DECEMBER 2009

A Practical Guide to EDI

This whitepaper has been provided as a courtesy to anyone who would like to learn more about Electronic Data Interchange (EDI)–what it is, how it works, potential challenges suppliers face without it, and the benefits it can provide.

1.1. EDI Defined
EDI is a set of standards that collectively provide a common protocol or syntax for transacting business documents electronically. EDI is a set of rules and guidelines that are applied when developing and implementing software and services designed to transmit business documents electronically. EDI provides a common "language" that enables businesses with dissimilar computer-based business systems to communicate with each other.

1.2. The problem addressed by EDI
Without EDI, companies must use a paper-based system for transacting business – meaning paper documents are mailed or faxed between companies to exchange information. In this scenario, a company typically enters data into a PC-based business application (ex. accounting software), prints a form containing the data (such as a purchase order or an invoice), and mails or faxes this document to a trading partner (customer or vendor). The trading partner, after receiving the document containing the data, must then re-key the data into their PC-based business application. This is time consuming and could cause potential errors due to manual data entry.

• Lost revenue due to incorrect billing
• Charge backs assessed by trading partners
• Added expenditures required to correct mistakes
• Delays in orders being processed
• Damage to reputation/client relations

1.3. The benefits of using EDI
Companies that are EDI enabled can send and receive business documents electronically with their trading partners. The digital exchange of data is facilitated using computers, most if not all of the associated business processes (such as data population and verification) can be automated so that they occur with little or no manual intervention. Key benefits include:

• Reducing or eliminating data entry errors
• Processing transactions faster
• Streamlining transaction processing
• Saving time when sending and receiving business documents
• Receiving payment as much as 30 days sooner than those sent via fax
• Improving cash flow and mitigating the need to borrow money

1.4. History of EDI
EDI has been under development in the U.S. in one form or another since the mid-1960s. In 1968, a group of railroad companies concerned with the quality of inter-company exchanges of transportation data formed an organization to study the problem and to do something to improve it. This organization was the Transportation Data Coordinating Committee (TDCC).

At about the same time, individual companies such as General Motors, Super Value, Sears and K-Mart were also addressing the inefficiencies of inter-corporate document movement by using their own electronic (but proprietary) systems with their major trading partners.

The problem lay in the fact that each system was specific to that company with no standard except in a proprietary sense. A hypothetical company in the late 1960s doing business with GM, Sears and K-Mart therefore needed three different system interfaces.

Several industries in the early 1970s sponsored a shared EDI system and usually turned it over to a third party network. In some cases, the shared system was developed by the third party for a group of common companies or industry trade group.

These industry trade group systems had the same disadvantage as the company proprietary EDI system: they were standard, but limited in scope and unable to communicate with other trade group EDI systems.

1.5 How to Learn More
There is an EDI solution that integrates seamlessly with your Sage MAS ERP. EDI Transaction Manager, powered by TrueCommerce, is the only EDI solution exclusively distributed by Sage. This EDI solution has no annual maintenance or upgrade fees, no annual subscription fee or contract and offers free software upgrades if trading partners change their requirements. For more information about this solution or to schedule a personal solution demonstration for your company, please call 877-541-1681 or e-mail your Customer Account Manager.

 

Next: 5 Ways to Break the Silence Barrier