Digitalization brings many benefits to businesses. Indeed, companies that have not implemented it have a significant loss of competitive advantage compared to other companies. Business have already modernised and automated many daily activities or tasks. One of these is as a result of Electronic Document Interchange (EDI). Its take-up is increasing and the annual volume of total EDI transactions now exceeds 20bn euros.
In this post we explain the main advantages of EDI, which are encouraging more and more companies to use it. But let's start by looking at what exactly EDI is. It is a communication system that allows electronic documents to be sent in a standardised format and specific structure. This use of a common programming language is what enables exchange between the computer systems of the parties involved in a commercial relationship.
The benefits of using EDI
EDI is suitable and recommended for companies in any industry and any size. Its main advantages include:
- It shortens the supply chain. Electronic Document Interchange allows documents to be sent and received with high levels of accuracy and speed. EDI makes it possible to substantially automate and streamline document management, in some cases reducing up to 70% of the time needed - which is the case with electronic invoices. It also enables the company to know, in real time, how much merchandise it has yet to receive, how many products it needs to buy and so on - which in turn allows for better business planning and leaves more room for decision making.
- It increases transaction accuracy. Electronic interchange enables the automation of a significant portion of documentation management, which avoids carelessness, delays and human errors. According to Gartner, such automation can deliver 65-80% in savings for businesses.
- It expands the market for the company's activities. EDI is structured under a specific, standardised format, which enables companies to reach more international partners and share standards with them.
- It enables transaction tracking. A complete Electronic Document Interchange system enables them to be traced. With EDI, companies are able to see exactly where they are in the process, and whether documents have been correctly sent, received and so on - all of which helps them to stay on top of handling times.
- It reduces costs. The company can reduce costs by doing away with paper and associated expenses: printing, storage, postage, etc. This also helps to reduce working capital, which is mostly linked to items such as stock-holding, receivables and information processing costs. In the UK grocery sector alone, it is estimated that companies save up to £650 million a year thanks to EDI.
- It improves communication with customers and suppliers. EDI is also a tool that makes for smoother relationships with a company’s different audiences. First, because it facilitates collaboration and relationships with customers and suppliers; and, secondly, because it eliminates the friction that can arise with delays and carelessness or issues associated with traditional communication.
- It improves security. As opposed to options such as email - which can be easily altered - EDI uses encryption systems that improve security of document interchange. Furthermore, because it records transactions, it becomes a verification tool for businesses and governments against fraud and evasion.
- It reduces paper usage. Whilst this advantage is an obvious one, it has a very positive impact on the company, as not only does it reduce associated costs, but it also minimizes processing time required (staff can spend up to six hours a day looking for and handling paper documents), not to mention the organisation's environmental impact.
As has already been shown with the digitalization of many other business processes, Electronic Document Interchange offers companies a significant advantage. In fact, it has developed so much in recent decades that more and more formats, documents and protocols are compatible within this communication system. Given the standardisation of its use and the many advantages it brings to companies, EDI should not be viewed simply as a project, but as a long-term strategy that will benefit companies in a variety of ways.