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Electronic Data InterchangeThe electronic communication of business transactions, such as orders, confirmations and invoices, between organizations. Third parties provide EDI services that enable organizations with different equipment to connect. Although interactive access may be a part of it, EDI implies direct computer-to-computer transactions into vendors' databases and ordering systems.

The Internet gave EDI quite a boost. However, rather than using privately owned networks and the traditional EDI data formats (X12, EDIFACT and TRADACOMS), many business transactions are formatted in XML and transported over the Internet using the HTTP Web protocol. See X12, EDIFACT, TRADACOMS, extranet, externalization, XML and HTTP.

Marketing Dictionary: electronic data interchange (EDI)

The exchange of information from one company to another using a computer network, such as the Internet. Electronic data interchange involves computer-to-computer exchanges of invoices, orders, and other business documents and therefore effects cost savings and improves efficiency because it minimizes the errors that can occur if the same information has to be typed into computers more than once. At the same time, EDI provides an easily accessible mechanism for companies to buy, sell, and trade information. In the business-to-business market, major corporations have embraced EDI systems, and in order to reduce costs and improve efficiency and competitiveness, many corporate giants are now demanding that their suppliers convert their sales and purchasing operations into EDI systems as well. In the retail market, the use of EDI systems allows the retailer to implement quick response strategies that can reduce the time they must hold merchandise in inventory, which can result in substantial cost savings for the retailer.

Accounting Dictionary: Electronic Data Interchange (EDI)

Transmission of business transactions from one company's computer to another company's computer. Transmission is achieved through an electronic communication network that uses translation software to convert transactions from a company's internal format to a standard EDI format. Companies that participate in EDI are referred to as trading partners. Trading partners may be involved in on-line banking, on-line retailing, and electronic funds transfer. There are paperless transactions in an electronic format. In the case of EDI, the auditor should be cognizant of the possible impact on the gathering of evidential matter.

Small Business Encyclopedia: Electronic Data Interchange

Electronic data interchange (EDI) is the electronic movement of data between or within organizations in a structured, computer-retrievable data format that permits information to be transferred from a computer program in one location to a computer program in another location without rekeying. EDI includes the direct transmission of data between locations; transmission using an intermediary such as a communication network; and the exchange of computer tapes, disks, or other digital storage devices. In many cases, content-related error checking and some degree of processing of the information are also involved. EDI differs from electronic mail in that an actual transaction is transmitted electronically, rather than a simple message consisting primarily of text.

EDI is used for electronic funds transfer (EFT) between financial institutions, which facilitates such common transactions as the direct deposit of payroll checks by employers, the direct debit of consumer accounts to make mortgage or utility payments, and the electronic payment of federal taxes by businesses. Another common application of EDI involves the direct exchange of standard business transaction documentssuch as purchase orders, invoices, and bills of ladingfrom one business to another via computer. EDI is also used by retail businesses as part of their electronic scanning and point-of-sale (POS) inventory replenishment systems. Overall, EDI offers a number of benefits to businesses andthanks to the rapid evolution of the related technologyis becoming more readily available to small businesses all the time.

Benefits of Edi

"EDI saves money and time because transactions can be transmitted from one information system to another through a telecommunications network, eliminating the printing and handling of paper at one end and the inputting of data at the other," Kenneth C. Laudon and Jane Price Laudon wrote in their book Management Information Systems: A Contemporary Perspective. "EDI may also provide strategic benefits by helping a firm 'lock in' customers, making it easier for customers or distributors to order from them rather than from competitors." EDI was developed to solve the problems inherent in paper-based transaction processing and in other forms of electronic communication. In solving these problems, EDI is a tool that enables organizations to reengineer information flows and business processes. It directly addresses several problems long associated with paper-based transaction systems:

Time delaysPaper documents may take days to transport from one location to another, while manual processing methodologies necessitate steps like keying and filing that are rendered unnecessary through EDI.

Labor costsIn non-EDI systems, manual processing is required for data keying, document storage and retrieval, sorting, matching, reconciling, envelope stuffing, stamping, signing, etc. While automated equipment can help with some of these processes, most managers will agree that labor costs for document processing represent a significant proportion of their overhead. In general, labor-based processes are much more expensive in the long term EDI alternatives.

AccuracyEDI systems are more accurate than their manual processing counterparts because there are fewer points at which errors can be introduced into the system.

Information AccessEDI systems permit myriad users access to a vast amount of detailed transaction data in a timely fashion. In a non-EDI environment, in which information is held in offices and file cabinets, such dissemination of information is possible only with great effort, and it cannot hope to match an EDI system's timeliness. Because EDI data is already in computer-retrievable form, it is subject to automated processing and analysis. It also requires far less storage space.

Infrastructure for Edi

Several elements of infrastructure must exist in order to introduce an EDI system, including: 1) format standards to facilitate automated processing by all users, 2) translation software to translate from a user's proprietary format for internal data storage into the generic external format and back again, 3) value-added networks to solve the technical problems of sending information between computers, 4) inexpensive microcomputers to bring all potential userseven small onesinto the market, and 5) procedures for complying with legal rules. It has only been in the past several years that all of these ingredients have fallen into place.

FORMAT STANDARDS. To permit the efficient use of computers, information must be highly organized into a consistent data format. A format defines how information in a message is organized: what data goes where, what data is mandatory, what is optional, how many characters are permitted for each data field, how data fields are ordered, and what codes or abbreviations are permitted.

Early EDI efforts in the 1960s used proprietary formats developed by one firm for exclusive use by its trading partners. This worked well until a firm wanted to exchange EDI documents with other firms who wanted to use their own formats. Since the different formats were not compatible, data exchange was difficult if not impossible. To facilitate the widespread use of EDI, standard formats were developed so that an electronic message sent by one party could be understood by any receiver that subscribes to that format standard. In the United States the Transportation Data Coordinating Committee began in 1968 to design format standards for transportation documents. The first document was approved in 1975. This group pioneered the ideas that are used by all standards organizations today.

North American standards are currently developed and maintained by a volunteer organization called ANSI (American National Standards Institute). The format for a document defined by ANSI is broad enough to satisfy the needs of many different industries. Electronic documents are typically of variable length and most of the information is optional. When a firm sends a standard EDI purchase order to another firm, it is possible for the receiving firm to pass the purchase order data through an EDI translation program directly to a business application without manual intervention. In the late 1990s, international format standards were established and introduced as well to facilitate international business activity.

TRANSLATION SOFTWARE. Translation software makes EDI work by translating data from the sending firm's internal format into a generic EDI format. Translation software also receives a sender's EDI message and translates it from the generic standard into the receiver's internal format. There are currently translation software packages for almost all types of computers and operating systems.

VALUE-ADDED NETWORKS (VANS). When firms first began using EDI, most communications of EDI documents were directly between trading partners. Unfortunately, direct computer-to-computer communications requires that both firms 1) use similar communication protocols, 2) have the same transmission speed, 3) have phone lines available at the same time, and 4) have compatible computer hardware. If these conditions are not met, then communication becomes difficult if not impossible. A va