What Is EDI? How It Streamlines Business-to-Business Ordering — From Fax, Email, and Manual Entry to Data Integration

“A purchase order arrives by fax from a trading partner, and a staff member enters it into the sales management system.”

“An Excel file attached to an email is opened, and the product code and quantity are checked and transcribed.”

“After delivery, an invoice is created, and the recipient enters that same information into their own accounting system.”

In business-to-business transactions, the same order and billing information is often entered, again and again, by multiple companies and multiple staff members.

EDI is the mechanism that reduces this duplicate entry by letting purchase orders, sales orders, shipments, invoices, and other data pass directly between companies.

When you hear “EDI,” you might picture a large-scale system that only big enterprises adopt, running over dedicated leased lines. But the essence of it is much simpler.

EDI is a mechanism for exchanging the information that arrives from a trading partner as data that a computer can process directly — rather than having a person read it and re-enter it.

This article works through what EDI is, how it differs from fax and email, and how adopting it makes a company’s operations easier, using order processing as the running example.

1. The short answer first

EDI stands for Electronic Data Interchange.

It’s a mechanism by which companies exchange trade information — purchase orders, shipping notices, invoices, and the like — as electronic data in a predetermined format.

JIPDEC describes EDI as a mechanism whereby companies, government agencies, and other organizations connect their computers over a network and automatically exchange slips and documents as electronic data.

The purpose of adopting EDI isn’t simply to eliminate paper.

Its main purpose is to reduce work such as the following:

• Manual entry while looking at a fax or PDF
• Transcribing data from Excel into a sales management system
• Visually double-checking entered data
• Searching for purchase orders and invoices
• Phone calls and emails to confirm order status
• Re-aggregating sales, inventory, and billing data

In a word, EDI is a mechanism that lets data that used to stop dead between two companies flow through automatically.

2. What happens in order processing without EDI

First, let’s consider order processing that doesn’t use EDI.

At the ordering company, a purchasing staff member creates the order details in their own system or in Excel. That content is printed as a purchase order and sent to the trading partner by fax or email.

At the receiving company, a staff member checks the purchase order that arrives and enters it into their own sales management system.

After that, they create an order confirmation, shipping notice, delivery note, invoice, and so on, and send them back to the ordering company. The ordering company, in turn, enters that information into its inventory management system and accounting system.

Ordering company enters order data
        ↓
Purchase order is printed / converted to PDF
        ↓
Sent by fax or email
        ↓
Receiving company checks the content
        ↓
Re-entered into the receiving company's system
        ↓
Shipping and billing data is created
        ↓
Ordering company enters it into its own system again

In this flow, the same information gets entered over and over.

Product code, product name, quantity, unit price, delivery date, delivery destination, and so on, for example.

The original order data already exists inside the ordering company’s computer. And yet, because it was converted into paper or a PDF, a person on the receiving side has to read it again and re-enter it into a computer.

The problem isn’t that the information wasn’t digitized in the first place.

It’s that information that was once created as data gets converted into a document for a human to read, and then converted back into data again on the other side.

3. How order processing changes when you use EDI

With EDI, the order data created in the ordering company’s system is converted into a format the receiving company’s system can read, and sent directly.

On the receiving side, instead of a staff member entering the data while looking at a purchase order, the received data is imported straight into the sales management system.

flowchart LR
    A[Ordering company's purchasing system] --> B[Order data]
    B --> C[Transmission and conversion via EDI]
    C --> D[Receiving company's sales management system]
    D --> E[Order confirmation]
    D --> F[Shipping notice]
    D --> G[Billing data]
    E --> C
    F --> C
    G --> C
    C --> A

Order data is sent from the ordering company to the receiving company, and order confirmation, shipping, and billing data are sent back from the receiving company to the ordering company.

The key point is that data passes from system to system without a step in between where a person transcribes it while looking at a document.

JIPDEC describes EDI as a mechanism in which each company’s own proprietary data format is converted into a standard format, and the receiving side likewise converts from the standard format into its own format.

4. How does EDI differ from email, PDF, and Excel?

It’s tempting to think, “We already send purchase orders as PDFs by email, so we’ve already gone digital.”

It’s true that this is faster than mailing paper, and easier to store. But if the recipient is still entering the data into a system while looking at the PDF, the entry work itself hasn’t gone away.

Here’s how the differences break down:

JIPDEC’s explanation distinguishes scanned images of slips, or emails written as ordinary sentences, from EDI data that a computer can reprocess. It also notes that manually entering data into a web screen is, strictly speaking, different from automatic exchange between computers.

That said, using PDF or Excel isn’t inherently bad.

What matters is how the received information is processed afterward.

• A person reads the PDF and enters it
• Someone opens the Excel file and copies from it
• A CSV file is imported directly into the system
• Data is registered automatically via an API

Even though these are all “electronic files,” the burden of the downstream work differs enormously.

When judging the effectiveness of EDI, you need to look not just at how data is sent, but at what a person does with it after it’s received.

5. What kinds of information EDI can exchange

EDI isn’t a mechanism only for purchase orders.

It can exchange a wide range of information that arises in business-to-business transactions.

For example, the moment an order arrives, the receiving company’s system can carry out the following processing:

1. Check for duplicate order numbers
2. Verify that the product code exists
3. Allocate inventory
4. Calculate the delivery date
5. Send a shipping instruction to the warehouse
6. Send an order confirmation back to the ordering company

Furthermore, after shipping, sales can be recorded from the shipping record, and billing data can be created.

In other words, EDI isn’t just a communication feature.

Starting from order processing as the entry point, it becomes a foundation that connects the downstream inventory, shipping, sales, and billing processes as well.

6. How does EDI make a company’s operations easier?

6.1. It can reduce manual entry and transcription

The most obvious benefit is a reduction in manual entry.

The work of entering product codes, quantities, unit prices, and delivery dates while looking at a purchase order that arrived by fax becomes unnecessary.

Once manual entry is reduced, staff can spend their time not on entry itself but on handling exceptions such as:

• Orders where inventory is insufficient
• Orders with an unusual delivery date
• Orders whose product code isn’t registered
• Large orders
• Orders that need a check on unit price or contract terms

Instead of having a person process every single order, you can shift to a model where routine orders are processed automatically and only problematic orders are reviewed by a person.

6.2. It can reduce entry mistakes

Manual entry work carries a certain probability of error, no matter who does it.

• Mistyping a single digit of a product code
• Entering 100 units instead of 10
• Mixing up the delivery destination
• Misreading the requested delivery date
• Registering the same order twice

Even with EDI, problems still occur if the original data itself is wrong. But because correctly created data doesn’t need to be re-entered on the other side, EDI reduces the mistakes that arise from transcription.

The Small and Medium Enterprise Agency also cites improved work efficiency, reduced human error, and better searchability of transaction records as effects of digitalizing order processing.

6.3. It can speed up order processing

With fax or email, order processing can’t start until a staff member notices the message arrived, checks the content, and finishes entering it.

On busy days with many orders, entry backlogs build up. If the staff member is out, processing can be delayed.

With EDI, received data can be imported into the system automatically.

Immediately after an order is received, processing such as:

• Accepting the order
• Checking inventory
• Calculating the delivery date
• Sending a shipping instruction to the warehouse
• Sending back an order confirmation

can begin right away.

Faster order processing also tends to shorten the time to shipment. JIPDEC also cites faster clerical work, shorter lead times, and reduced inventory as effects of EDI.

6.4. It becomes easier to check order status

When paper, fax, email, and Excel are all mixed together, it takes time to figure out “what’s the current status of that order?”

You end up checking a staff member’s mailbox, a shared folder, paper files, and the sales management system, one by one.

With EDI, you can manage information tied together around an order number or similar key, such as:

• When the order was received
• Whether it was imported successfully
• Whether an order confirmation was sent back
• Whether it has shipped
• Whether it has been inspected and accepted
• Whether it has been billed
• Whether any errors or resends occurred

When you receive an inquiry, you can check the processing history instead of relying on a staff member’s memory or personal email.

6.5. It can be connected to inventory, shipping, and accounting operations

The benefit of EDI isn’t limited to reducing the data-entry work of order-processing staff.

By connecting received data to internal systems, downstream processes can be automated as well.

Order data
    ↓
Order registration
    ↓
Inventory allocation
    ↓
Shipping instruction
    ↓
Sales recording
    ↓
Billing data creation
    ↓
Payment reconciliation

Conversely, if order data received via EDI is simply printed out and entered into the sales management system by hand, the benefit is limited.

JIPDEC also explains that if data received via EDI is printed and processed manually instead of being imported into an internal system, it isn’t much different from fax.

With EDI, it isn’t enough to simply adopt communication with your trading partners — how far the received data flows into your internal operations matters just as much.

6.6. Transaction data can be used for management decisions

Purchase orders received on paper or as PDFs are hard to aggregate for analysis, even if you keep them on file.

With EDI, transaction information accumulates as structured data.

This makes it possible to feed analyses such as:

• Order volume by product
• Sales trends by trading partner
• Ordering patterns by day of week or time of day
• Frequency of delivery delays
• Products that frequently go out of stock
• Time required from order to shipment
• Transactions with frequent returns or corrections

JIPDEC also states that EDI data can be used for everyday operations such as inventory allocation, production scheduling, receiving inspection, and accounts receivable, as well as for best-seller analysis and demand forecasting.

Building the ability to collect data through EDI isn’t just about operational efficiency — it also lays the groundwork for future inventory optimization and demand forecasting.

7. Thinking about EDI’s impact with a simple example

Suppose a wholesale company receives 100 orders a day by fax or email.

Suppose it takes an average of 3 minutes to enter one order into the sales management system and check the content.

100 orders × 3 minutes = 300 minutes

That works out to 5 hours a day spent on order entry and checking.

After adopting EDI, suppose 80 of those orders are imported automatically, and only the remaining 20 need to be checked by a person.

20 orders × 3 minutes = 60 minutes

This is a simplified example, but the entry work drops from 5 hours to 1 hour.

In practice, this could also reduce time spent on things like:

• Deciphering a hard-to-read fax
• Correcting entry mistakes
• Phone calls to confirm order details
• Searching for purchase orders
• Aggregating order lists
• Handovers between staff members

The benefit of adopting EDI isn’t just a direct cost saving, such as “less spent on paper.”

The real significance lies in reducing the small confirmations, entries, and corrections that repeat every single day.

8. EDI’s benefits, department by department

The operational improvement EDI brings isn’t limited to the order-receiving department.

What EDI can reduce isn’t just entry effort.

Because information becomes clearly locatable, people other than the assigned staff member can check the status as well, which also reduces operational dependence on specific individuals.

9. Adopting EDI doesn’t automate everything

EDI is a convenient mechanism, but simply adopting it doesn’t automate every piece of work.

9.1. Agreements with trading partners are needed

To exchange data between companies, you need to decide on at least the following:

• Which information to exchange
• Which data format to use
• When to send and receive
• How to handle order changes and cancellations
• What to do when an error occurs
• How to handle the same data being resent
• At what point an order officially becomes valid

With EDI, not just the communication method but also the data items and operational rules matter. JIPDEC similarly lays out the need for agreements on communication protocols, data formats, message items, error handling, and basic trading agreements.

9.2. Product codes and similar items need to be aligned

The ordering company and the receiving company sometimes use different codes for the same product.

For example, the ordering company might use A-001 while the receiving company uses 100245.

In this case, you need a conversion table to translate between the codes.

Besides product codes, you also need to align items such as:

• Trading partner code
• Delivery destination code
• Unit of measure
• Quantity per package
• Tax classification
• Currency
• Date format
• Character encoding

Even if you can send and receive the data, it won’t result in a correct transaction unless the meaning of each item matches.

9.3. Exception handling remains

Even if you can automatically process routine orders, exceptional transactions remain.

• Insufficient inventory
• Discontinued products
• Unusual pricing
• Rush orders
• Order changes
• Order cancellations
• Partial deliveries
• Returns
• Data defects

What matters isn’t forcing everything to be automated.

A realistic design separates routine processing from exception processing, automates the routine processing, and routes only the cases that require judgment to a person.

9.4. There will be a period of running fax and email alongside EDI

Not every trading partner can migrate to EDI at the same time.

Because of this, in the early stages of adoption, several receiving methods often run in parallel, such as:

• EDI
• Web forms
• CSV upload
• Email
• Fax
• Phone

In this state, adopting EDI doesn’t let you immediately reduce the staff handling the conventional process.

To get the full benefit of EDI, you need to migrate trading partners in order of transaction volume, gradually reducing the number of cases handled manually. JIPDEC also points out that if manual processing via fax or phone remains, staff are still needed to handle it, which makes it hard to fully realize the efficiency benefits.

10. Companies EDI tends to suit well

EDI tends to be especially effective for companies that:

• Order from and receive orders from the same trading partners daily or weekly
• Handle a large number of orders or line items
• Currently transcribe data from fax or email into a system
• Experience entry mistakes or duplicate registrations
• Field many phone calls or emails to confirm orders
• Continue with inventory, shipping, and billing processing after order receipt
• See processing stall when a staff member is out
• Spend a lot of time aggregating order history or transaction status

On the other hand, for partners you trade with only a few times a year, or transactions where the order content varies drastically each time, the cost of building and operating an EDI setup can outweigh the benefit.

Whether to adopt EDI shouldn’t be judged by company size alone.

The Small and Medium Enterprise Agency has also developed “Chusho Kigyo Kyotsu EDI” (Common EDI for SMEs) to standardize order processing for small and medium-sized businesses, demonstrating operational efficiency gains from reducing dedicated terminals and paper, and centrally managing slips as data.

What you should look at isn’t headcount, but the volume of repeated entry, checking, and transcription work.

11. How to approach adopting EDI

When you start considering EDI, you don’t need to pick a product or communication method right away.

First, sort out your current operations.

11.1. List out your current order-processing methods

For each trading partner, organize the following information:

Doing this exercise reveals which trading partners and processes would benefit the most from EDI.

11.2. Start with a single high-volume trading partner

If you target every trading partner from the start, the number of coordination items grows, and the rollout takes a long time.

It’s more realistic to first pick a single trading partner that meets conditions such as:

• High transaction volume
• Mostly standard, routine orders
• Easy communication between the two teams’ staff
• An understanding of system integration
• Effects that are easy to measure

Once you’ve established an operating model with one partner, expand to others.

11.3. Narrow down what you exchange

You don’t need to cover quotation, order receipt, shipping, inspection, billing, and payment all at once from the start.

For example, you could start by digitizing via EDI only the order data — the one with the heaviest entry burden.

Phase 1: Order data
Phase 2: Order confirmation / delivery date response
Phase 3: Shipping notice
Phase 4: Billing data

Expanding the scope in stages lets you confirm the benefits while limiting the impact on the field.

11.4. Confirm the connection to internal systems

Even if you adopt an EDI service, if you can’t import the data into your existing sales management system, manual entry remains.

Confirm the following points in advance:

• Whether CSV import/export functionality exists
• Whether an API is available
• Whether integration with the database is possible
• Where product code conversion will be handled
• How to prevent duplicate received data
• Who gets notified of errors
• Where processing history will be kept

It’s important to confirm how to connect with your existing system before you select a product.

12. Metrics worth measuring after adopting EDI

Once you’ve adopted EDI, don’t stop at “we can now use it” — check how much the operation has actually changed.

For example, compare the following metrics before and after adoption:

• Time spent on order entry
• Time to process a single order
• Number of entry corrections
• Number of duplicate registrations
• Number of order-confirmation inquiries
• Number of shipping delays
• Percentage of orders processed via EDI
• Percentage of exception orders that required human review

What matters with EDI isn’t whether you can send data.

Evaluate it based on whether manual work actually decreased, whether processing got faster, and whether mistakes decreased.

Summary

EDI is a mechanism for exchanging information that arises between companies — orders, shipments, invoices, and the like — as electronic data that a computer can process directly.

Simply switching from fax to email can reduce paper while manual entry still remains.

The real benefit of EDI lies in being able to connect data received from a trading partner directly into internal systems for sales, inventory, shipping, and accounting.

The main changes you can expect from EDI are:

• Reducing manual entry done while looking at a purchase order
• Reducing entry mistakes caused by transcription
• Speeding up processing from order receipt to shipment
• Making it easier to check the processing status of orders and invoices
• Connecting inventory, shipping, sales, and billing
• Using accumulated transaction data for aggregation and demand forecasting
• Reducing operations that depend on a specific individual

That said, simply contracting for an EDI service isn’t enough.

You need to organize your data — such as product codes — agree on operational rules with your trading partners, and make it possible to import the data into your existing internal systems.

The starting point for adopting EDI isn’t “which product should we use,” but investigating how many times the same information is currently being entered in your operations.

Find the places where people are carrying information between fax, email, Excel, web forms, and your sales management system, and it’s realistic to replace the high-volume, routine parts of that work with data integration, one at a time.

For those considering data integration for order processing

If you want to streamline business-to-business ordering but aren’t sure where to start reviewing your current fax, email, and Excel-based workflow, the first step is to organize how information currently flows.

Once you confirm what format you receive information from trading partners in, which internal system it’s entered into, and how it connects to inventory, shipping, and billing afterward, the scope for automation becomes clear.

At KomuraSoft LLC, we can help you sort out your current situation and consider implementation approaches for business integration involving existing Windows business applications, CSV and fixed-length files, databases, web systems, and more.

We can also consider a setup that keeps your current system in place — without assuming a full rebuild — and reduces only the manual-entry portions.

Related Articles

Recent articles sharing the same tags. Deepen your understanding with closely related topics.

Related Topics

These topic pages place the article in a broader service and decision context.

Where This Topic Connects

This article connects naturally to the following service pages.

Author Profile

Profile page for the article author.

Go Komura

Representative of KomuraSoft LLC

Focused on Windows software development, technical consulting, and investigations into failures that are difficult to reproduce.