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EDI 101
Introduction
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So what exactly is EDI? In this section we take a look at the basic elements of EDI, including
what it is, what it is for, and what it is made of.
A Definition of EDI
EDI is short for Electronic Data Interchange.
Technically, EDI is a set of standards that define
common formats for information in order to be
exchanged electronically between two
organizations doing business together (called
trading partners). By following these standards,
any organization can communicate electronically
with any otherbecause they essentially speak
the same language.
In practice, EDI is the act of exchanging data
through computers. Many businesses and other
organizations use EDI every day in the regular
course of doing business. This is because EDI
makes doing business together a more automated
and efficient process.
Uses for EDI
Before EDI was widely adopted, companies
conducted business with paper purchase orders,
invoices, insurance claims and other documents
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Is EDI New?
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Communications Protocols
EDI standards are generally independent of
communication methods. That is, EDI can be
transmitted using any number of methodologies,
also called protocols.
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Sender ID
Recipient ID
Delimiters
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Often, companies feel as though EDI is a burden placed on them by their trading partners. But
even if EDI is NOT a requirement for your business, it may be a good idea. Thats because
utilizing EDI can provide a number of tangible benefits to your business operationand your
bottom line.
EDI as a Requirement
Cost Savings
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Integration
Every time we turn around, there seems to be a new hot topic or buzzword
in the industry. EDI is no different, and today it seems everyone is talking
about integration.
What is Integration? In EDI, integration really means DATA integration.
Simply put, data integration means the act of transferring data from its source
directly and seamlessly into your back-end business or accounting software.
How does integration happen? EDI mapping software provides the
mechanism for assigning which data elements from an EDI transaction goes
where in a file format your business system can understand.
What is the benefit of integration? When data is automatically applied to
your business system, you get the greatest advantages of EDI greater
efficiency, greater accuracy and, ultimately, lower costs.
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Security
The exchange of critical business or personal
information can be more secure using EDI. That
is because many communications protocols for
transferring data include encryption and other
security measures such as digital signatures.
This is one reason why HIPAA, the U.S.
Federal health insurance law of 1996,
Management Information
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Most EDI-based transactions are the same as those you would traditionally handle manually,
with paper documents. The only real difference when handled via EDI is that the information is
all sent and received in electronic form, as a packet of data formatted according to EDI
standards. This section explains the steps in the process.
Overview
The process of doing business using EDI might
generally look like this:
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Communications Protocols
Translation
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ISA01
00
ISA02
Authorization Information ID
Blanks
ISA03
00
ISA04
Security Information ID
Blanks
ISA05
01
ISA06
Interchange Sender ID
STOREORP
(STOREORT for test)
EDI Guidelines
Individual trading partners have their sets of
rules and preferences for EDI. Their
specifications for EDI are typically laid out in a
manual called an implementation guide.
Trading partner guidelines are often based on a
given EDI standard, with some differences
additions, exceptions and changes based on
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There are a number of different solutions for implementing EDI in your organization. You can
choose to manage it yourself, in house, or contract with a service provider. Here is an overview
of each of the common EDI solutions available to you.
protocols, implementing the translation of
inbound and outbound transactions, and
reconciling transactions by sending and
receiving Functional Acknowledgements.
Installed Software
Installing and running your own EDI software
may be a good option if your company has the
resources to manage and support an internal EDI
operation. This makes sense if your company has
a larger number of trading partners, a larger
volume of transactions each month, and if full
integration with your back-end business and
accounting systems is critical. Running an EDI
operation with installed software requires an
investment in hardware and software, and the
EDI and IT personnel to manage and support it.
In general, EDI software includes three
components: data translation, data mapping and
data management. Some software solutions
handle one, two or all three of these functions.
How do you decide which EDI solution is right for your organization? To
help you with this decision, it is important to project the following:
With how many companies (trading partners) do you anticipate
exchanging EDI?
What types of transactions do these trading partners require?
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Web Solutions
VANs
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Manufacturing/Retail
277
810
Invoice
834
850
Purchase Order
835
855
837
Healthcare Claim
856
864
Text Message
204
Procurement
210
940
211
943
212
214
944
945
947
Other
753
754
Routing Instructions
Healthcare
811
270
812
Credit/Debit Adjustment
271
820
997
Functional Acknowledgment
276
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