Electronic Data Interchange (EDI) - How Edi Works

During EDI, information is sent from one participant's computer system and translated to a standard format with special translation software. It is then transmitted to another participant, translated back from the standard format into a format used by the receiver and entered into the receiver's computer system. Thus, EDI allows participants to transfer information between their respective computer systems, even if the systems utilize different, incompatible platforms.

Before using EDI, companies usually enter into specific agreements with their trading partners (called trading partner agreements or TPAs). These contracts often spell out the kinds of information they will exchange and how they will exchange it. Because entering into and terminating TPAs is expensive and time consuming, traditional EDI isn't always ideal for companies who change suppliers often, or for companies who frequently enter into temporary relationships with suppliers or other companies.