Buying and selling products and services can generate a significant paper trail – from copies of orders, delivery dockets, shipping notices to invoices and payment receipts, there is a vast number of documents associated with every transaction.
Electronic procurement (ordering and invoicing) is a way for buyers and sellers to remove a large amount of that paper from their daily operations. At the same time e-procurement introduces automation and efficiency to a business which in turns reduces waste - good for the pocket and the environment.
The Order-to-Cash Cycle
Transactional Data is the information exchanged between two organisations about the products and services they are selling, ordering, delivering, receiving, invoicing and paying for. This process is also known as the Order-to-Cash cycle.
A large number of documents such as orders, despatch dockets and invoices are required for this process to function effectively. However, by replacing these traditional paper-based documents with standardised electronic message equivalents, organisations can realise a range of operational, commercial and sustainability beneﬁts.
The automation of the order-to-cash cycle and the exchange of electronic business messages directly between the computer systems of two organisations is called EDI (Electronic Data Interchange).
What is EDI?
EDI is the computer-to-computer exchange of standard business documents in electronic format between two companies. It simply replaces paper-based documents with electronic documents. The sending company creates the electronic message and the receiving company interprets the message - without the need for any human involvement. EDI is an enabler for automating many important business processes, such as order-to-cash, planning, forecasting and reporting.
The two key concepts of EDI are:
- Electronic documents replace paper based ones
- The exchange of documents takes place in a standardised format
GS1 provides globally agreed standard definitions for a wide range of electronic business messages, including:
- Purchase order
- Despatch advice
- Receipt advice
Read more about the EDI process.
Implementing EDI is a significant undertaking for any business. It affects relationships between customers and suppliers. It has an impact on how your internal processes work and impacts your IT applications.
EDI provides trading partners with an efficient business tool for the automatic transmission of commercial data from one computer application directly to another. Companies do not need to worry about different incompatible computer systems. Through the use of GS1 EDI message standards, data may be communicated quickly, efficiently and accurately irrespective of users internal hardware and software types.
Benefits of EDI
The successful implementation of EDI provides major benefits for a company and its trading partners including;
1. Cost efficiency: Significantly reducing the volume of paper to be handled and re keyed results in immediate savings in administrative and personnel costs. Staff can be redeployed to other more value-add functions within the organization.
2. Increased speed: Large volumes of commercial data can be communicated from one computer to another in a matter of minutes, enabling faster response and greater customer satisfaction.
3. Improved accuracy: EDI eliminates the inevitable errors resulting from manual data input.
4. Better logistics management and increased productivity: EDI enables companies to better manage and control production, purchasing and delivery requirements. EDI is a key component of just-in-time manufacturing and quick response customer-supplier links, resulting in significant reductions in inventory levels.
5. Improved Customer Relations: EDI eliminates delays in invoice processing & postage, thus resulting in a faster order to cash cycle.
Consider implementing EDI with your suppliers and customers if you want to achieve any of the following:
- Reduced operational costs
- Faster receiving and storing of goods
- More accurate data; fewer order, delivery and invoice queries
- Improved stock accuracy and availability
- Better, more efficient warehousing and logistics operations
- Reduced carbon emissions from streamlined operations
- Shorter lead time from order to payment
- Better trading relationships
Read more about the benefits of EDI
A beginner's guide to electronic data interchange