EDI

From Supply Chain Management Encyclopedia

Russian: Электронный обмен данными

Electronic Data Interchange (EDI) is the electronic transfer of information between two trading partner’s systems using a set of transactions that have been adopted as a national or international standard for the particular business function. EDI is much more, than just e-mail. EDI provides a faster, more accurate, less costly method of communication. It reduces the amount of information that should be processed manually, thus it illuminates errors made because of the human factor (tiredness, inattentiveness, etc.). For instance, organizations might replace bills with appropriate EDI messages. Purchasing managers that usually do routine operations are substituted by EDI in automated relationships. EDI has become a requirement for doing business; it is particularly valuable in enhancing managerial information and control^[1].

A technical definition of EDI is: "the computer-to-computer interchange of strictly formatted messages that represent documents other than monetary instruments. EDI implies a sequence of messages between two parties, either of whom may serve as originator or recipient. The formatted data representing the documents may be transmitted from originator to recipient via telecommunications or physically transported on electronic storage media"^[2].

Businesses usually have various incentives to implement EDI applications; these incentives might be grouped into three categories^[3]:

• Cost reduction (reduced data entry, paper use and handling, reduced inventory carrying costs);
• Inter-organizational process redesign (technological redesign of business processes, particularly processes that involve several organizations);
• Strategic customer/supplier relationships (improves the buyer-supplier relationship: the parties become to better understand trading systems of each other).

Besides, the initiative to implement EDI may internal (from within the company) or external (from other entity: usually customers or suppliers) Frequently, large customers have the bargaining power to demand that suppliers adopt EDI. Firms may have little choice about whether to implement EDI or not if a major customer decides to do business only with those who install EDI^[4].

In logistics, EDI provides vast opportunities for a firm to develop differentiation of their service from that of its competitors, simply by building an integrated EDI network between its operation and that of carriers used to distribute its products; this network allows the companies to provide a superior service and to maintain control over raw materials. EDI helps to reduce the order cycle through automatic order placement, automatic invoicing and billing; besides, it is an essential part of just-in-time (JIT) delivery system. Via EDI it becomes possible to coordinate production schedules and to control inventory. The coordination of information flows between all affected departments allows for logistical trade-offs and enables the firm to act, rather than react, when critical situations arise^[5]. EDI might be used in creating new ways of doing business by means of new electronic markets creation. For example, incorporation of hotel rooms booking or car rent services into the airline reservation system^[6].

References

1. ↑ Emmelhainz, Margaret A (1990), Electronic Data Interchange: A Total Management Guide. New York Van Nostrand Reinhold.
2. ↑ National Institute of Standards and Technology (1996)
3. ↑ Peffers, Ken, Brian L. Dos Santos, and Peter F. Thurner (1998). "Motivation, implementation, and impact of electronic data interchange among US and German firms." Information Services & Use 18.3.
4. ↑ Peffers, Ken, Brian L. Dos Santos, and Peter F. Thurner (1998). "Motivation, implementation, and impact of electronic data interchange among US and German firms." Information Services & Use 18.3.
5. ↑ Loar, Theodore T (1998), "Electronic Data Interchange: Integration of Shipper/Motor Carrier Systems." Transportation Journal 27.4
6. ↑ Baker, Richard H. (1991), EDI: What Managers Need to Know About the Revolution in Business Communications. Blue Ridge Summit, PA: TAB Professional and Reference Books.