What is electronic data interchange?

Electronic data interchange (EDI) is the intercompany communication of business documents in a standard format. With EDI, the information moves directly from a computer application in one organization to an application in another.¹ EDI standards, which specify what information goes where in an EDI document or message, eliminate the need to manually rekey information so that it can be accepted. This automated capability enables information to be shared rapidly, instead of the hours, days or weeks required with paper documents or other methods.

Businesses use EDI to integrate and share a range of document types — from purchase orders to invoices to requests for quotations to loan applications and more. In most instances, these organizations are trading partners that exchange goods and services frequently as part of their supply chains and business-to-business (B2B) networks.

An overview of EDI

All EDI transactions are defined by EDI message standards. It is important to have good governance processes for data quality. When information is missing or in the wrong place, the EDI document might not be processed correctly.

Standards are the basis of EDI conversations.² There are several organizations that define the EDI message standards, including ODETTE, TRADACOMS, GS1, PEPPOL and the Accredited Standards Committee X12 (ASC X12).

In general, EDI transmissions can be broken down into two basic types:

  • Point-to-point or direct connections. Two computers or systems connect with no intermediary over the internet, generally with secure protocols.
  • Value-added network (VAN). A third-party network manages data transmission, generally with a mail boxing paradigm.

EDI internet transmission protocols include Secure File Transfer Protocol (SFTP), Applicability Statement 2 or AS2, an HTTPS-based protocol, Simple Object Access Protocol (SOAP) and others.

EDI data is made up of data elements such as sender ID and receiver ID. Data segments combine two or more related elements to give them greater meaning, FNAME and LNAME can combine to form CUSTOMERNAME for example. Envelopes structure different types of data and carry the sender and receiver address information.

EDI document flow or message flow describes the movement of EDI messages to various inbound and outbound addresses and departments to execute a business process or transaction.³

Why EDI is important

The world as we know it runs on and depends on EDI, a global, foundational B2B technology. It has gained mainstream adoption throughout businesses worldwide as the preferred means to exchange documents in the B2B transaction process.

As an automation technology, EDI delivers core business benefits:

  • Saves time and money. Automates a process previously manually executed with paper documents.
  • Improves efficiency and productivity. More business documents are shared and processed in less time.
  • Reduces errors. EDI’s rigid standardization helps ensure that information and data is correctly formatted before it enters business processes or applications.
  • Improves traceability and reporting. Electronic documents can be integrated with a range of IT systems to support data collection, visibility and analysis.
  • Supports positive customer experiences. Enables efficient transaction execution and prompt, reliable product and service delivery.

EDI is important to both large and small businesses. For large organizations, EDI enables standards to be instituted across trading partners to consistently achieve benefits. For smaller organizations, adherence to EDI offers greater integration with larger firms that have big budgets and strong influence.

Metalanguages like Extensible Markup Language (XML) or JavaScript Object Notation (JSON), and application programming interface (API) integration complement, rather than replace EDI. Companies must be ready to handle an ever-increasing number of document formats and transmission options. One global manufacturer routinely exchanges about 55 different document types with nearly 2,000 partners.

Effective EDI

For some enterprises, EDI can be difficult to implement. One reason is the need to keep pace with shifting government regulations, standards and updates. It is also inherently complex, as it needs to accommodate the complexities of global business needs. For example, each trading partner in a B2B network can present unique requirements. Even though two partners may agree on which EDI document to use, each can have unique formatting requirements that need to be supported. These factors, and others, have led many organizations to outsource their EDI.

Whether kept in-house or outsourced, there are some basic conditions, capabilities and resources needed to implement EDI effectively. In addition to obvious factors like agreement on document types, secure transmission methods, and requisite hardware and software, an effective EDI implementation should consider:

  • Translation or mapping software. Takes fields such as names, addresses, currency amounts, part numbers and quantities, and maps them from business application formats into standardized documents and vice versa.
  • Batch enveloping or deenveloping capabilities. Supports large EDI message batches to enable senders and receivers to wrap and unwrap transactions which can then be grouped from or split to several divisions or areas of a trading partner’s business.
  • Message routing mechanisms. Required once a message is deenveloped to sort messages for different groups and deliver them to the appropriate targets. Message transformation may also be required to get the message into the correct format for its destination.
  • Trading partner agreements (TPA). Clarifies terms and conditions, establishes standards for business documents and defines communications and business protocols between trading partners.

The future of EDI

Consider this scenario. Today, a chargeback related to a damaged shipment is triggered using an EDI 214 document — a Transportation Carrier Shipment Status Message. The material in the shipment is unusable or unsaleable. Disputes will most likely arise based on the chargeback.

But in future supply chains, EDI will be the core document exchange capability to support innovations like the Internet of Things (IoT), blockchain and artificial intelligence (AI).⁴ Future EDI will use:

  • IoT sensors. Incorporated into the shipment’s packaging and tied to periodic EDI 214 messages to improve package condition visibility in near real time.
  • Blockchain technology. Underpinning EDI information flows for shipments can offer a shared version of the truth to help quickly resolve and even avoid chargeback disputes.
  • AI agent. Monitors all relevant events and information connected to the shipment, and can identify a non-compliant event, determine if a reshipment is required, analyze the most efficient source of replacement, initiate a new shipment and an authorized return.

Source

¹ “Electronic data interchange (EDI): An introduction,” Roger Clark, Business Credit, Oct 2001

² “Electronic data interchanges,” Wikipedia

³ “EDI and B2B basics,” Sriniedibasics, 20 Aug 2011

⁴ “The future of EDI: An IBM point-of-view,” IBM Watson Supply Chain, Oct 2018. (PDF, 1 MB)