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What is Electronic Data Interchange in SCM? 11 Things to know

Last updated on Nov 23,2022 556 Views

If you’re in the supply chain management field, you know that things are always changing. And one of the most significant changes on the horizon is how we exchange data electronically. This process, known as EDI, will revolutionise how we do business and you must be prepared for it. In this blog post, you will learn everything about electronic data interchange in SCM in 2022. From the basics of EDI to how it will impact your business, read on to learn more.

For a promising career in supply chain management that takes you to different heights, check out our Advanced Certificate in Operations, Supply Chain and Project Management.

Electronic Data Interchange: An Overview

Electronic data interchange, or EDI, is all about the exchange/sharing of documents in a standard format between systems. EDI enables companies to exchange information electronically with trading partners, such as suppliers and customers.

In supply chain management (SCM), EDI exchanges information between different SCM software systems. It allows for automated data exchanges between different supply chain parts, improving efficiency and accuracy.

EDI has been around for decades, but it has only recently become widely used in SCM. It is due to the increasing use of SCM software, which has made EDI more critical for exchanging information between different software systems.

There are many benefits of using EDI in  SCM, including the following:

Benefits of Using EDI in SCM

  • Improved efficiency: Automated data exchanges can save time and reduce errors.
  • Greater accuracy: Data exchanged electronically is less likely to be inaccurate than manually.
  • Reduced costs: Automated data exchanges can reduce the need for manual processing, saving money.

Brief History of EDI

The first instance of electronic data interchange (EDI) was between two companies in the 1960s. Inter-company EDI followed this in the 1970s, which allowed different companies to communicate electronically. The 1980s saw the development of EDI standards, making it possible for companies to use EDI regardless of their size or industry. 

In the 1990s, EDI became more widely used as Internet usage increased and software became more sophisticated. Today, EDI is essential to supply chain management (SCM), as it allows businesses to exchange information quickly and efficiently.

How Electronic Data Interchange Works? 

If you’re in supply chain management, chances are you’ve heard of electronic data interchange or EDI. But what is EDI? How does it work? And how can it benefit a business?

EDI is the electronic exchange of data in different formats between two companies. EDI replaces paper documents with digital messages that can be transmitted electronically. It means that orders, invoices, and other documents can be exchanged quickly and securely between businesses without being physically mailed back and forth.

EDI requires each company to have a unique identifier, called an EDI number or ID. When businesses want to exchange documents, they first need to agree on which document types will be exchanged (for example, purchase orders or invoices) and what format they will use. Once this agreement is in place, each company can set up its system to automatically send and receive the agreed-upon documents.

The benefits of EDI are clear: it eliminates the need for paper documents and manual data entry, reducing errors and delays caused by miscommunication and saving time and money. In addition, EDI makes it possible to track shipments electronically and provides visibility into the supply chain that would not be possible with paper-based systems.

Different Types of EDI

EDI has been around for a long time, and there are many different types of EDI. The most common type of EDI is transaction-oriented EDI. This type of EDI involves the electronic exchange of business documents between companies. The most common business documents exchanged using transaction-oriented EDI are purchase orders, invoices, and shipping notices.

Another type of EDI is known as message-oriented EDI. This type of EDI involves the exchange of messages between two companies. Message-oriented EDI can be used for various purposes, such as customer service, order tracking, and product information exchanges.

There is also document-oriented EDI, similar to transaction-oriented EDI but involves the exchange of documents instead of transactions. Common document types that are exchanged using document-oriented EDI include quotes, contracts, and catalogues.

Finally, there is a value-added network (VAN) based EDI. This type of EDI uses a third-party service provider to facilitate the exchange of information between companies. VAN-based EDI is often used by large organisations that need to exchange information with many different trading partners.

What Are The Benefits of EDI?

There are many benefits of implementing EDI in your supply chain management strategy

What are the benefits of Electronic Data Interchange?

Reducing Operations Cost

The most obvious benefit is the potential for cost savings. By automating the flow of information between trading partners, EDI can help to eliminate errors and redundancies in the data entry process, resulting in reduced processing costs.

Any company’s biggest challenge is finding ways to reduce operational costs without compromising quality or service. Many have turned to outsourcing as a way to reduce these costs. However, finding the right provider can take time and effort.

One way to reduce operational costs is by implementing an EDI system in your Supply Chain Management (SCM). Some benefits of using EDI in SCM that come with reducing costs include:

  • Reduced cost of goods sold (COGS)
  • Increased efficiency and accuracy
  • Reduced paper usage
  • Faster processing time
  • Improved customer satisfaction

If you are considering implementing an EDI system in your SCM to relish all its benefits, there are plenty of things that you should be acquainted with and do. For instance, you must select an EDI solution that meets your specific needs that will help in enhancing the collaboration potential. 

Enhances Data Accuracy

EDI reduces the probability of errors in data entry by automating the process. This is because it eliminates the need for manual data entry, which is often prone to human error. In addition, it can also provide data accuracy through real-time visibility into inventory levels, order status, and other critical information. By having visibility into this information in real-time, businesses can make more informed decisions about their supply chain and avoid potential disruptions.

EDI can also help businesses to become more compliant with regulatory requirements. By automating the exchange of data between trading partners, EDI can help companies to ensure that they adhere to all relevant laws and regulations. It can protect businesses from potential penalties or legal action stemming from non-compliance.

Also Read: What is Operations and Supply Chain Management (OSCM)?

Improves Business Cycle Time

EDI can help to improve business cycle time in several ways. For example, EDI can help reduce the time to process orders and invoices. EDI can automate many of the tasks involved in these processes, such as data entry and validation. In addition, EDI can help to improve communication between businesses, which can help to speed up the overall process. Finally, EDI can give businesses visibility into their supply chain, which can help identify bottlenecks and other issues that may be causing delays.

Eco-Friendly Option

As companies strive to be more sustainable and eco-friendly, electronic data interchange (EDI) in supply chain management (SCM) is becoming an increasingly popular option. EDI allows companies to exchange information electronically, which can help reduce the use of paper and save trees. In addition, it can help reduce transportation costs and emissions by enabling companies to send and receive information electronically rather than using physical mail or courier services.

EDI can be used for various purposes in SCM, such as order processing, shipping notifications, invoicing, and payments. It can also help streamline communication between different parties in the supply chain, such as suppliers, manufacturers, distributors, and retailers.

There are several benefits associated with using EDI in SCM. By reducing the use of paper and physical transportation, EDI can help reduce supply chains’ environmental impact. In addition, it can improve efficiency and communication between different parties in the supply chain, which can lead to cost savings.

Boosts Business Efficiency

In today’s business world, efficiency is key to success. Companies are always looking for ways to streamline their operations and reduce costs. Electronic data interchange (EDI) is one-way businesses can boost efficiency and save money.

As mentioned earlier, EDI is a straightforward way to exchange data; it can be a life-saving alternative for companies with a big chunk of data and documents. It allows businesses to communicate with each other electronically, eliminating the need for paper documents and manual data entry. EDI is a fast and efficient way to exchange information, saving your company time and money.

Implementing EDI can be complex, but it doesn’t have to be. Many EDI software solutions on the market can help you get started. And once you’re up and running, you’ll wonder how you ever did business without it!

Increases Transaction Security

An EDI system can help increase transactions’ security by providing a secure platform for exchanging information. There will be little to no risk of data breaches and fraud. EDI systems will also ensure that all the data being exchanged is accurate and consistent, which can help to reduce errors and improve decision-making.

Streamlines Communication

In any supply chain management (SCM) system, communication has always been the key to keeping everyone focused on the same goals and ensuring that tasks are completed efficiently. In the past, this communication was primarily done through phone calls, emails, and faxes – all of which are still used today to some extent. However, with the advent of electronic data interchange (EDI), there is now a much more efficient way to communicate between SCM systems. EDI can help to facilitate faster and more efficient communication between trading partners.

 By providing a standardised format for exchanging data, EDI can help streamline the exchange of information and make it easier for businesses to share data. It can lead to improved coordination and collaboration throughout the supply chain, ultimately leading to better customer service and satisfaction. 

EDI is a set of standards defining how information should be structured between two computers. This exchange can happen in real-time or near-real-time, allowing the data to process back and forth quickly and easily. This is a major advantage over traditional methods of communication, which can often be slow and cumbersome.

EDI has existed for years, but it was only recently that it started to become widely used in SCM systems. This is because EDI blesses you with several benefits that make it ideal for use in SCM applications:

  1. EDI eliminates the need for manual data entry, saving a lot of time and money that can be utilised on other important tasks.
  2. EDI ensures that information is transmitted accurately and consistently between different systems.
  3. EDI enables real-time tracking of shipments and inventory levels, which gives companies much greater visibility into their supply chains.

Overall, EDI streamlines communication within SCM systems and provides numerous benefits that make it an essential part of any modern supply chain operation.

How EDI Is Implemented For Best Results?

There are many ways to implement EDI, but the most effective way is to work with a professional EDI company. These companies have the experience and expertise to ensure that your EDI implementation is successful.

The first step in working with an EDI company is to assess your needs. What type of data do you need to exchange? What format do you need it in? How often will you need to exchange data? After answering these questions, you can begin looking for an EDI company to meet your needs.

If your company is considering implementing EDI in its SCM operations, you should keep a few things in mind. First, you must select an EDI software solution that meets your company’s needs. Several different software solutions are available, but you must do thorough research before making a decision.

There are many different software providers, and each offers a different set of features. You must determine how you will exchange data with your trading partners. This can be done through a Value Added Network (VAN) or directly between systems using Internet Protocol (IP). Lastly, you will need to decide which data elements you will include in your EDI transactions.

When you have found a few potential providers, take the time to compare their services. Make sure they offer the type of support you need and that they have a good reputation. You should also compare pricing, as some companies may offer discounts for larger projects.

By working with a professional EDI company, you can be confident that your electronic data interchange implementation will be successful. Once you have chosen an EDI company, they will work with you to set up the system and train your staff on how to use it. They will also provide ongoing support to ensure that your system runs smoothly.

Once you have selected an EDI solution and determined how you will exchange data, you need to set up your system and test it with your trading partners. This process can be time-consuming and expensive, but it is necessary to ensure a successful implementation.

  1. Who Will Do The Implementation?

There are a bunch of approaches and alternatives that can be adopted when it comes to who will implement an EDI solution in your supply chain management system. The first is to have a single party responsible for the entire process from start to finish. It can be either an internal team or an external consultancy. The major highlight of this approach is that it provides a clear line of responsibility and accountability should anything go wrong. However, it can be expensive and may take longer to get up and run if there are issues with the initial implementation.

Another option is to have each company in the supply chain responsible for its EDI implementation. It can be quicker and more cost-effective, but it does come with some risks. No one party is solely responsible for the success of the project, so if there are any problems, it can be difficult to pinpoint where they originated. This approach also requires good communication and coordination between all parties involved.

The final decision on who will implement an EDI solution in your supply chain management system will depend on several factors, including a budget, timescales, and the level of risk you are willing to take on. Ultimately, whichever option you choose should be based on what will work best for your business.

Also Read: What is the difference between logistics and supply chain management?

  1. Getting a Third-Party Consultant

To get started with EDI in your SCM, you’ll need to find a third-party consultant who can help you with the technical aspects of setting up and maintaining an EDI system. Keep these important points in mind when looking for a consultant:

  • Make sure the consultant has experience with EDI in SCM. Ask for references from other companies that have used their services.
  • Find out what software platforms the consultant is familiar with. You’ll need to make sure that your ERP system is compatible with the software they use.
  • Ask about their project management methodology. This is important to ensure that the project stays on track and within budget.
  • Get a detailed proposal from the consultant outlining their fees and services. Make sure you understand all of the charges before signing any contracts.
  1. Working With Software Vendor

When it comes to EDI in supply chain management, working with a software vendor is an absolute must. Keep these crucial points in mind when doing so: 

  • Make sure the vendor’s software is compatible with your current systems. 
  • Do your research on the vendor – read reviews, get referrals, etc. 
  • Have a clear understanding of your needs and wants before meeting with vendors. This will help weed out those who aren’t a good fit and save time in the long run. 
  • Get pricing quotes from multiple vendors before making a decision. 
  • Keep a contract handy that outlines the responsibilities of both parties involved.

Future of Electronic Data Interchange

The future of electronic data interchange is looking very promising. With technological advances, there are more and more ways to exchange data electronically. This means that companies can save time and money by exchanging data electronically instead of using paper documents.

The prospects for EDI in supply chain management are promising. With the continued growth of e-commerce and the globalisation of businesses, there is an increasing need for efficient and reliable ways to exchange information between organisations. EDI provides a cost-effective and efficient solution for exchanging data between trading partners. In addition, EDI can help organisations automate their supply chain processes, reducing errors and improving efficiency.

There are many benefits of exchanging data electronically. One advantage is that it is much faster than using paper documents. Another benefit is that it is more accurate. When data is exchanged electronically, errors are less likely to occur.

Another advantage of electronic data interchange is that it helps to reduce costs. For example, if a company uses paper documents to exchange data, they will need to print out the documents and then send them by mail. This can be expensive. However, if the company uses electronic data interchange, it can send the data electronically without having to print anything out.

Overall, the future of electronic data interchange looks very promising. It can help companies save time, money and resources, thereby improving accuracy and reducing costs.


As we move into 2022, it’s essential to be aware of the trend of electronic data interchange (EDI) in supply chain management (SCM). EDI is becoming increasingly popular as a way to streamline SCM processes and improve communication between businesses. It is time to investigate its benefits if you still need to start using EDI in your SCM operations.

Indeed, the world is relishing the benefits of EDI in SCM. If you want to flourish in your career in supply chain management, you must be well-versed in EDI. Our course Advanced Certificate in Operations, Supply Chain and Project Management, has everything you need to learn and kickstart your career. 

Check out the course now to explore its multitudinous benefits. 


More Information:

Know Essential Components Of Supply Chain Management

Objectives Of Supply Chain Management Explained

What is Green Supply Chain? An Overview

Green Supply Chain Management: What It Is and Why It Matters?


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What is Electronic Data Interchange in SCM? 11 Things to know