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By Ralph Hess • September 25, 2020

The Critical Role of EDI for SMEs

Electronic data interchange (EDI) is something that takes place on a regular basis among small and mid-sized businesses. At a time in our technological evolution when humans hold more computing power in their pockets than they know what to do with, it's easy to overlook the importance of EDI.

Very simply, EDI is the process of electronically exchanging business data that was traditionally handled with paper. This can include purchase orders, invoices and billing information. All of these items are typically delivered electronically, but some very specific EDI standards have been put in place to ensure SMEs can seamlessly share this type of information.

In fact, EDI is one of the most important building blocks of enterprise resource planning (ERP), and is critically useful for SMEs. Beyond enabling a variety of documents and data to be shared, EDI sets rules and standards for the entire electronic interchange process. This includes the transmission, document format, message flow and software that is used to send and receive the documents.

EDI dictates mandatory information that must be included in an electronic exchange, as well as optional information for a particular document. It also provides rules for structuring the document. Businesses wanting to work with specific trading partners, vendors or suppliers may be required to implement EDI, making it a vital tool for business success.

The Myriad Benefits of EDI

If your business is not using EDI and is considering an ERP system, EDI should be at the forefront of your decision-making process. You might even consider choosing an EDI system before making a decision about ERP.

Getting an EDI solution up and running will provide immediate benefits to your SME. Trading partners may be added to the system quickly and easily, an important feature for any company dealing with supply chain issues.

EDI systems that offer automation will save a business significant time and money, increasing efficiency. A faster turnaround time for trading change requests enables opportunities for increased revenue and reduced operating expenditures.

According to EDI Basics, EDI can speed up business cycles by 61 percent, enabling transactions to take place within minutes instead of the days or weeks mandated by using delivery and postal services.

It also reduces the number of transactions with errors by a whopping 30 to 40 percent. This includes manual data entry errors like illegible handwriting, lost paperwork and re-keying errors. EDI systems also validate content, confirming that transactions contain all the necessary information for processing and tracing.

Additional benefits of an EDI system include faster processing times and the ability to sell products and services in more places. From a strategic perspective, EDI can shorten the lead times for new product delivery and upgrades. And it cuts down on paper, enabling SMBs to save money and reduce their CO2 emissions.

Successful Integration is Key

ERP must be factored into the EDI selection process, however, since some EDI systems may not have built-in interfaces for a company's chosen ERP solution. Building custom connections might be a long and tedious process, so finding an EDI system that will work with your company's top ERP contenders is a savvy move.

 The burden of successful integration lies with both the EDI and ERP system vendors. An ERP solution that offers a comprehensive EDI interface for inbound and outbound transactions is essential. Conversely, the EDI system needs to provide flexible setup and run-time environments.

Successful integration of EDI and ERP enables synchronized data to be accessed and viewed across companies, a critical tool for supply chain management. For companies of any size, the time and money saved by eliminating manual communications is invaluable. Automation of data sharing also leads to fewer errors and more accurate reporting.

Making a Wise Investment Choice

SMEs should be as informed as possible when choosing an ERP system. EDI needs to factored into the equation, and existing or new systems need to be easily integrated with ERP.

Choosing a trusted ERP partner will go a long way toward a successful investment and integration. Many companies offer integration platforms designed to directly connect EDI and other systems to their ERP offerings.

This type of seamless connectivity and support is a huge benefit for a growing SME. Common systems supported include CRM, ecommerce, shipping, point of sale and data collection. 

There is no question that EDI is a critical tool for SMEs. Any company researching ERP systems should also be looking at EDI solutions if they don't already have one. And those companies that do have systems need to make sure they may be easily integrated with a new ERP system.

EDI may seem like a no brainer in our electronically oriented world, but it's an important piece of the ERP puzzle that should not be underestimated or overlooked.