EDI (Electronic Data Interchange) refers to electronic communications of business transactions between organizations. EDI implies computer to computer transactions directly into vendor databases and ordering systems. In 1996 the National Institute of Standards and Technology defined electronic data interchange as "the computer-to-computer interchange of strictly formatted messages that represent documents other than monetary instruments. EDI implies a sequence of messages between two parties, either of whom may serve as originator or recipient. The formatted data representing the documents may be transmitted from originator to recipient via telecommunications or physically transported on electronic storage media." (http://www.itl.nist.gov/fipspubs/fip161-2.htm) They specify that the usual processing is done by computer only and human intervention is intended only for problem resolution, quality review or other special circumstances.
Advantages of EDI
- EDI provides cost savings by reducing paper and eliminating paper processing.
- Time savings and eliminating repetition are other benefits from the reduction in paper processing.
- Documents can be transferred more quickly and processing errors can be decreased allowing business to be done more efficiently.
- More efficient processing will likely lead to improved customer service which will ultimately expand the customer base.
Disadvantages of EDI
- Contrasted to XML, which is not strictly standardized, many consider EDI to have too many standards.
- There are various standards bodies who have developed 'standard document formats' for EDI which can cause problems with cross compatibility.
- These standards bodies also push standards revisions annually which could cause problems if you have a more recent version of a document than a business partner.
- EDI systems are extremely expensive making it difficult for small businesses to implement.
- Many large organizations will only work with others who utilize EDI. This may limit the business small companies are able to do with such organizations and limit trading partners.