The use of EDI technology in logistics has established itself as a solution that can be used to achieve fluid and standardized communication between those involved in the supply chain: from the suppliers to the transport companies that distribute the orders.
This article examines how EDI entered logistics and what benefits this technology must bring to the supply chain.
What is EDI?
First of all, the definition of EDI (Electronic Data Interchange) refers to the technology used to exchange documents electronically between companies via a standardized format. EDI transactions, which eliminate the need to exchange paper documents, transfer encoded information from one company’s software to another company’s software in a common format, avoiding possible reading errors or loss of information.
The EDI system originally came from the military sector. North American Sergeant Edward A. Guilbert is considered the founder of electronic information exchange. In 1948, together with two other logistics administrators, Guilbert developed a system for transmitting information via telex and telephone in order to solve the logistics problems in supplying West Berlin.
Years later, in the 1960’s, as companies began to computerize their internal administrations, a solution to the transmission of information was sought. In 1968, the Transportation Data Coordination Committee (better known by its English acronym TDCC) was formed to develop standards for the industry. The TDCC organized a program on message formats, codes and communication protocols. In 1975 it published its first documentation on the EDI system.
This method of communication was later adopted in sectors such as the automotive industry to ensure just-in-time delivery of raw materials to production lines, or in the financial sector to facilitate bank transfers. Other industries where it was introduced were healthcare , where it plays an essential role in ensuring medical supplies to hospitals, and pharmaceuticals , to ensure efficient communication between laboratories.
The spread of the EDI system in more and more companies and countries is based on standards that ensure that messages can be sent, understood and recognized by every interlocutor . The most common standards are the United Nations UN/EDIFACT and the American National Standards Institute (ANSI) ANSI ASC X12 .
Use of the EDI system in logistics
EDI fulfills various functions in the supply chain . On the one hand, the system allows suppliers to tell companies which items they will receive in the warehouse. On the other hand, it helps companies to tell the transport companies which orders they will distribute. For this purpose, the companies create the so-called Advanced Shipping Notice (ANSI X12 EDI 856), i. H. an electronic document containing detailed information about the content of the shipment.
Pros and cons of EDI in the supply chain
The integration of EDI in logistics offers the following advantages:
- speed and security. Ensuring a secure exchange of information between all parties involved in the supply chain. By digitizing the exchange of data, companies save costs and avoid possible errors that can occur with manual information management.
- Efficient communication. Use of a common format by senders and recipients that facilitates electronic data exchange. Thanks to standardization, technical barriers are overcome. It also eliminates the need for manual review of information as data simply flows between applications.
- information in real time. Activation of an instant exchange of information between different companies. In this way, for example, the warehouse manager knows in advance which articles his suppliers will send him, so that he can plan the warehouse processes.
- Simplification of administrative formalities. Enabling accurate management of delivery notes and invoices, reducing administrative costs. This allows the warehouse to check whether the items received match those announced by the suppliers.
- Planned processes. With a smooth flow of information, supply chain stakeholders can improve their operations. For example, suppliers can organize the distribution of raw materials depending on the workload on the production lines.
- improvement of trade relations. Companies don’t need to interpret the information they receive; Invoices or orders can thus be processed more quickly.
However, this technology also has some disadvantages:
- initial investment. Digitizing the exchange of information, using a value network and software to encode and send data requires an initial investment, which can lead to some resistance.
- Necessary adjustment. Companies that exchange data with the EDI system have to share certain requirements. In addition, the EDI system is not yet flexible enough to adapt to market changes.
EDI in logistics: optimization of information flows
Electronic data exchange enables efficient communication between the participants in the supply chain, whose structure can be complex due to the very different processes involved. With the use of EDI in logistics, all processes can be coordinated to achieve greater efficiency.