EDI is an acronym for Electronic Data Interchange. In a 1996 publication (1)
Institute of Standards and Technology defined electronic data interchange as "the computer-to-computer
interchange of strictly formatted messages that represent documents other than monetary instruments.”
The publication further states, ” In EDI, the usual processing of received messages is by computer only.
Human intervention in the processing of a received message is typically intended only for error
conditions, for quality review, and for special situations.” (1)
Simply put, EDI is the computer to computer exchange of routine business data in a standardized format.
In its purest form EDI moves directly for a senders computer system directly into a receivers computer
system without human intervention. The data format and locaton are standardized. EDI is used for
routine business documents such as shipping orders, invoices, purchase orders, and bills of lading.
EDI is not used for non-routine data transmission like contracts, reqests for quote or email.
Conventional paper processing of business data requires more time due to courier or postal service
requirements and also requires a substanial amout of human interface, often at several different levels.
Human interface can easily translate to more errors requireing additional error detection and
correction. The EDI process involves direct communication between computers, eliminating the need for
a significant amount of paperwork and human intervention.
EDI requirements are surprisingly few and quite simple and there are a number of excellent firms to
assist with acquisition of equipment, installation and personnel training. To send and receive
electronic transmissions a firm will need:
- A computer – anything from a mainframe to a pc will due.
- Translation software – data will need to be translated into ANSI X12 standard formats for
transmission and incoming transmissions will need to be translated back.
- Communication hardware – a phone line and a modem are required
- Communication software – software designed to handle the sending and receiving of data your
Two optional items used by some businesses are a Value Added Network (VAN) or an FTP server to
facilitate the transmission of your business data.
Benefits of EDI
Errors are substantially reduced because data does not have to be rekeyed. With human interface the
normal range of errors is .5 to 3%. When transcribing large amounts of data, that translates to a lot
Data is transferred almost immediately. The time required for a courrier or the postal service is
A standardized format and location of data is specified
Loss of data is much less likely when using EDI than when using a courrier of the postal service.
Additionally, data can only be access by certain individuals when using EDI.
Effective use of EDI will result in a number of business benefits including: reduced order lead time,
quicker cash flow, faster product cycle time, reduced inventories, reduced error detection and correction
processes and improved trading partner relationships.
1. Michael KantorJames H. Burrows (1996-04-29). “Electronic Data Interchange (EDI)”. National Institute of Standards and Technology.