EDI Description in Details

Figure 1–1 Interchange of business documents between two companies using R/3 System

As shown in Figure 1–1, Company A and Company B want to exchange business documents electronically. To achieve electronic data interchange, the business applications (for example, R/3 System) used in these companies would need to generate EDI transactions or messages.

To enable data interchange, the business applications used by Company A and B face the following obstacles:

  • Volume of the EDI transactions or messages is high
  • Different EDI formats exist for different industries
  • EDI standards are constantly upgraded
To overcome these obstacles, most business applications (including R/3 System) make use of an EDI subsystem to convert application data to the EDI standards. Figure 1–1 shows the flow of data between Company A and B with R/3 System and EDI subsystems. Since the EDI subsystem handles conversion and data transmission across the WAN, the business applications do not have to contend with EDI-related issues.
  • Improves data accuracy: With EDI businesses can eliminate the need to re-enter data from paper documents and thus prevent potential data entry errors. Additionally, the cost of processing an electronic requisition is estimated to be one-tenth the cost of handling its paper equivalent.
  • Lowers personnel costs: EDI can help companies reduce the need for personnel involved in orders and accounts processing.
  • Speeds up information exchange: EDI systems can shorten the lead time between receipt and fulfilment of orders. When
  •  scheduling information is transmitted with ordering data, companies can plan production more accurately and thus reduce stock inventories.
  • Reduces technical complexity related to data interchange: With EDI companies use standardized data formats to exchange documents. EDI allows companies using different business applications and systems to achieve computer-to-computer electronic exchange of business documents.
EDI is implemented in much the same way as any other major business strategy—in a piecemeal fashion, proving and evaluating each stage before moving to the next. To avoid disruption of key processes, it is advised not to attempt to switch to a full EDI operation overnight. It takes time for people, systems, and processes to adapt to any new methodology.

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