EDI and ERP integration: best practices, benefits and challenges
EDI-ERP integration is the connection of an electronic data interchange (EDI) platform with an enterprise resource planning (ERP) system to help ensure an automatic, efficient and seamless data flow between EDI and ERP platforms.
EDI ERP integration automates and accelerates processing and drives greater operational efficiency, faster order to cash (O2C) cycles, improved inventory and supply chain visibility, lower operating costs and more.
EDI and ERP, briefly
EDI solutions enable the automatic transmission of standardized electronic business documents (often referred to as EDI messages) and data. EDI is primarily used as a B2B integration for the exchange of documents such as invoices, purchase orders and shipping notices, but it is also used between disparate internal systems, such as ERP and CRM systems.
ERP systems manage and streamline an organization’s functions, processes and workflows through automation and integration. They are used to manage various business processes including finance, manufacturing, procurement, supply chain management and more.
EDI ERP integration connects EDI platforms with internal ERP systems to facilitate the automatic and seamless flow of information between the two systems. Without this integration, EDI data would need to be manually input into ERP and other internal systems (and conversely, from internal systems into EDI software).
There are several ways in which EDI platforms and ERP solutions can be integrated, including native integrations within ERP or EDI software, middleware integrations such as iPaaS platforms, custom API-based integration, database-level integration, file-based integration and managed EDI services.
Direct integration
Some EDI platforms offer native connectors or modules built specifically for popular ERP systems. These integrations are pre-built, vendor-provided integrations that are designed for a specific ERP’s data structure and workflows. Though these integrations often use application programming interfaces (APIs) for the actual exchange of information, the vendor develops and maintains these APIs, rather than the client organization.
These integrations present a ready-made solution that enables a direct connection between EDI and ERP software and the automatic translation of EDI documents. Though a direct integration significantly reduces the coding and setup work required, as with most integration processes, some configuration and data transformation might still be required to account for differences in business processes and data structures among trading partners.
For example, an organization might still need to map custom fields or non-standard data structures to EDI segments, adjust for trading partners that use optional fields in different ways or categorize products differently, or create business-specific logic for varying pricing structures, codes, identifiers and naming conventions.
Because there is no “middleman,” direct integration is often a fast, high-performance option. However, vendor lock-in can be a concern.
Middleware/iPaaS platforms
Organizations often use integration middleware such as iPaaS platforms to connect EDI and ERP systems. iPaaS platforms are suites of self-service, cloud-based tools and solutions used to integrate data from multiple applications or platforms.
iPaaS platforms are generally used to connect several enterprise systems, beyond just EDI and ERP integration, and are popular options for larger organizations that need seamless data exchange between many internal and external systems.
API-based integration
API-based integration can provide the same functionality as a direct integration (while offering greater flexibility than a vendor-provided direct integration), but in this scenario, the client organization, or a contracted third party (rather than the EDI software vendor), builds the integration between systems. Modern EDI systems can expose and consume APIs—often REST or SOAP APIs—that communicate with an ERP system, and an organization’s developers build the connection, writing code for API calls on both sides, mapping data fields between systems, creating transformation logic and more.
This presents a flexible option that provides an organization with great control: an organization’s developers can tailor the integration to their specific systems and needs. However, such a solution requires ongoing development and maintenance and that responsibility falls to internal teams.
Database-level integration
In this scenario, EDI software writes directly to staging tables in an ERP database, or both systems write and read to a shared database. This can be a fast option, but it requires careful management to mitigate data integrity risks. System upgrades can also be complicated in this shared database model.
File-based integration
A traditional approach, this integration is a simple exchanging of “flat file” data, such as with CSV (comma-separated values), XML (eXtensible Markup Language), or TXT (text) files, often through shared folders or SFTP servers.
A simple, reliable option, it is slower than the real-time options noted in this article and requires file monitoring and error handling. It is the most “low-tech” of the integrations, and might be satisfactory for smaller organizations with less intensive data exchange needs. A significant drawback of file-based integration is the bottleneck of uploading and downloading the files, which means there is no real-time visibility into current operations.
Managed EDI services
Some EDI providers offer ERP integration services. Such services range from pre-packaged options for popular ERP systems (like the native integrations previously mentioned) to fully managed options that include the creation of custom integrations, and integration management and maintenance.
Key benefits of ERP EDI integration include:
Integrating EDI and ERP systems enables automatic data translation and transfer between systems, eliminating the need for manual rekeying of data received through an EDI platform and accelerating processing times. Automatic transfer also helps reduce data entry errors and the time it takes to correct them.
Purchase orders, shipping notices and other documents move seamlessly in and out of ERP systems, reducing order-to-cash and procure-to-pay cycle times.
Supply chain movements and inventory updates are automatically posted within ERP systems in real-time, providing teams with more accurate updates on the status of purchase orders, invoices shipments and more. This visibility can help strengthen decision-making and forecasting.
Because automatic data transfer helps eliminate data entry errors, misplaced documents and other issues, EDI ERP integration can reduce error-correction costs, such as chargebacks and penalties.
The accelerated transfer speeds and improved visibility granted by an automated exchange can also prevent revenue leakage—money a company earns but fails to collect due to errors, inefficiencies or workflow gaps—reducing financial, operational and data-related losses.
As an enterprise grows, and adds business partners, an integrated, automated system can process the increased volume of transactions more efficiently, and more quickly, than a manual entry system. A well-configured integration can enable a business to scale without additional staffing costs or processing delays.
The automatic documentation of all transactions can simplify audit processes and compliance reviews, helping organizations meet regulatory requirements.
Common EDI ERP integration challenges include:
EDI uses standardized formats (such as X12 or EDIFACT) with specific segment structures. ERP and other internal systems have their own data models. For an integration to be successful, data formats must be accurately translated and fields accurately mapped between systems. In configuring transformation logic, common pain points include the handling of optional fields, fields that must be populated to multiple tables, and varying date formats.
EDI relies on master data accuracy (pricing, product codes, addresses, for example). Inconsistencies between ERP data entries and the data partners expect can cause integration and transfer issues. Maintaining synchronized data across multiple platforms, and between several business partners, presents an ongoing challenge.
Requirements might be different between business partners. For example, partners might use different EDI standards or use custom data fields or have specific validation requirements. Onboarding a new partner and configuring an integration that works with their unique system can require mapping changes, multiple rounds of testing, clear coordination and communication, and time.
While an automated system often provides stronger performance and greater scalability than its manual counterpart, surging transaction volumes, complex transformations and large EDI documents can cause bottlenecks and challenge integrations.
Organizations often lack the cross-platform monitoring capabilities needed for visibility across integrated workflows. As such, it can be difficult to spot failed transactions. Without clear processes for identifying failed transactions, automated retry mechanisms, or clear manual review protocols and paths, organizations can struggle with error management.
EDI transactions often contain sensitive business information and require encryption and audit trails to remain compliant. And each trading partner might have different EDI compliance and authorization requirements. Meeting the varying compliance and security requirements of many different business partners can add significant complexity to integrations.
Software updates, API changes and other adjustments to integration components often require new rounds of configuration, testing and troubleshooting. All of this is time-consuming, compounded by the number of partners for which integrations must be maintained.
To best mitigate integration challenges and make the most of potential integration benefits, organizations often prioritize:
A strong foundation
Choose an integration solution that fits business needs and available resources. An organization that plans to integrate several internal systems with an EDI platform, has limited developmental resources, or expects to consistently add new partners and integrations might choose an iPaaS platform that helps centralize integrations and provides some pre-built connectors and low-code solutions (rather than build all integrations in-house). Regardless of strategic direction, the key is that it’s well-considered and planned for.
Clean up data before building an integration, checking product codes, pricing tables and other data in an ERP for accuracy. Clear and comprehensive data governance structures can help maintain an orderly system.
System reliability
Establish error handling as a founding principle. Successful integrations often include automatic retries for transient failures, automatically generated logs for all transactions and clear steps for exceptions that require manual intervention.
Much of a system’s reliability relies on data quality, as data inconsistencies and formatting issues are common causes of failure. As such, multiple data validation points should be built into the system. This precaution helps ensure data quality as it enters and exits an ERP system and routinely validates data within the ERP itself. Proactive detection helps flag errors before they cascade into larger, more costly issues and contributes to a more reliable system overall.
Observability
An organization that can view system health in real-time is better equipped to make adjustments that avoid errors and performance degradation. Organizations often create dashboards that enable a range of stakeholders, not simply IT staff, to view success rates, order statuses, processing bottlenecks, transfer failures and more in real-time.
This information helps teams accelerate processes and improve partner relationships. An observable system also facilitates the automatic creation of audit trails. These detailed transaction logs are invaluable when troubleshooting integration issues or resolving discrepancies with business partners.
Balancing scalability and flexibility
It’s wise for integrations to be created with growth in mind: how can the system be built to handle additional business partners and greater transaction loads? And what might those loads look like as the business scales? Addressing such questions up front, and following up with rounds of load testing, help highlight bottlenecks before they impact business workflows.
However, bespoke solutions across the board don’t make for the most scalable systems. While each partner might require some degree of integration customization, standardized templates and transformation logic should be built and reused when possible, with the ability to adjust for partner specifications.
For example, a modular approach to integration design that separates functions such as extraction, transformation and validation enables the reuse of certain components when possible. This approach can also simplify troubleshooting, enabling the fixing or customization of a certain integration component without affecting the entire integration.
Version control is also an important part of flexibility. Careful, comprehensive versioning practices provide a detailed history of updates that simplifies rollback in the case of an issue with a new version.
In short, a strong integration approach manages complexity to fit the needs and capabilities of the organization and its business partners while remaining cost-effective and sufficiently scalable.
Partner relationships
Standardized and documented onboarding processes help lay the foundation for a successful partnership. Templates for common partner configurations can help accelerate the onboarding process and service level agreements (SLAs) clearly outline what is expected of all parties.
Security and compliance
To protect the organization and its partners, integrations should incorporate security measures such as encryption for data in transit and at rest and secure authentication protocols. Regular security reviews help organizations spot weaknesses in their security posture and update protocols to thwart new and developing security threats.
It is important that integrations and data handling practices comply with regulatory and partner requirements. Comprehensive audit trails are useful in maintaining and demonstrating compliance in the case of a regulatory review or partner disagreement.