What is the benefits of Electronic Data Interchange?

Answer 1

BENEFITS OF EDI

EDI was developed to solve the problems inherent in paper-based transaction processing and in other forms of electronic communication. In solving these problems, EDI is a tool that enables organizations to reengineer information flows and business processes. Problems with the paper-based transaction system are:

• Time delays. Delays are caused primarily by two factors. Paper documents may take days to transport from one location to another. In addition, manual processing delays are caused by the need to key, file, retrieve, and compare data.
• Labor costs. In non-EDI systems, manual processing is required for data keying, document storing and retrieving, sorting, matching, reconciling, envelope stuffing, stamping, signing, etc. While automated equipment can help with some of these processes, most managers will agree that labor costs for document processing represents a significant proportion of their overhead. In general, labor-based processes are much more expensive than non-labor-intensive operations involving computers and telecommunications.
• Errors. Because information is keyed multiple times and documents are transported, stored, and retrieved by people, non-EDI systems tend to be error prone.
• Uncertainty. Uncertainty exists in two areas. First, paper transportation and other manual processing delays mean that the time the document is received is uncertain. Once a transaction is sent, the sender does not know when the transaction will be received nor when it will be processed. Second, the sender does not even know whether the transaction has been received at all nor whether the receiver agrees with what was sent in the transaction.
• High Inventories. Because of time delays and uncertainties in non EDI processing, inventories are often higher than necessary. Lead times with paper processing are long. In a manufacturing firm, it may be virtually impossible to achieve a just-in-time inventory system with the time delays inherent in non-EDI processing systems.
• Information Access. EDI permits user access to a vast amount of detailed transaction data—in a non-EDI environment this is possible only with great effort and time delay. Because EDI data is already in computer-retrievable form, it is subject to automated processing and analysis. Such information helps one retailer, for example, monitor sales of toys by model, color, and customer zip code. This enables the retailer to respond very quickly to changes in consumer taste.

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