EDI involves the transfer of electronic documents between companies. These documents are sent in strictly defined formats, of which there are over a hundred, one for each type of standard company transaction, including a supplier billing. These formats tend to be very large and complex because they are designed for use by multiple industries; most companies only need to fill out a small portion of each EDI message. Once completed, an EDI message is transmitted to the recipient. This can be done directly, but it usually goes to a third-party provider that maintains a mainframe computer that receives messages from a number of subscribing companies. The message recipient dials into its electronic mailbox at the third-party’s mainframe (usually several times a day) to pick up any EDI messages. The recipient then enters each EDI message into its own system for further processing. A company could achieve the same rapid transfer of information by sending a fax with the same information. However, if properly installed, EDI allows for a greater degree of automation by linking directly into a company’s computer system. For example, a paper-based fax must be rekeyed into the recipient’s computer system, whereas an EDI message is in a standardized electronic format and so can be run through an automatic conversion program that enters data into the recipient’s computer system with no manual data-entry work at all. The feature gives EDI a distinct advantage over a fax transmission.
Larger companies use EDI most frequently because it allows them to automatically process large quantities of transactions with no manual data-entry work, which can be important when there are hundreds or thousands of transactions flowing through the system. When data is entered by hand, there is a potential for errors in the keypunching, which probably means that there will be an inordinate number of man-made errors to correct in these larger companies, just given the volumes of data that must be entered. Thus, EDI allows them not only to avoid the expense of data entry, but also the expense of tracking down and fixing data-entry errors.
If EDI makes a company so efficient, why are only the largest companies using it? The answer is simple: it is expensive to implement and only the largest transaction volumes will offset the cost of the initial setup. For example, if a company wants to receive all of its accounts payable billings by EDI, it must first contact each supplier and persuade it to send EDI transmissions, set up procedures between the two companies for doing so, and then test the system before “going live.” In addition, the true labor savings will only be realized if the incoming EDI messages are automatically entered into the recipient’s computer system, which calls for the customized programming of an automated interface between the EDI system and the recipient’s computer system – this can be an expensive undertaking. Most suppliers will not want to participate in this system unless there are significant transaction volumes between them and the company – why go to the trouble for a small customer? In short, EDI is not catching on in smaller companies because of the expense and effort of installing the system, plus the difficulty of forcing suppliers to participate. Though larger companies may convince their direct trading partners to use EDI, this concept will only spread through the ranks of smaller companies with the greatest difficulty.
Despite the difficulties enumerated here, a fully automated EDI system is a excellent avenue for transferring documents without delays caused by postal float or manual data entry.