EDI stands for ''Electronic Data Interchange" which provides internal communication of business documents in a standardized format. The simple definition of EDI is a standard electronic format that replaces paper-based documents such as purchase orders or invoices. By automating paper-based processes, organizations can save time and eliminate costly errors caused by manual processing.
In EDI transactions, information travels directly from a computer application in one organization to a computer application in another organization. EDI standards define the location and order of information in a document format. With this automated capability, data can be shared quickly, rather than the hours, days, or weeks required when using paper documents or other methods.
Industries today use EDI integration to share a range of document types, from purchase orders to invoices, quote requests, loan applications and more. In most cases, these organizations are trading partners who frequently exchange goods and services as part of their supply chains and business-to-business (B2B) networks.
All EDI operations are defined by EDI message standards. Having the right governance processes is vital to data quality. When information is missing or in the wrong place, the EDI document may not be processed correctly.
Standards form the basis of EDI communications. Many organizations set EDI message standards, including ODET, Traceacoms, GS1, Peppol, and Accredited Standard Committee X12 (ASC X12).
In general, there are two basic types of EDI transmission:
Point-to-point or direct connections: Two computers or systems connect without intermediaries on the Internet, often using secure protocols.
Value-Added Network (VAN): A third-party Network manages data transmission, usually with a mailbox approach.
EDI internet transmission protocols include Secure File Transfer Protocol (SFTP), Applicability Statement 2 or AS2, an HTTPS-based protocol, Simple Object Access Protocol (SOAP), and others.
EDI data items include items such as the sender and recipient ID. Data segments combine two or more related items, giving them greater meaning. For example, FNAME and LNAME can be combined to form CUSTOMERNAME. Envelopes configure different types of data and carry sender-receiver address information. EDI document flow or message flow describes the movement of EDI messages to various inbound and outbound addresses and departments to execute a business process or transaction.