Electronic Data Interchange

Electronic Data Interchange (EDI)


EDI is a form of automated data entry that supports operations by transferring documents between firms electronically. The essence of EDI is the ability to transfer data among computers from different companies. The goal is to connect to suppliers so that production orders can be sent automatically at substantially lower cost than traditional paper-based systems. Two basic methods are used to accomplish the transfer: (1) send the data directly from one computer to the other or (2) send the data to a third party that consolidates the data and sends it to the proper location. Early EDI implementations were based on direct connections as individual firms experimented with the technology. In both methods, two important

considerations exist: establishing the physical links and transferring data in a format compatible to all users. The first issue has largely been solved with the Internet. Today, EDI connections can be established through e-mail or Web site links.


For EDI to work, each company must translate its data into a form that can beused by the other companies. If one company like Wal-Mart or GM takes the lead and requires suppliers to send data via EDI, then they are free to define the base transaction objects. Suppliers must translate their objects into the appropriate EDI structure. Yet a supplier might need links to several customers. If each customer used different EDI definitions, the supplier must have a conversion system for each link. Someday it might be possible to create standards for EDI connections, forcing everyone to conform to one type of data definition. Although there is some progress in this area, firms with existing EDI systems will be reluctant to spend the money to convert their data.


The concept of EDI is closely tied to supply chain management (SCM) which revolves around purchasing, but also incorporates just-in-time delivery, searching for competitive pricing, and controlling and monitoring quality.


Also see Wikipedia