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Let's take just a moment to look at an example that highlights some of the differences between traditional paper document transactions and Electronic Data Interchange. One of the first places that many businesses implement EDI is in the exchange of a purchase order (PO). In the traditional method of processing a purchase order, a buyer or purchasing agent will go through a fairly standard procedure to create a purchase order, consisting of these steps:

  1.  A buyer reviews data from an inventory or planning system.
  2.  The buyer enters data into a screen in the purchasing system to create a PO.
  3.  The buyer waits for the PO to be printed, usually on a special form.
  4.  After the PO is printed, the buyer mails it to the vendor.
  5.  The vendor receives the purchase order and posts it in their order entry system.
  6.  The buyer calls the vendor periodically to determine if the PO has been received and processed.

When you add up the internal processing time required by the sender and receiver, and then add a couple of days in the mail, this process normally takes between three and five days. This assumes first that both the sender and receiver handled the PO expeditiously, and that at every point along the way there are no errors in transcribing data from a form to a system. The EDI Alternative Now, consider the same document exchange when a company places its purchase orders electronically using EDI.

  1. The buyer reviews the data and creates the purchase order, but does not print it.
  2. EDI software creates an electronic version of the PO and transmits it automatically to the sender within minutes.
  3. The vendor's order entry system receives the PO and updates the system immediately upon receipt.
  4. The vendor's order entry system creates an acknowledgment and transmits it back to the sender to confirm receipt.

This fairly simple example illustrates just one of the many ways that businesses can profit by the implementation of Electronic Data Interchange. In the following section, we'll look at some of the reasons why EDI is becoming a necessity for business in today's economy. EDI has become a powerful management tool for increasing velocity and achieving benefits of speed, accuracy and cost reduction.

Many companies are requiring their vendors and suppliers to enter into electronic information trading relationships.


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