Guide to Electronic Data Interchange (EDI): 2022

Allison Champion
9 min read
June 30, 2022
Modified: September 26, 2022

The retail sector has enjoyed the benefits of EDI for decades. Yet, many brands still use some form of a paper-based manual process for ordering, invoicing, and dispatching. This article has everything you need to upgrade your operation with electronic data interchange (EDI) technology.

What Is Electronic Data Interchange?

Electronic data interchange (EDI) is the computer-to-computer exchange of business information in a standard electronic format between business partners. Most other forms of communication, including email, require a human to process. EDI files move directly from the sender’s computer application to the receiver’s computer application, in a pre-standardized format designed for retail fulfillment.

In other words, EDI enables businesses to share accurate data instantly. EDI integration also helps businesses get more done faster by speeding up logistics timelines and eliminating manual errors through B2B communication automation.

What Are the Benefits of EDI?

In a manual buyer-supplier transaction, the buyer generates a purchase order and sends it to the supplier via fax or another manual process. Once the supplier receives the order, they manually enter the purchase order into their system, execute the purchase order, then create and send an invoice to the buyer via fax, email, or postal mail. 

Once the buyer receives the invoice, they manually enter the invoice into their computer system to be processed and paid. This process is not only time-consuming; it relies on tedious manual data entry, which increases the likelihood of human error and costly delays. Whereas an EDI transaction benefits both businesses and consumers in multiple ways. 

Reduces Operating Costs

EDI eliminates the costs of paper, printing, storing, and document retrieval necessary when performing these tasks manually. It also greatly reduces administrative needs and human error since the solution provides a technology-driven, automated strategy. 

Improves Efficiency 

EDI automation created through an EDI strategy creates a seamless electronic document exchange between business partners. This electronic communication not only saves time and costs associated with manual processes for repetitive tasks, but it’s also the key part of an efficient workflow and reduces the risk of inaccurate documentation. EDI messages can automatically be sent using pre configured workflows.

Enhances Security

EDI standardizations ensure data and information are accurately formatted and securely translated before entering business applications.

Provides Visibility 

EDI provides full transparency in real-time with trading partners across the entire ordering and invoice process. This allows ecommerce businesses to make more informed decisions to continually improve workflows and ultimately deliver a consistently satisfying customer experience. 

Supports Positive Business Relationships

Faster communication and enhanced security when sharing data help to strengthen business relationships by improving efficiency and consistency during the order fulfillment process. As a result, goods are delivered to customers quickly and on time, maintaining credibility for businesses.

How the EDI Process Works

Businesses store information like purchase orders, inventory, billing, and shipping details on an enterprise resource planning system, also known as an ERP. EDI software integrates with the ERP to use the stored data elements for EDI document transactions. 

The ERP system then creates the purchase orders and invoices, which are transferred to the EDI software through a file drop or web service call. The system finally sends these business documents between the company and the appropriate partners. 

Preparation

Instead of manually preparing and printing purchase orders in the form of a paper document, the EDI system creates an electronic document with data sources which may include reformatted electronic reports into data files, enhanced existing applications automatically creating output files, and exported spreadsheets and other computer data. 

Translation

After electronic data has been submitted, it’s formatted per the EDI standard. The software translates information, such as names, amounts, quantities, and addresses, and maps them into standardized documents from business application forms and vice-versa.

Transmission

Large EDI messages can be batched and split into specific divisions to deliver to the appropriate business target. Additionally, EDI is protected by trading partner agreements which clarify terms and conditions and defines business standards for documents and protocols between trading partners. 

What Is EDI and the Basics of Transmission Types? 

The first transmission type of electronic data interchange (EDI) is a direct connection in which two computer systems are connected over the internet with no intermediary through secure protocols. EDI protocols include: 

  • HTTPS
  • Secure File Transfer Protocol (SFTP)
  • Simple Object Access Protocol (SOAP)
  • Applicability Statement 2 or AST 

The other transmission method is through a combination of both Direct EDI and a value-added network, or VAN, which is a third-party network responsible for handling data transmissions. To protect data quality, it’s essential to have governing processes in place to avoid missing or misplaced information. 

What Are EDI Standards?

Trading partners often use different information systems and have different requirements for sending and receiving information. To ensure the exchanged documents are compatible between companies, an EDI standard format is used.

There are many EDI standards, as well as versions of each standard. Therefore, business partners must collectively decide which standardized format to use during the implementation process. A trading partner will typically use a subset of the standard for each transaction they implement. The most common EDI translation formats are ANSI X12 or EDIFACT. 

ANSI ASC X12

The most widely used U.S. national official designation for EDI development and maintenance standards. The American National Standards Institute (ANSI) certifies the ANSI ASC X12 standard in the U.S.

EDIFACT

EDIFACT stands for electronic data interchange for administration, commerce, and transport and is used as the international standard developed by the United Nations. This standard allows multi-industry, multi-country exchanges around the globe.

How to Implement Electronic Data Interchange

Implementing EDI across your organization and network of trading partners is a complex process. Taking a systematic approach will help you deliver an effective EDI program. This 10- step process for successful EDI implementation will help you construct your EDI infrastructure, align your EDI solution with that of your partners, and establish common standards:

Develop Organizational Structure

EDI is a significant investment. Developing the correct organizational structure from the beginning will pay dividends as the program evolves. This ongoing communication is vital for educating all organizations as to how the EDI program will benefit them and how it will impact their processes. The primary elements of the structure include:

  • The EDI Coordinator – An IT professional with in-depth experience in delivering EDI solutions. As an important part of his/her function, the EDI Expert must stay in communication with all sectors of the company that will be affected by the EDI program to ensure their support and buy-in.
  • The Steering Committee – Headed by the EDI Coordinator, the committee typically consists of department heads of affected business units, the head of IT, and legal representatives.
  • Senior Management Support – As with any major IT program, there needs to be senior management commitment if the EDI implementation is to work.
  • Dedicated EDI Team – The EDI team is responsible for the actual implementation of the system. 

Conduct A Strategic Review

A strategic review will help to identify the most likely corporate applications for EDI deployment and set priorities for conversion to EDI. To that end, factors to be considered include the number of suppliers, customers, or other trading partners, and the volume and type of transactions to be exchanged. 

The strategic review should also include a description of the present systems in each functional area and an explanation of how EDI technology will improve them. Remember, the goal should be to improve the business cycle rather than simply automate it.

Conduct In-Depth Analysis 

Though the strategic review identifies the areas of  your organization that would most benefit from EDI, there are other elements to consider before selecting which business cycle to focus on initially, like: 

  • Which part of the organization is most ready for EDI?
  • Which cycle will cost the least to implement EDI?
  • Which will deliver the greatest savings/increase in profitability?

Brands typically answer these questions via a Cost Benefits Analysis (CBA) or an EDI survey of partners to ensure that any EDI solution that is created will be supported across your trading partner network.

Develop a Comprehensive Specification for the EDI Process

The results of the analysis step should provide the information you need to develop a comprehensive specification for the EDI standard. This includes:

  • The volume of expected EDI traffic and the IT infrastructure needed to support it
  • The capacity of internal network infrastructure to support EDI data
  • The network connections you need to manage traffic with trading partners
  • The programing required to ensure that internal systems comply with the data required by trading partners and EDI standards
  • The amount of customization required to integrate internal and EDI systems

Once you have this information, you can start designing your EDI format. 

Select The Correct EDI Network Provider (Van)

Your selection of an EDI Network Provider should be focused on your business requirements more than the provider’s technical capabilities. There are many important issues to consider, like: 

  • What do you want the EDI Provider to do?
  • What is the Provider’s reach?
  • What is the Provider’s pricing structure?
  • What is the Provider’s influence in your industry?

Integrate EDI With Your Business Computer System

For most EDI systems, the greatest development task is integrating EDI integration with existing corporate applications. Data required by trading partners and EDI standards must be “mapped” onto data contained in existing systems.

Integrate Data Across The Business

Before you can integrate data across the business, you will have to undertake a good deal of data analysis. An important reason to analyze each affected business system is to ensure its data exchangeability. Sometimes, obstacles need to be overcome, such as different business systems may contain the same data but in different formats.

Conduct Data-Mapping

Once the data analysis is complete and data structures understood, the ‘map’ is defined to the EDI translation software. For most EDI software packages or VAN services, the EDI specialist will be able to define the map.

Establish A Pilot Project

Before your EDI system goes live within your entire trading community, it is important to select a small number of partners to test the system in ‘near live’ conditions. Pilot project results must then be analyzed from an internal perspective to answer the following questions:

  • Can the EDI system maintain adequate control?
  • Does the system appear to provide the benefits projected in the original EDI study?
  • Will the system handle anticipated EDI traffic?
  • Are internal users satisfied with the result?

Roll Out To Trading Partners

The last action is to implement EDI across your trading partners. This should be done in a staged manner that reflects your current business priorities.

What to Expect from EDI 

What is the role of EDI in ecommerce? EDI will continue to benefit supply chains in the future and improve its capabilities by expanding on newer innovations such as AI and the Internet of Things (IoT). It will be established as a business rule rather than an exception. 

EDI already relies on artificial intelligence to monitor all connected information as it pertains to supply chain activity. AI agents will also be able to determine necessary reshipments, accept authorized returns, and establish the most efficient replacement source. 

With IoT, package condition and visibility will be improved by connecting EDI messages to shipments to deliver real-time alerts and messages. These network integrations provide companies with a comprehensive view of the entire supply chain and make changes as needed in real-time, strengthening the ecommerce fulfillment flow. 

Flowspace for Enterprise

Now that you know everything about Electronic Data Interchange, you can begin the process of implementing EDI with your organization. The only thing you need to get started is finding an industry partner to help coordinate fulfillment logistics.

With Flowspace, you’ll have one platform to help you store, manage, and fulfill your inventory from all your warehouses and fulfillment centers anywhere in the country. It streamlines the post-purchase experience providing a better experience for customers and a more efficient workflow for business through:

Order Management – Simplifies order fulfillment by seamlessly integrating all sales channels and storefronts, delivers real-time inventory insights, and easily creates new purchase orders.

Inventory Planning – Prevents stockouts and overflow by tracking and forecasting accurate inventory levels. Real-time visibility of buying trends and inventory analytics helps with future planning.

Network Optimization – Speeds up shipping times and reduces costs through a widely distributed network that automatically chooses the closest fulfillment center to get products closer to your customers and ensures fast, on-time delivery.

Real-Time Visibility – Minimizes the risk of low inventory with instant access to stock levels and insights. Plus, it provides valuable customer insights to optimize the entire supply chain and increase the customer lifetime value.

Flowspace offers a flexible, customizable fulfillment software solution to allow your company to grow and benefit from the efficiencies of automation technology. Contact us today to learn more and integrate seamlessly with Shopify, Walmart, ShipStation, Amazon, or your custom software.

 

Author Bio

Allison Champion leads marketing communication at Flowspace, where she works to develop content that addresses the unique challenges facing modern brands in omnichannel ecommerce. She has more than a decade of experience in content development and marketing.

 

Sources

  1. EDI Basics. How Does EDI Work? https://www.edibasics.com/what-is-edi/how-does-edi-work/
  2. IBM. What is EDI: Electronic Data Exchange? https://www.ibm.com/topics/edi-electronic-data-interchange