1) International Trade: EDI has always been very closely linked with international trade as broader and less costly transactions, is a necessity. It is a widely held view that trade efficiency can be accomplished only by using EDI as a primary global transactions medium.
EDI attempts to facilitate the smooth flow of information. Physical aspects of international trade are - the movement of goods, containers, vehicles, ships, and aircraft.
EDI replaces paper, which has been the mainstay for carrying trade-related information. Vast amounts of time and resources are often spent transferring and checking the information from one paper document to another.
EDI Benefits for International Trade
i) Reduced transaction expenditures;
ii) Quicker movement of imported and exported goods;
iii) Improved customer service through "track and trace" programs that quickly identify to the many participants in a 'trade deal - companies, customs, banks, insurers, transport agents, and so on - where things are located or being handled; and
iv) Faster customs clearance and reduced opportunities for corruption, a huge problem in trade.
2) Financial EDI: Financial EDI (FEDI) is the computer-to-computer exchange of payment and payment-related information between companies using a standard format. Unlike other forms of EDI, such as exchange of price quotes or purchase orders, financial EDI always involves a bank because a financial transaction (a payment) is being effected.
Although Internet EDI is growing and offering new, flexible information interchange solutions for many trading partners, some elements of EDI remain difficult to transfer to the internet. The EDI transaction sets that provide instructions to a trading partner's bank are called Financial EDI (FEDI).
Financial EDI comprises the electronic transactions of payments and remittance information between a payer, payee, and their respective banks.
Types of Financial EDI
Traditionally, wholesale or business-to-business payment is accomplished using cheques, EFT, and Automated Clearing Houses (ACH) for domestic and international funds transfer. These terms can be described as:
i) Bank Cheques: These are instruments for debit transfers where payees collect funds from payers. Funds made available by banks to depositors of cheques are provisional and may be reversed if the payer does not have sufficient funds in its account to pay the cheque when it is received by the payer's bank.
ii) Interbank Electronic Funds Transfer (EFT): Electronic Funds Transfer (EFT) is credit transfers between banks where funds flow directly from the payer's bank to the payee's bank. They are same day, almost instantaneous payments. EFT is one of the earliest examples of payment systems that use online transactions although these transactions are carried-out on private networks.
iii) Automated Clearing House (ACH) Transfers: In contrast to the EFT process, ACH transfers are used to process high volumes of relatively small-dollar payments for settlement in one or two business days. An ACH provides the following services – pre-authorized credits, such as the direct deposit of payrolls; pre-authorized debits, such as repetitive bill payments; and consumer-initiated payments (called GIRO in banking circles). This is primarily a high-volume/low-dollar, consumer-oriented product.
3) Healthcare and Insurance EDI: EDI is rapidly becoming a permanent fixture in both insurance and healthcare industries as medical providers, patients, and payers increasingly process claims via electronic networks. Electronic claim processing is quick and reduces the administrative costs of healthcare. In most cases, claims can be sent to payers within 24 hours. Fewer errors translate to decreased turnaround time. In addition to processing claims for billing purposes, EDI enables doctors to communicate with other physicians, laboratories, hospitals, and other healthcare settings. In short, it leads to better managed care.
Other transactions targeted for electronic transmission include claims submission or billing, payment, and payment posting, eligibility verification, and primary care member enrollment. EDI could reduce labor, intensive activities of providers and payers involved with submitting, adjudicating, processing, and paying claims. In short, the most innovative efforts involving EDI go considerably beyond claims administration.
4) Manufacturing/Retail Procurement using EDI: Both manufacturing and retail procurement are already heavy users of EDI:
i) In manufacturing, EDI is used to support just-in-time. Companies using JIT and EDI no longer stock thousands of large parts in advance of their use. Instead, they calculate how many parts are needed each day based on the production schedule and electronically transmit orders and schedules to suppliers every day or in some cases every 30 minutes. Parts are delivered to the plant "just in time" for production activity.
A major benefit of JIT and EDI is a streamlined cashflow. When a company receives an invoice, it pays for parts that are actually in use, in a product ready to be sold, instead of paying for large, costly items stored in inventory.
ii) In retailing, EDI is used to support quick response. For the customer, QR means better service and availability of a wider range of products. For the retailer and suppliers, QR may mean survival in a competitive marketplace.
In QR, EDI documents include purchase orders, shipping notices, invoices, inventory position, catalogs, and order status. Some of the innovations originally targeted for improving distribution are also improving effectiveness in other areas. For example, the data generated can be used, in customer information systems to provide better marketing.
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