The Role of EDI in Supply Chain Management

Exploring the Role of EDI in Supply Chain Management

Supply chain management (SCM) governs the proper functioning of the supply chain. It works to optimise the supply chain operations to benefit the businesses involved. It is challenging to collaborate with plenty of global partners across the supply chain and communicate effectively. As a solution to this, electronic data interchange helps SCM establish seamless communication. The role of EDI in supply chain management is to facilitate trade relations by streamlining and optimising business processes and standardising data to raise global trade standards. Let us learn more about how EDI is a revolution in the SCM. 

What do you mean by electronic data interchange (EDI)? 

EDI or electronic data interchange refers to intercompany communication that helps businesses to connect electronically and trade information seamlessly. EDI facilitates information diffusion and sharing. It was introduced to cut traditional ways of documenting all transactions, orders, and other information between businesses. Since the entire process is channelled over the internet, it promotes a paperless exchange of data and information. It helps eliminate manual processes and replace them with automation. For example- in earlier days, information such as purchase orders and invoices of shipments were typed, printed and then mailed to the clients. The introduction of EDI has now replaced this conventional method. Currently, all sorts of information are mailed to the clients, and the invoice generated by the system reduces the need for manual data entry and verification. 

What is the role of EDI in supply chain management? 

Businesses involved with the use of EDI are known as trading partners. The role of EDI in supply chain management helps in managing trade flow. 

  1. Standardising data– Trading partners from different countries use different document formats, which can lead to misinterpretation and ambiguity concerning the data and information entered into the system. To avoid this, electronic data interchange helps in standardising the data and documentation format. A standard format for the data exchange comprises data elements that can be interpreted globally. 
  2. Streamlining business– There are multiple processes involved in the supply chain, and to complete each, there must be effective channelling. EDI provides faster data and information to regulate business processes such as accepting orders, sending approval, order processing, inventory management, and invoices. The controlled dynamics help systematically flow information and services across trade partners. 
  3. Automating business processes– Business partners can collaborate to integrate their systems to automate a dynamic flow of real-time information between systems. Business documents and data can be traded automatically without human input or intervention. By automating the supply chain operations regarding EDI, trading partners can generate receipts and documents without any time-consuming manual intervention. 
  4. Enhancing global outreach– One of the advantages of EDI is that it allows organisations to interchange data with their trade partners worldwide. It helps increase businesses’ global outreach with improved speed and accuracy. The differences in international time zones are no longer an issue. 
  5. Minimising investments– Cost savings is another role that EDI plays in improving the efficiency of supply chain operations. The expenses of organisations get significantly minimised. EDI helps save the cost of printing, paper handling and posting documents overseas. It also eliminates the need for manual handling, which minimises the chance of errors and significant economic losses. 
  6. Data security– EDI is dedicated to providing smart security features, including encryption and authentication, to prevent unauthorised access and protect the sensitive data of business partners. It helps in combating the logistics challenges.

What are the benefits of using electronic data interchange in SCM? 

The supply chain collaborates with many businesses and organisations, connecting and cooperating globally. It would become time-consuming and challenging to manually feed such enormous amounts of data and transfer paper documents across countries. However, with the use of EDI in supply chain management, there are many benefits- 

  1. Reduces manual work– Technology is helping in speeding up supply chain efficiency by automating tasks and minimising manual work. In conventional methods, data is entered, and the documentation handling takes time going from one trading partner to another. Electronic data exchange benefits by automating the exchange of information and supply chain documents. 
  2. Minimising risks of errors– Manual entry of data and calculations is prone to mistakes that may risk large investments and cause significant delays in the business. EDI ensures data accuracy by storing data in standard formats and automating their verifications. 
  3. Secure transactions– Exchanging information via electronic media fosters real-time data interchange between business partners. It impacts decision-making agility, strategising based on consumer demands and transferring money. Blockchain technology in the maritime industry is a safe mode of business transactions. 
  4. Improving supplier relationships– Multiple suppliers must cooperate seamlessly to work the supply chain efficiently. EDI facilitates faster communication across channels to avoid miscommunications regarding shipments and orders. The timely and accurate data interchange helps organise shipments and avoid disputes over payment delays. It helps in fostering healthy relationships. 
  5. Supply chain visibility– The real-time data interchange helps suppliers get instant information about new transactions and shipment order status. Based on the information gathered by EDI, trading partners can make data-driven decisions regarding inventory restocking or warehouse management. 

How EDI Can Benefit Logistics Operations? 

The logistics industry deals with the containerisation and transporting of goods loaded in shipping containers. The cooperation of multiple companies and organisations assists the logistics business. EDI facilitates the logistics trading partners by extending its numerous advantages. 

  1. Faster order processing– Logistics processes must be faster and more reliable to ensure that reverse logistics does not occur and all orders are delivered on time. The speed of flow of information between logistics partners is enhanced by real-time data flow powered by EDI, which allows faster order processing and offers better customer services. 
  2. Managing inventory– Logistics partners must also closely monitor and track their inventory levels to close orders immediately when needed. Logistics professionals can optimise inventory demands by placing instant orders on EDI instead of waiting to communicate via paper documents. It helps in minimising the risks of overstocking or stocking out. 
  3. Real-time tracking– The supplier and customer can track the shipment to monitor its status at all times. It helps in real-time decision-making to schedule intermodal transport and allocate resources to required destinations. 
  4. Scalability– Logistics demands differ from season to season. During the logistics peak season, EDI systems can be scaled up to offer more assistance to more trading partners by accommodating larger volumes of data and information sharing. 
  5. Environment friendly– Since EDI is the electronic interchange of data, it significantly minimises the role of paper in logistics documentation. It helps in reducing paper consumption and production, leading to environmental sustainability. 

These are the role of EDI in supply chain management and how they benefit the most important sector of the supply chain, i.e., logistics operations. 

LOTUS Containers are leading sellers and lessors of different types of shipping containers to facilitate seamless business between trading partners.

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