Electronic Data Interchange (EDI)

By Corbitt, Terry | Management Services, February 1992 | Go to article overview

Electronic Data Interchange (EDI)


Corbitt, Terry, Management Services


Electronic data interchange (EDI) is the description used for the exchange of structured trade data between the computer systems of trading partners. EDI is not a new idea, it was started in the 1960's in the USA. It is now replacing the traditional paperwork systems that have been used by organisations for controlling the purchasing and movement of materials and components. The development of EDI has enabled organisations to improve traditional relationships and at the same time to reduce their costs and lead times.

Put simply it is the transmission and receipt of trading documentation such as purchase orders and invoices electronically. This eliminates the rekeying of data, the additional checking that this involves and the elimination of the delays caused by the preparation of documentation and the postal services.

EDI is a strategy of cooperation between suppliers, distributors and retailers so that they can respond to consumer demand more rapidly the use of EDI can result in increased sales, reduced stocks and improved profits. It has been estimated that 60 to 80 percent of the costs of making sales are in the cost of holding stocks. The value of EDI has been shown at Rover where stockholding has been reduced from one week's supply to two days through the introduction of EDI methods.

EDI is a part of the value added and data services which have been developed in the 1980's to provide direct computer communication between purchasers and their suppliers. VAD services provide in addition to the physical network required for data transmission, EDI, on-line databases and electronic mail.

There are four elements required for EDI to work, these are:

* Electronic mail for rapid interpersonal communication

* On-line networks to provide rapid communication

* Electronically based business documentation

* Standard protocols for file transfers

The benefits of EDI can be summarised under two main headings, these are:

STRATEGIC Under this heading are included a faster trading cycle and the use of just-in-time manufacturing. JIT manufacturing results in lower stock levels.

OPERATIONAL The benefits here are reduced costs due to the elimination of rekeying of data, the reduction of paperwork and postage costs. Improvements in paperwork lead to a better cashflow.

EDI has developed through the improvements in telecommunications and computing that have taken place over the last few years. The origins of EDI were in the retail industry

Many of the large retail distributors have used computers for many years. The computers were first used in the head office but advances in information technology have led to their use throughout the business.

It is very important for retail management to know which goods are selling and how many have been sold, if this information is not available quickly goods will go out of stock and sales will be lost. This information is provided by EDI systems.

Many of the high street retailers such as Tesco, Marks & Spencer and W H Smith use TRADACOMS to exchange data with their suppliers. TRADACOMS is a UK EDI standard that was developed in 1982 by the Article Numbering Association. It is the most widely used EDI standard in the UK. The contract to develop a value added and data service was won in 1983 by the TRADANET service of ICL. The use of TRADACOMS allows retailers to react rapidly to changes in demand for products.

The success of EDI in the retail industry has led to the development of electronic data interchange systems in other industries. The traditional ways of conducting business are being replaced by EDI as the cost of using paper based systems for the processing of data has become far too expensive and takes too long as the number of transactions taking place increases.

The description, electronic data interchange, is used to describe a business practice that aims to replace the paper traditionally used in business with electronic forms. …

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