EDI Frequently Asked Questions
Electronic Data Interchange (EDI) is inter-company, computer to computer transmission of business data in a standard format. Within this definition: computer to computer means originating application to processing application without human intervention. A standard format is defined as one that has been approved by a national or international standards organization in a cooperative industry led effort. EDI does not require any changes to your existing computer system.
The developers of EDI came from the transportation industry – ocean, motor, air and rail carriers and the associated shippers, brokers, customers, freight forwarders and bankers. In 1975, the first set of standards were coordinated by TDCC and were published containing 45 transaction sets for the transportation industry. ASC X12 standards are based on this syntax design, data element dictionary and segment directory.
As a result of the emergence of accepted standards, many industries - including shipping, retail and grocery, apparel manufacturing, chemicals, automobiles, electrical, electronics, utilities, petroleum, metals, paper and insurance – have begun serious campaigns to develop standards in the EDI standard syntax. There are 8,000 users of EDI in North America as well as many users in Europe and the Pacific Rim.
Business traditionally conducts external transaction through paper exchanges (i.e., purchase orders, invoices, etc.). In recent years, the growth in these paper exchanges has been explosive. Although computers greatly facilitate the use of paper documents, organizations have been seeking more expedient techniques for processing this massive amount of data without errors. Various industry groups and individual businesses use electronic alternatives to the handling of paper. Motives for this movement include the need for improved timeliness to reduce inventory investment, reduction in paper processing costs and better cash availability. EDI allows the transmission of data directly from one organization’s computer to another organization’s computer. The sending organization only has to send that information which allows the receiving organization to perform a specific function. There is no need to send information that the receiving organization already has in its computer.
Proprietary formats are supported by a single company or industry and the users are forced to modify their computer systems when the proprietary format is changed. Organizations desiring to conduct multi-industry transactions face the problem of supporting a multitude of incompatible transactional electronic interchange standards which are constantly changing. The adoption of a universal Electronic Data Interchange (EDI) Standard will enable all organizations to use a single agency (X12) to develop and maintain transaction sets. Changes will be made by an industry led consensus process while keeping in mind the best interest of the entire industry and not a small independent group.
Becoming an EDI trading partner requires a computer (either PC, mini or mainframe) and the following:
- Communication hardware
- Communication software
- Translation software
Depending on trading partner agreements, other requirements may include interconnectivity to a FTP (File Transfer Protocol) or other service provider.
There are many companies marketing EDI software/hardware. One source for obtaining more information is by attending EDI trade shows. Your trading partner may be of help in getting you started.
State Farm’s preference is the SMFT (State Farm Managed File Transfer) system. State Farm prefers the external vendor connect to State Farm’s SMFT server to deliver and pick up files. State Farm still has the option to connect securely to the vendor servicer if needed with FTPS (FTP with TLS) or SFTP (SSH).
Inform your trading partners of your EDI intentions.
There may be two types of testing conducted with you. Connectivity testing to ensure that you are connected to receive and send the files properly. The other type of testing is the application testing that will be conducted between you and your translation software is handling the receiving and sending of the formatted documents properly.