How EDI Works
One of the first places that EDI was traditionally implemented was in the purchasing operations of a business. Before the implementation of EDI, a purchasing system would allow buyers to review their material requirements, and then create purchase orders, which would be printed out and mailed. The supplier would receive the purchase order, and manually enter it into their customer shipping system. The material would be shipped, and an invoice would be printed, which would then be mailed back to the supplier.
In this simple example, even if the purchased materials were shipped and received on the same day the purchase order was received, the cycle time could be as much as a week, depending on the speed of the mail and the backlog at the supplier’s order entry system.
With the introduction of EDI, this scenario changed dramatically. Purchasing agents would still review their material requirements and create their purchase orders. But instead of printing them out and mailing them, the purchase orders would be transmitted directly to the suppliers over an electronic network.
On the supplier’s end, the transaction would be automatically received and posted. This new process could allow the shipment of material on the same day the purchase order was sent. As an added bonus, suppliers could send their shipping documentation electronically to the buyer in the form of a shipment notification, providing the buyer with accurate receiving documents prior to the actual arrival of the material. And the supplier gained an additional advantage as well, since now the invoice could be sent directly to the customer’s accounts payable system, speeding payment to the supplier.