Electronic data interchange (EDI) is a computer-to-computer exchange of business documents among companies. EDI is an innovative electronic communication technology that offers exchange data standards, for exchange of data by any kind of electronic technology. EDI replaces the process of faxing and mailing of paper documents. EDI documents utilize specific computer record formats that are based on widely accepted standards. However, each company will use the flexibility allowed by the standards in a unique way that fits their business needs.
Market Size and Growth
The market size of EDI was estimated to be US$916.5 million in 2013 and is expected to reach US$1.68 billion by 2018. With a compounded annual growth rate (CAGR) of 13.7%, the market can be estimated to touch US$2.1 billion in 2020.
EDI is in use in multiple industries. According to market report, more than 160,000 companies have switched over to EDI in order to improve operational efficiencies. Once they switch over to EDI, the partner companies also need to use EDI. Industries which are widely using EDI are listed below;
- Healthcare Industry: EDI implementation will result in saving of time and money in healthcare industry. It is a complicated process in this industry to organize and send data between parties. This was more applicable in the management of both patient medical records and health insurance reimbursement details.
- Automotive Industry: Growing OEM industry in developing parts of the world has led to increasingly global manufacturing process. This along with the concept of Just-in-Time and Lean Manufacturing call for more automation in this industry. Thus, EDI is a key to automotive companies in achieving these business objectives.
- Financial Services Industry: EDI brought change in this industry also. The automation improved the ability to process accounts payable and receivable, as well as managing investments and loans on behalf of its customers.
- High-Tech Industry: The high-tech value chain has become very complex. EDI brings efficient processes in this industry. It is common that many high-tech companies relying on external partners to help design and manufacture their products.
- Retail Industry: Retail is in the forefront of using EDI to drive competitive advantage. This industry is an early adopter of this technology and derived benefits out of it in its operations.
The EDI process provides multiple benefits. Computer-to-computer exchange of information is comparatively less expensive than handling paper documents. Studies have shown that manually processing a paper-based order can cost US$70 or more while processing an EDI order costs less than one dollar. Faster transactions support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs through fewer emergency expedites.
Even though companies have resources in place to make an EDI program work they may need for buying and hiring these resources or need outsourcing process to improve efficiency.
This blog is written by Bhoopal Ram, Sr Analyst with DART Consulting.
