Redwood Logistics EDI Explanained
EDI has been around since the early 1960s where it was first used to send cargo information between the chemical company Du Pont and Chemical Leahman Tank Lines. EDI’s use grew as businesses realized the efficiency gains through exchanging information electronically. By 1982, companies like Ford and General Motors began requiring their suppliers transfer information via EDI. By 1991, EDI use was around 12,000 businesses. Since then, businesses using EDI has grown over 733% to over 100,000.
To understand why EDI has become so popular among business users you must understand the basics terms of EDI. According to EDI Basics, the following definitions apply to EDI:
- Computer-to-computer– EDI replaces postal mail, fax, and email. While email is also an electronic approach, the documents exchanged via email must still be handled by people rather than computers. Having people involved slows down the processing of the documents and also introduces errors. Instead, EDI documents can flow straight through to the appropriate application on the receiver’s computer (e.g., the Order Management System) and processing can begin immediately.
- Business documents– These are any of the documents that are typically exchanged between businesses. The most common documents exchanged via EDI are purchase orders, invoices and advance ship notices. But there are many, many others such as the bill of lading, customs documents, inventory documents, shipping status documents and payment documents.
- Standard format– Because EDI documents must be processed by computers rather than humans, a standard format must be used so that the computer will be able to read and understand the documents. A standard format describes what each piece of information is and in what format (e.g., integer, decimal, mmddyy). Without a standard format, each company would send documents using its company-specific format and, much as an English-speaking person probably doesn’t understand Japanese, the receiver’s computer system doesn’t understand the company-specific format of the sender’s format.
- There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS, and ebXML. And, for each standard there are many different versions, e.g., ANSI 5010 or EDIFACT version D12, Release A. When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version.
- Businesses typically use an EDI translator – either as in-house software or via an EDI service provider – to translate the EDI format so the data can be used by their internal applications and thus enable straight through processing of documents.
- Business partners– The exchange of EDI documents is typically between two different companies, referred to as business partners or trading partners. For example, Company A may buy goods from Company B. Company A sends orders to Company B. Company A and Company B are business partners.
To learn more about EDI, please visit our course schedule page.