EDI

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Definition of the EDI format

Electronic Data Interchange (EDI) is a technology that enables the exchange of business documents between companies in a standardized electronic format. Structured data is transferred directly from the sender’s ERP or accounting system to the recipient’s corresponding system.

The process replaces conventional paper-based communication methods such as letters, emails or faxes. Companies use EDI to transmit invoices, orders, delivery bills, transport documents or other company documents electronically. All data is sent in a standardized format to ensure compatibility between the systems and thus correct information transfer. There are various standards for this, which are used depending on the region, industry or the requirements of the sender and recipient. In addition to the best-known standard EDIFACT (which is so widespread that it is sometimes equated with EDI technology itself), there are, for example, ANSI ASC X12 (mainly USA), SWIFT (banks), railML (banking sector) and ebXML.

How does EDI work?

EDI interfaces are set up specifically for certain customers or suppliers. Structured data can be exchanged using various transport methods, e.g. via the Internet (AS2, FTP, http), direct connections or via Value-Added Networks (VANs), which offer additional services such as message encryption, secure transmission and data integrity checks.

EDI Software / implementation

The technical implementation of EDI can be done by installing EDI software on your own servers or by using an EDI service provider that offers Software-as-a-Service (SaaS) solutions. These service providers can handle the entire EDI operation, including data conversion, communication with trading partners and troubleshooting.

Selection of EDI standard / EDI format

Choosing the right EDI standard and format depends on several factors, including the specific requirements of the industry. In many cases, the choice is influenced by the preferences of the trading partners or by legal requirements.

The EDIFACT standard

EDIFACT stands for “Electronic Data Interchange for Administration, Commerce, and Transport” and is an international EDI standard developed by the United Nations Economic Commission for Europe (UN/ECE) that provides a universal structure for data exchange. This structure includes a set of rules that define how data should be formatted, structured and segmented to ensure clear interpretation and processing by different computer systems.

An EDIFACT message consists of several segments, each carrying specific information. These segments are embedded in a hierarchical structure that makes it possible to handle complex documents such as an extensive purchase order with hundreds of individual items. An important feature of EDIFACT is its flexibility in segmentation, which makes the standard suitable for a wide range of industries and transaction types.

Used primarily in Europe, EDIFACT is used to send invoices, orders, shipping notifications and other document types.

EDI example message

This is what a complete EDI message can look like:

Example from GS1 in EDIFACT Subset EANCOM Orders Format

Benefits

Increased efficiency

EDI reduces the need for manual processing, reduces sources of error and significantly speeds up business processes.

Faster turnaround times

With EDI, transactions are processed in real time, which also shortens response times and speeds up the entire supply chain.

Security

EDI enables secure data exchange through the use of encryption and other security protocols

Disadvantages

When using EDI, there are also some key disadvantages to consider:

  • 1

    High initial investment: Implementing EDI can be expensive at first, especially for smaller companies. This includes software, hardware, integration into existing systems, staff training, security and backup solutions.

  • 2

    Technical complexity: EDI requires careful setup and configuration to ensure that data is transmitted correctly. The complexity is further increased when trading partners use different standards or different versions of the same standard.

  • 3

    Dependence on trading partners: Successful use of the technology requires that trading partners are also willing to use EDI. As the interface usually only pays for itself in the medium term and/or with higher transaction volumes, it is also dependent on the existing business relationship being maintained at a constant level in the longer term.

  • 4

    Little flexibility: Non-standardized or unique transactions can lead to restrictions. Adjustments to business processes can require extensive revisions to EDI configurations, which can be time-consuming and costly.

  • 5

    Maintenance and updates: EDI systems require continuous maintenance and regular updates to keep up with the latest security standards and technological developments. This can be a burden, especially for smaller companies, and consume (too) many resources.

The use of EDI interfaces must therefore be carefully weighed up: is the solution profitable, is the relationship with the customer or supplier stable and are sufficient resources available for implementation and maintenance? Under certain circumstances, alternative solutions may be more efficient, especially for SMEs that want to keep risks low and have little leeway with their resources. Alternative approaches include, for example, the exchange of structured data in file form (XML; e.g. XRechnung) or the automated extraction of structured and unstructured data using artificial intelligence.

Glossary

Digitization topics explained in a nutshell

Electronic Data Interchange (EDI) is a technology that enables the exchange of business documents between companies in a standardized electronic format. Structured data is transferred directly from the sender’s ERP or accounting system to the recipient’s corresponding system.

More about EDI

EDIFACT is an international EDI standard developed by the United Nations/Economic Commission for Europe (UN/ECE), which provides a universal structure for data exchange. The standard is widely used not only, but especially in Europe.

More about EDIFACT

XRechnung is a standardized electronic invoice format that is used in Germany. It is an XML-based format that was specially developed for electronic invoicing in the public sector.

More about XRechnung

ZUGFeRD is a hybrid e-invoice format consisting of a machine-readable XML file and a PDF. The abbreviation stands for “Zentraler User Guide des Forums elektronische Rechnung Deutschland”.

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