Electronic Data Interchange

The concept of electronic data interchange is the exchanging of business-related information using a structured format. Instead of using the conventional way of sending information through paper, information can be transmitted electronically from one institution to another.

Trading partners are organizations that transact business and exchange information electronically.

There are several types of documentation that can be exchanged online. However, the most popular types of business documents shared regularly between companies are sales invoices and supply orders.

Electronic Data Interchange (EDI) takes the place of conventional business communications' mail preparation and maintenance. The knowledge shared can be standardized as business records with the aid of EDI. Electronic data exchange enables businesses to communicate without using paper.

In the typical exchange of information, an invoice is created on a computer and copied, after which the printed copy is mailed to another group. When the invoice is received from other people, it is uploaded to their computers for potential reference.

Throughout the operation, data is transferred from the seller's computer to the buyer's computer. The steps involved in knowledge sharing are simplified with the aid of EDI by minimizing manual steps. It improves the data exchange operation.

Electronic Data Interchange

1. Transmission

There are various transmission methods available, and trade partners are free to use all of them.

Peer-to-Peer (Direct EDI)

Partners should communicate openly with one another. A retailer, for example, should maintain a modern pool from which he can share with all of his suppliers, and suppliers can access the retailer through EDI.

To communicate with different manufacturers, however, other modems are needed and additional software for each manufacturer.

With advancements in technology, a vast range of applications can be used or connected with another dealer. This software is filled with features to help them communicate more effectively.

Value-added networks

VANs, or value-added networks, were created to overcome the shortcomings of peer-to-peer networks. Peer-to-peer networks are much less stable than value-added networks.

They perform the role of a religious post office. They examine the "from" and "to" detail in the data submitted and send it only to the intended recipient.

Other services that the VAN will provide include third-party audit records, paper re-transmission, telecommunication assistance, acting as a portal for multiple delivery methods, and other security features.

Both parties use internet-based protocols; both parties must use VAN (protocols used by both parties can be the same or different).

VAN can be used by various organizations, including healthcare institutions, industry associations, telecommunication networks, banks, and service providers, to quickly exchange information with their business partners.

Communication parties can use any methodology to exchange information from the sender to the recipient. However, with the arrival of the internet, more organizations have begun to use the internet for electronic data interchange. As a result, numerous standard protocols have evolved to serve the purpose of communication between the parties successfully.

The following are some examples of internet protocols that are used for sending and receiving data.

  • Email
  • FTP, FTPS, and SFTP
  • AS1, AS2, AS4
  • Mobile EDI
  • ·         Telnet

And there is a slew of other inventions as well.

In the next part, we'll look at the differences between conventional data interchange and electronic data interchange and learn about all of the measures involved in EDI.

Value Added Network

2. Difference between conventional and EDI Transaction




The customer makes a purchasing decision, and the purchase order is generated in a machine and printed out.

The customer makes the purchasing decision, and the purchase order is generated on a screen rather than written.

The customer receives the buying order by mail.

An electronic representation of the order is created and immediately submitted to the supplier.

The retailer receives the order and enters it into the system.

The supplier's entry scheme is immediately changed until the receipt is received in the system.

After processing the order, the sender gets an acknowledgement from the provider.

The entry system is upgraded by acknowledging the supplier's order, and the acknowledgement is submitted to the customer.

3. Advantages of Electronic Data Interchange

Electronic data interchange dramatically reduces the amount of time and energy needed. Many trading companies use EDI to conduct commercial transactions.

a. Improved Timelines

In this way, electronic data interchange runs on real-time processing; by minimizing activities like writing, retrieving, and entering order data on machines, much time can be saved.

b. Minimal Paper Usage

Many costs, such as packaging, postage, copying, recycling, and mailing, can be reduced using electronic data interchange.

c. Saving costs in operational efficiency

Employees can save much time by eliminating tasks like making invoices, copying them, and mailing them, focusing on more critical studies.

d. Enhanced Quality of Data

Since the entry work is not done by hand, the odds of making a mistake are reduced. The accounts will increase as a result of this. Pay may be obtained on schedule, and receivable and payable amounts may be forecasted, assisting in improving the company.

e. It helps create a greener world

When you use electronic data interchange, you use less paper. Paper is created from trees, so there would be no need to cut down more trees to make invoice paper.

f. Improved turnaround times

Your company's business cycle will be increased using electronic data interchange because stock levels are still available and up to date.

4. Difficulties in Implementing Electronic Data Interchange(EDI)

The implementation of Electronic Data Interchange is fraught with challenges. One of the most significant challenges is the difficulty of accompanying business method transition. Switching from paper-based transfers to EDI would be complicated for a company that is entirely reliant on paper.

Automating the delivery of company records would necessitate several improvements. The time and resources required to execute the initial set up for Electronic Data Interchange is the next challenge that an enterprise will face.

The initial costs of transition, implementation, preparation and customization would be prohibitively expensive for the company. To incorporate all of the company specifications, it is critical to use the appropriate level of EDI.

The final impediment to EDI implementation is companies' varying perceptions of the EDI mechanism and their willingness to adapt to a more mature model of knowledge sharing.

The majority of people want to stick to their old habits and do not want to change their ways.


EDI or Electronic Data Interchange is the virtual exchange of data or business documents in electronic format between trading partners. This exchange of documents is generally between buyer and supplier and consists of transferring purchase orders, invoices, payments, shipping notices and various other documents and by nature eliminates paper trails, improves operational efficiency and enhances virtual exchanges with new trading partners.

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