Electronic Data Exchange or EDI is a process which allows a business to transmit written documents and other materials to another business. The purchase and usage of an EDI system is a necessity for those businesses that want to remain competitive and grow in the modern business world. While some businesses may be reluctant to spend money on EDI, the purchase will result in an immediate and significant monetary savings in business expenses. Here are some ways that a business implementing an EDI system will create cost savings. Labor Savings: The cost of labor is one of the largest expenses for most businesses. EDI will help to reduce labor costs by simplifying or even eliminating some of the processes needed to complete orders, track shipments and create other routine business documentation. These savings may help a business to cut employee numbers or simply to allow these employees to work more efficiently at serving the customers of the business. The time savings will also allow business employees to spend more time finding new customers and helping the business to grow. Inventory Savings: EDI allows businesses to communicate in real time concerning product inventory. This allows both businesses to operate more efficiently and at significant cost savings. Lead time of inventory is reduced as the EDI system allows for quick communication of business needs without the delays found in traditional paper based systems. The ability to track inventory and place orders quickly and efficiently also reduces the need for both businesses to maintain high inventory levels, which also helps to reduce business costs. Shipping Savings: As EDI improves the management of inventory, a business will experience a reduction in shipping costs. This is due to more efficient product ordering to meet business demands as well as the elimination of smaller orders needed to cover shortages between large shipments. With EDI, both the receiver and the shipper will save on shipping due to the more efficient inventory management. Paperwork Savings: EDI will allow a business to reduce the amount of paperwork that employees must produce to operate the business. This will result in cost savings on paper, printing and postage. The reduction in paperwork will also result in space savings as the document copies will be saved electronically instead of saved as a paper document.