EDI is computer to computer communication using a data format to exchange business information electronically between organizations.
EDI can be performed directly between organizations with predetermined protocol or can be served by third party vendors.
By using EDI, we can transmit business documents such as purchase orders, price quotes, shipping notices and payment order, electronically.
The popular term used in banking sector, as electronic fund transfer (EFT) and electronic clearing service (ECS), come under the EDI category.
The biggest advantage of EDI is that the transaction is placed in the databases of receiver, automatically; therefore whenever the receiver’s organization will look for any information in their database, there would be updated information up to that instant.
By using EDI, organization can achieve lower labour costs, lesser errors in transactions, updated inventory, immediate execution and processing of transactions.
The main users of EDI are Banks for EFT, shipping organization for transfer of shipping documents, exporters for electronic clearing of documents and foreign exchange, excise and custom department for filling excise and custom returns.
EDI is also possible using internet as well through privately owned networks and communication channels.
Advantages of EDI:
§ Effective Inventory Management: Due to online order receipts and approvals, the updated information is available for inventory management.
§ Less Documentation: EDI ensures almost nil paper work which increases the productivity and efficiency.
§ Faster receipt and approval of Orders:Order is placed electronically without any leg that helps to manage updated information and inventory for better decision making.
§ Immediate Payment: EDI allows payment transactions to happen immediately through banks.
§ Low Manpower Cost: EDI allows the transactions to move automatically which in databases without duplicate efforts for data entry, which facilities the low manpower employment.