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What is electronic data interchange (EDI)?

Electronic data interchange (EDI) is defined as the tool which is mostly used in facilitating data passing between different separate systems. Nevertheless there are several policies and protocols that surround it which should be synchronized in advance. Also it can be defined as the exchange of the information or documents from company to another through computers usage. It is mostly used for replacement of mailing and faxing of the paper documents whereby the transactions are sent into vendors databases via computers. It includes data direct transmission between locations with the use of intermediary e.g. communication network and computer tapes, disks or even other digital devices used in storage exchange between companies (Phillipus, 1998).

Advantages of using EDI in physical distribution activities

The efficient movement of the finished goods to the consumers after production is known as physical distribution. It takes place in numerous retailing and wholesaling channels of distribution. This method (EDI) is regularly used in transferring of funds electronically between the financial institutions. Through these transactions, direct checks payroll from employers are facilitated and also there is direct debit of the consumer accounts for mortgage or the utility payments not forgetting the payment of federal taxes electronically by businesses (Laudon, 1991).

In addition to that the other advantage is exchange of transactions including standard documents in businesses such as invoices, purchase orders, and lading bills from a business to another through computer. The retailers also use it in scanning electronically and point-of-sale (POS) inventory replenishment systems. It saves money and time for the transactions are usually done through telecommunication from one information system to the other substituting handling and printing of the paper from one end and the data input to the other (Laudon, 1991). Furthermore it provides strategic benefits through helping firms to lock in customers that in turn makes it easier for distributors or customers to directly order from them rather than doing it from competitors.

To conclude there are so many advantages when electronic data interchange is involved and it solves the problems that are inherent to paper based transactions processing and different forms of electronic distribution.

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