FAQs Answered: Everything You Need to Know About EDI

As business leaders, you have probably heard the term “EDI” as you talk to your peers or vendors that you work with day in and day out. Put simply, EDI, or Electronic Data Interchange, is a way to exchange data between trading partners, or anyone with whom you are exchanging data. This could be be a customer, vendor, or warehouse. While this type of technology has been around for quite some time, it continues to become more important each year for businesses of all types.

Whether you are in manufacturing, retail, LBM, healthcare, financial, or logistics industries, for example, EDI can help streamline supply chain processes and improve efficiency. In fact, 60%-86% of businesses in the supply chain sector use EDI. Many of them see that EDI provides automation that lowers labor expenses and can save them hundreds of hours annually.

However, many businesses still have questions about EDI. So, let’s dive into the most frequently asked questions about EDI.

EDI stands for Electronic Data Interchange. It is a way for businesses to exchange important information in a standardized format. Such information includes purchase orders, invoices, and shipping notices electronically, eliminating the need to use paper, fax, phone, or email.

EDI works by converting business documents into a standardized electronic format that describes each piece of data and can be transmitted between trading partners. This standardized format, also known as EDI document or EDI transaction, allows different computer systems to understand each other easily. The EDI document is then sent through a secure network, such as a VAN (Value Added Network), AS2 (Applicability Statement 2), or SFTP (Secure File Transfer Protocol). The receiving party then translates the EDI document back into a readable format.

EDI is important because it allows businesses to exchange documents electronically, eliminating the need for paper-based processes. This results in faster and more accurate document exchange, reducing the risk of errors and delays. EDI also improves efficiency by automating manual processes, reducing the need for data entry and manual document handling. In some industries, transacting via EDI is a requirement to do business with larger companies like big box retailers, for example.

The benefits of EDI include:

• Improved efficiency: EDI automates manual processes, reducing the need for data entry and manual document handling.
• Faster document exchange: EDI eliminates the need for paper-based processes, resulting in faster document exchange.
• Reduced errors: EDI reduces the risk of errors and delays caused by manual data entry.
• Cost savings: EDI reduces the cost of document exchange by eliminating the need for paper, printing, and postage.
• Improved supply chain visibility: EDI provides real-time visibility into the status of orders, shipments, and invoices, allowing businesses to make more informed decisions.

Implementing EDI involves several steps, including:

1. Assess your business needs
   The first step in implementing EDI is to assess your business needs. Identify the documents that you need to exchange with your trading partners and the frequency of these exchanges.
2. Choose an EDI solution
   Once you have identified your business needs, you can choose an EDI solution that meets your requirements. There are several options available, including a web-based EDI solution, an on-premise EDI solution, or a managed EDI service. You will also want to investigate EDI solutions that may already be offered through your ERP provider.
3. Set up EDI connections
   After choosing an EDI solution, you will need to set up EDI connections with your trading partners. This involves exchanging EDI information, such as EDI addresses and document types, with your trading partners.
4. Test and validate EDI connections
   Before going live with EDI, it is essential to test and validate your EDI connections with your trading partners. This ensures that your EDI documents are being transmitted correctly and that your trading partners can receive and process them.
5. Go live with EDI
   Once you have tested and validated your EDI connections, you can go live with EDI. This involves sending and receiving EDI documents with your trading partners.

The time it takes to implement EDI depends on several factors, including the complexity of your business processes, the number of trading partners you need to connect with, and the type of EDI solution you choose. On average, it can take anywhere from three to six months to implement EDI.

The cost of EDI implementation varies depending on the type of EDI solution you choose, the number of trading partners you need to connect with, and the complexity of your business processes.

Yes, EDI can be integrated with your ERP (Enterprise Resource Planning) system. This allows for seamless data exchange between your ERP system and your trading partners. EDI integration with ERP systems can help businesses improve efficiency, reduce errors, and gain real-time visibility into their supply chain processes.

EDI integration works by connecting your EDI solution with your ERP system. This allows for the automatic transfer of data between the two systems. For example, when an EDI document is received, the data is automatically transferred to your ERP system, eliminating the need for manual data entry.

EDI and API (Application Programming Interface) are two different methods of exchanging data between systems.

• EDI works by standardizing data from physical documents into electronic format to help businesses quickly share important data with one another.
• API is a set of web-based protocols that allow different systems to communicate with each other in real-time. APIs are often used for software development.

The answer to this question depends on your business needs. EDI is best suited for exchanging structured data, such as business documents, while API is better for real-time data exchange between systems. In some cases, businesses may use both EDI and API to meet their data exchange requirements.

Yes, EDI can be used with trading partners outside of the country you are currently in. EDI is a global standard for exchanging business documents, and many countries have adopted EDI as the standard for electronic document exchange.