Electronic Data Interchange

Definitions

Electronic Data Interchange (EDI) is

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the exchange of business information in a standard electronic format between computers via a communications network.

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is a collection of public standard message formats and a data element dictionary that allows trading partners to exchange data in a simple way using any electronic messaging service. These standard message formats provide an application neutral format for the direct computer to computer exchange of information.

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Overview

EDI has developed as an important strategic tools for efficient and effective business operations. EDI provides a computer-based method by which companies can order, invoice, and bill their products and services. Such common transaction functions as invoices, shipping notices, and bills which traditionally entailed the transfer and processing of paper documents, have been replaced by electronic transfers between the businesses' computers.

In the United States, these electronic documents are formatted in accordance with American National Standards Institute (ANSI) Accredited Standards Committee (ASC) X12, the U.S. national standard for EDI. The international standard is the United Nations Electronic Data Interchange for Administration, Commerce, and Transport (UN/EDIFACT).

Electronic data interchange networks that allow businesses to operate on the basis of a shared information system can greatly improve the efficiency and effectiveness of operations by enabling businesses to purchase supplies and to produce and distribute products precisely when and where they are needed. The company's computer system can initiate a purchase order and execute the purchasing transaction when an item is requested and removed from the inventory. The price, terms, and conditions of the contract are all stored in the computer.

In addition to the considerable savings gained as inventory costs are reduced, EDI also minimizes human clerical errors and the considerable processing costs involved with paper transactions. By reducing or eliminating the prolonged and often error-plagued paper trail, large retailers and manufacturers are able to gain a competitive advantage by streamlining transactions with their suppliers and buyers.