Do You Know How EDI Really Works?

Electronic document interchange, or EDI, allows companies to exchange documents and forms, such as purchase orders and invoices, with their suppliers and customers electronically, rather than through the mail. By eliminating the necessity of human workers handling, filing, entering, and checking paper forms, EDI reduces errors, speeds up processing, and makes workers more efficient. More and more companies are discovering that use of EDI can make a significant contribution to their bottom lines.

But how, exactly, does EDI do its magic?

How EDI Works

With EDI, workers don’t handle paper. Instead, they fill in forms on a computer screen. For example, when a purchase order is to be sent to a supplier, the worker can fill in a form on an office computer and then have it sent electronically to the seller. When received by the seller’s computer, that purchase order can be automatically processed, checked for consistency, and entered into an order entry system. The seller’s computer can then send the buyer acknowledgment that the order was received.

The Role of EDI Translator Software

The big issue in business-to-business (B2B) electronic communication is that computers are rather single-minded and inflexible. A human can look at a form sent from another company and immediately recognize the specific details, such as item to be purchased, number of units desired, price, and date by which the order must be received, even if that person has never seen that particular form before. Most computers can only handle data that is already in a format they understand.

To successfully exchange business documents like invoices or purchase orders in electronic form, each document must be converted to a commonly accepted format so that the recipient’s computer can correctly interpret the information. For this reason, both sender and receiver normally use a piece of software called an EDI translator to encode a document for transmission, and to decode it when it is received.

How EDI Works in the Cloud

Until recently, a staff of experts was needed to keep EDI translation software up to date and matched to the translators of the customers and suppliers with which a company was trying to communicate. Along with the cost of setting up required servers and networks, EDI was cost-prohibitive for many companies.

Today, cloud-based EDI service vendors do all the hard work of providing software translators and keeping them updated according to changing standards. It’s part of the software as a service (SaaS) model that is making many applications that were previously too expensive for smaller companies available for a monthly fee. In this approach, it’s the vendor, not the customer, that’s responsible for keeping EDI translator software up to date and compatible with those of the customer’s trading partners.

EDI was once a complex process that required specialized software that was expensive and difficult to maintain. But with the advent of SaaS EDI offerings that can be accessed through a simple web browser, most of the complexities inherent in EDI are hidden in the cloud. Most users will never even notice them.