What Does It Mean to Be EDI-Capable and Why Is It Important?

“E-business is all about speed, globalization, enhanced productivity, reaching new customers, and sharing knowledge across institutions for competitive advantage.” — Lou Gerstner, former CEO, IBM Technologies

An Electronic Data Interchange (EDI)-capable organization is one that can send and receive electronic business documents in an established format such as X12, EDIFACT, ODETTE, GS1, VDA, and HL7, among others. Simply put, an EDI-capable organization is one that can transact with EDI vendors and suppliers alike; that is, to any organization located anywhere in the world.

Despite the significant costs associated with EDI implementation, adopting an EDI solution will eventually pay off in the long run, as research suggests that EDI can lower transaction costs by almost 35 percent and reduce order-to-cycle time by 20 percent.

If you’re considering an EDI solution — whether through outsourcing or buying your own software — here are the benefits of becoming an EDI-capable organization to help you make an informed decision.

Increased Efficiency Through Automation

Workload automation — including automation of paper-based tasks and procedures — can greatly improve business efficiency and help align business processes with customer expectations. In fact, the IT automation market has been predicted to grow at a CAGR of 60.5 percent from 2014 to 2020. When integrated with your company’s back-end processes, EDI will drastically streamline your data processing. Since it enables the computer-to-computer exchange of electronic documents where data format and placement are defined and standardized, EDI eliminates the need for human intervention, reduces processing times by minimizing errors, and provides real-time status of transactions and applications. This will also allow your staff to focus on higher-value tasks and ensure that critical business data are sent and tracked in real time.

Heightened Security

According to IBM, the cost of data breaches per record ranges from $355 for healthcare organizations to $172 for the retail industry and $129 for transportation companies. EDI is therefore essential because of the increased data security it delivers. An EDI capable organization is more secure, with improved confidentiality, authentication, data integrity, and nonrepudiation in its EDI transactions. Confidentiality is improved by limiting classified information within the transaction only to involved parties, while authenticity is improved via the use of digital certificates and passwords. In terms of data integrity, an EDI system guarantees that what was sent by the sender is what is received by the receiver – the data is not modifiable during transit and in storage. EDI also involves the use of digital signatures, thereby making it impossible for either party to deny the transaction once it has been fulfilled.

Reduced Environmental Impact

Using EDI, the $38 cost per order of manual, paper-based processes can be reduced to $1.35 per order. EDI implementation eliminates an organization’s reliance on paper-based documents, which need to be printed, filed, and stored in shelves. Additionally, research suggests that EDI also reduces errors in the order process, delivering at least a 30 percent to 40 percent reduction in the number of transactions with errors. This leads to fewer instances of reorders and returns, thereby leading to fuel use reduction. Fuel reduction not only means reduced costs but also reduced emissions during shipping.

Ability to Transact With More Partners

Due to the said advantages, EDI has been adopted by more than 160,000 companies across a wide range of industries — from the automotive industry to financial services, high-tech, retail, and recently, even human resource management. As a result, an increasing number of companies require their business partners to be EDI-capable so they can transact securely and more efficiently.