causes a turnaround that is much quicker as well as a higher level of customer satisfaction that gives the business a significant competitive advantage.
Another aspect of EDI that is beneficial for businesses is the issue of accuracy. Human error is responsible for a wide variety of problems that are part of data management and exchange. With EDI, this element is eliminated, which reduces mistakes and lowers the cost of shipping that is the result of having to return orders that contain mistakes. There is also a reduction in direct costs with the use of EDI, such as document storage, paper, toner, postage, and other aspects of business production that can accumulate significantly and rapidly. This is money that can be saved substantially with the use of EDI technology. In addition, there are certain indirect advantages of using EDI technology; these include improvements in cash flow, a better use of warehouse space, reduction in lead times, and more frequent turnover of inventory (Knapp, 2013.)
There are, however, certain disadvantages that accompany the use of EDI. For example, in contrast to XML, which is not strictly standardized, many people consider EDI to be accompanied by far too many standards (Information Assurance, 2011.) In addition, there are a variety of standards bodies that have created standard document formats for EDI, and these can potentially result in problems associated with cross compatibility. Some people find that these standards bodies also work hard to produce annual revisions that can cause many difficulties if a business uses a more recent version of a certain document than that which is used by a partner in business. Other businesses find that EDI systems are so expensive that it can become extremely difficult for them to be implemented by smaller businesses. This can effectively eliminate a wide range of businesses that have only a handful of employees. Finally, many large businesses limit their work exclusively only to companies who also utilize EDI. This may cause limitations to the amount of business that small companies are able to do with such large organizations, resulting in limits on trading partners.
- Continental. (2015). Function and Advantage of EDI. Retrieved from Continental.com: http://www.contitech.de/pages/tools/tools-edi/edi-funktion_en.html
- Information Assurance. (2011, February 17). Retrieved from Life and Times of Ed.com: http://www.lifeandtimesofed.com/information-assurance/2011/2/17/edi-advantages-and-disadvantages.html
- Knapp, B. (2013, January 26). Understanding the Essentials of EDI Technology. Retrieved from Socius1.com: http://www.socius1.com/what-can-edi-technology-do-for-my-business/
- What Is EDI? (2015). Retrieved from EDI Basics.com: http://www.edibasics.com/what-is-edi/