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Electronic Data Interchange (EDI)

Definition - What does Electronic Data Interchange (EDI) mean?

Electronic data interchange (EDI) is the electronic transmission of structured data by agreed message standards from one computer system to another without human intervention. It is a system for exchanging business documents with external entities.

EDI refers to a family of standards and does not specify transmission methods, which are freely agreed upon by the trading partners.

The wide adoption of EDI in the business world facilitates efficiency and cost reduction. EDI is used in such diverse business-to-business relationships as:

  • Interchanges between health care providers and insurers
  • Travel and hotel bookings
  • Education
  • Supply chain management
  • Administration
  • Tax reporting

Techopedia explains Electronic Data Interchange (EDI)

EDI is a sequence of messages between two trading partners, either of which may serve as the originator or recipient. The messages are transmitted and received without human intervention. Each message is composed according to a standardized syntax from a sequence of standardized data elements. It is this standardization that makes message assembling, disassembling and processing by the computer possible.

EDI is considered to be a technical representation of a business conversation between two entities, either internal or external. The EDI standards were designed to be independent of communication and software technologies. EDI can be transmitted using any methodology agreed to by the sender and recipient.

There are four major sets of EDI standards:

  • The UN/EDIFACT Standard: The only international and UN-recommended standard
  • The US Standard ANSI ASC X12 (X12):The predominant standard in North America
  • The TRADACOM Standard: The predominant standard in the U.K. retail industry
  • The ODETTE Standard: The standard used in the European automobile industry

XML and EDI are complementary technologies. ASC X12 is working diligently to enhance communications around the world by collaborating on the electronic business XML (ebXML) initiative, a worldwide effort to develop a common framework for XML business messages.

Value-added networks are the intermediate agencies providing secure and reliable transmission and storage of EDI messages. Web-based EDI (webEDI) allows a company to interact with its suppliers without implementing a complex EDI infrastructure. WebEDI services only require an Internet connection; thus, EDI has become accessible and affordable to even small- and medium-sized businesses.

EDI has been criticized for its high set-up and VAN costs as well as complex standards. However, its benefits include:

  • Time: Reduced cycle time and enhanced customer service
  • Cost: Enhanced inventory management and minimized paper use and storage
  • Quality: Improved business relationships and accuracy
  • Profit: Reduced costs, increased turnover and increased cash flow
  • Efficiency: Increased productivity

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