Why Your Business Needs EDI

Why your business needs EDI

A growing business dealing with repeating trade with a party could benefit from EDI. Examples could be ordering supplies from a vendor, sales via a merchants, wholesale customers, or having to deal with third parties such as insurance paying medical claims, tax authorities and shipping carriers.

Advantage can be derived, especially if the effort of entering transactions becomes too time consuming or manual capturing is prone to accuracy errors. Electronic Data can reduce process costs and raise satisfaction levels with you Customers. Often one or more business processes can become too resource intensive, costly, or delays in manual handling does not keep up with demand. For businesses looking to maximize growth, while securing compatibility with dominant trade partners, the solution is to implement EDI.

What is it?

In short, Electronic Data Interchange is the computer-to-computer exchange of business documents in a standard electronic format between business partners. It implies two aspects

  • the Delivery Method (protocol) for exchanging electronic transaction files with the Trade Partner, regardless of file contents.
  • industry wide recognized formats of the contents of electronic files, regardless of method of delivery of receiving files. 

A few standards exist that encompass message file formats. The most popular being X12 by the American National Standards Institute and EDIFACT ratified by the United Nations (UN Economic Commission for Europe).

Many protocols exist that can receive, send and manage EDI Document transfer, like AS2, SFTP and FTP. AS2 is more advance as it provides Managed File Transfer (MFT). MFT does not just transfer files, it also keeps record of delivery, send alerts if issues exist as to ensure guaranteed file delivery within service level time windows agreed by trade partners.

Smooth Commercial Interaction

A key important aspect of EDI, is that it serves the objective of handling commercial agreement between two parties. Therefore EDI falls in the domain of ecommerce.

For trade partners to act in mutual trusted relationships, exchange of commerce transactions have to live up to certain criteria.

  • Can the sending party indisputably prove that a message had been received by the intended party?
  • Is a transaction actually from the actual trader partner, i.e. not from an imposter?
  • Is the contents original and unaltered?
  • Is the contents safeguarded against snooping?
  • Is the information contained structurally according to the format agreed by the parties?
  • Besides format, is the business content acceptable according to mutual business rules, e.g. have a package been delivered by a carrier we mutually agreed upon?

A good EDI implementation evaluate transactions at different levels to ensure that expectations for these questions are met and automate notifying the relevant party of deviations. Ideally you want to realize an exception occurs (such as a mandatory value being blank) before your trade partner informs you. EDI enables parties to responsively remove hurdles in their commercial interactions as early as possible. 

The most important business value of EDI, is that it enables smooth commercial interaction.

Does it Work?

According to Electronic Media Claims (EMC) Rates for Medicare Fiscal Intermediaries, the year 2010 saw 99.9 percent of all bills successfully processed through EDI systems. The major contributor to EDI’s success in so many industries, can be attributed to the fact that it is well standardized. Newer formats like XML and other web-based standards, reveal a glaring immaturity against EDI document formats. Resulting from 40 years of development, EDI has matured to a popular B2B communication tool. The Healthcare EDI Market alone, is projected to reach 3.77 Billion USD by 2022.

EDI’s history stretches all the way back to the late ’60s and have seen real standardization when ANSI (American National Standards Institute Accredited Standards Committee) entered the industry providing the ASC X12 standards in the mid-’70s.

The idea behind EDI at the time, was to create a lightweight and effective way to send and receive business information over the extremely limited and unreliable networks that existed during the 70s. With around 40 years of constant refinement, EDI has become an incredibly reliable and cost-effective way to practice Business to business (B2B) communication. While we have abundance of bandwidth available today, the efficiency is still unbeatable, making EDI modern and well used. EDI became equipped to communicate over public Internet and Web infrastructure, adding encryption and signing capabilities.  

While EDI is relatively easy, expertise is important.

The slight complexity when implementing EDI communication, is Customer or Partner specific requirements. General EDI specifications defines which information can be sent, covering information fields for every conceivable variation types of business. As example, information sent for orders for pharmaceutical products, apparel or publications would be different. Different trade partners dealing in the same goods, could choose to use subsets of general specifications in different ways. They could decide which document line should be mandatory and that others could be optional. One trade partner may require weight or a package tracking number in an invoice and another not.

For each dominant trade partner you deal with, the trade partner will provide its derived specification you have to adhere to. In addition, the trade partner will provide an onboarding test plan your and the trade partner’s consultants will work through, before being allowed to send production messages.

A good consultant will not only have experience in mapping and handling EDI exceptions, but will also understand the business information conveyed, have the ability to read specifications. The consultant will even understand how your business systems utilize information sent, and how documents from the downstream process is to carry over information from initial documents. Such advanced capability is not strictly required from the consultant, but you should expect considerable communication between the EDI consultant and business system specialists otherwise.  

As a result, most companies that use EDI communication require the services of a specialist. Specialists are responsible for the communication and translation between trade partner identifiers and identifiers used in your business systems.

Dynetek takes pride in offering consultants with previous and ongoing experience in an array of different industries.

In a Nutshell

In summary, EDI is based on international standards for electronic communication between companies, that can be used domestically and internationally. EDI specifications has see numerous iterations of improvement since its inception and has matured into a reliable and cost-effective tool for B2B ecommerce communication. EDI continues to be used by companies around the world. Significant savings can be derived in the reduction of manual data entry and processing effort and helps considerably to reduce turnaround times to complete a full business process.

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