Electronic data interchange (EDI) implementation

EDI solutions define the location and order of information in documents, automate document transmission and generally provide a secure channel for exchange. Among other benefits, EDI helps reduce the errors and costs that accompany manual processes. The concept is relatively straightforward; however, the implementation of EDI can be challenging for several reasons.

For example, each trading partner might have its own data fields, formatting conventions, internal security requirements and other specifics that need to be standardized for EDI, even if these partners use the same EDI standard. Setting up mapping software, which translates internal data such as names and quantities into EDI-compliant code, can require complex conditional logic. EDI is notorious for requiring precision: trading partners must use the same codes, date structures, address formats and more. 

The benefits of EDI implementation are significant: reduced costs, time savings, improved accuracy and security based on established standards. Understanding the implementation process and a well-executed implementation are key to realizing these benefits.

EDI provides both a method for transforming documents such as purchase orders, invoices, shipping orders, claims and receipts into standardized digital files and a platform that enables business parters to automatically exchange such information.

EDI software is often integrated with other enterprise platforms, such as enterprise resource planning (ERP) and customer relationship management (CRM) platforms. EDI software uses data mapping and transformation rules, including conditional logic, to automatically extract and consolidate data from databases, spreadsheets and other sources into standardized digital files for transmission.

EDI documents can be exchanged directly, through protocols such as Applicability Statement 2 (AS2), File Transfer Protocol (FTP) and Secure File Transfer Protocol (SFTP), or through value-added networks (VAN). In a VAN, a third-party network manages the data transmission, often using a mailbox to temporarily store documents where the recipient can retrieve them.

Different industries use different EDI standards. There is no “right EDI” standard; use depends on the specific business needs of the organizations involved. Common standards include:

ANSI ASC X12: A general-use standard most commonly used in North America for business-to-business (B2B) transactions.

HIPAA: A version of ANSI ASC X12 designed with extra security measures to conform to healthcare requirements in the US.

EDIFACT: A global standard developed by the United Nations and commonly used for international transactions.

ODETTE: Most commonly used by the automotive industry in Europe.

TRADACOMS: An older standard, but still sometimes used in the UK for retail and manufacturing transactions.

EDI implementation can be complex and require a significant up-front investment of time, capital and labor. Regulations can vary across locations and industries and are subject to change due to government standards, technical updates and changes in partner requirements. When not properly implemented, EDI can result in errors, financial losses (due to chargebacks and other factors) and the loss of business. For many organizations, the key benefits—efficiency, accuracy and cost savings over time—outweigh these risks. In some cases, EDI is a prerequisite for doing business: for example, an auto parts manufacturer might need to implement EDI to sell to big box retailers.

A thorough plan can help organizations mitigate the challenges of EDI implementation.  

This EDI implementation guide addresses self-managed EDI implementation; for third-party, fully managed implementation, much of what follows is handled by the EDI service provider.

The first question an organization should ask is, “Why are we implementing EDI?” In some cases, that might be due to client requirements. The auto parts manufacturer might have an opportunity to sell to a high-volume retailer such as Walmart, which requires the use of EDI. Or perhaps the company sees the possibility of selling to a retailer like Walmart in the future and wants to set up EDI with an eye on future growth. 

These two scenarios will result in different implementations of EDI. In the first, a partner-specific business reason will require rigid adherence to the standards and practices for that client. In the latter scenario, the goal will be maximum compatibility to optimize return on investment from a variety of possible clients. One client in the UK might want to use the ODETTE standard, for example, but if our auto parts manufacturer seeks to primarily sell to US-based retailers, ANSI ASC X12 might make more sense to adopt for high transaction volumes.

Companies often must use different standards for different clients and this is part of what can make implementation complex: organizations might need to maintain different mappings and translation logic for each partner or EDI standard. 

Scope creep, in which project goals continually expand, becoming unclear and unmanageable, can be a challenge in any large project. For a successful EDI implementation, it’s important to define the scope upfront. 

Key factors to consider include:

Who will the organization be exchanging documents with? This should take both current and potential clients into account. Given that different partners might require different standards, identifying partners is a vital part of defining scope. The process of adding a new partner to an EDI implementation requires significant time spent on mapping, workshopping and testing.

What documents will be exchanged and from where will this data be sourced? What document formats and standards will be used and what data fields need to be mapped? Will the organization be both sending and receiving documents,or will this be a unilateral exchange? Exploring and answering these questions will help set up a successful implementation.

What internal integrations must be configured? EDI platforms are often integrated with other enterprise platforms, such as ERP, CRM, warehouse management systems (WMS) and transportation management systems (TMS). 

Third party EDI platforms such as Cleo and TrueCommerce can also facilitate these integrations for organizations that opt for a managed solution. 

In this early stage of EDI implementation, it is helpful to determine which team members and stakeholders will be involved in the decision-making and implementation processes. These might include:

Executive sponsor: The senior person who is leading the initiative, securing resources, resolving cross-departmental conflicts and making final decisions.

Project manager: The project manager coordinates with all other team members to usher the implementation through from ideation to planning, execution and launch. The project manager is responsible for creating the project’s timeline and ensuring that milestones are met.

EDI analyst: This is an EDI specialist who understands the standards to be used and can build the EDI mapping protocols to translate data into those standards. The analyst might also be responsible for partner communication and compliance. This might be an external contact, especially if the EDI implementation includes a third-party service provider.

Integration specialist: A developer or IT team member who can integrate EDI software with existing enterprise platforms. Along with the EDI analyst, the developer can also build the conditional automation trees that trigger the creation and transmission of electronic documents.

Accounts receivable (AR) representative: The accounts receivable representative primarily manages the order-to-cash (O2C) cycle and is responsible for incoming revenue and outbound billing. In an automated system, the AR representative (and the AP representative) manage exception handling, system monitoring and workflow oversight.

Among other tasks, this representative helps ensure that the automated system accurately extracts billing data from sales orders, monitors the receipt of automated remittance advice, and reviews EDI transmission errors that require human resolution.

Accounts payable (AP) representative: The AP representative primarily manages the procure-to-pay (P2P) cycle and is responsible for outgoing payments and incoming vendor invoices. Their role includes overseeing invoice matching and automated payment execution processes, and investigating and resolving disputes that the automated system flags for review.   

Logistics manager: This might be a warehouse fulfillment manager, charged with contributing to the understanding of how products are located, packed and shipped. Including this team member helps ensure that the physical movement of products matches the digital documents.

Customer service: This team member helps the team understand how incoming orders are handled, including exceptions and errors, such as what happens in an EDI system if a product is out of stock.

IT/security rep: This team member is responsible for system security, including configuring encryption protocols and firewalls, managing certificates and creating disaster and recovery plans.

Trading partner: The EDI process is a two-way communication and it’s important to involve a team member from the client organization from the start. The auto parts manufacturer from our earlier example should seek to include the retail client’s EDI coordinator to ensure compliance and reduce errors later on in the implementation process.

Once the scope has been defined and the team assembled, the next major decision lies in the choice of integration approach. It’s not uncommon for an organization to use more than one model, for example, point-to-point with a large, primary client and VAN for a collection of smaller ones. 

There are several possible connectivity models which can be combined or used individually.

Also sometimes called direct connections, point-to-point connections use secure communication protocols to establish computer-to-computer links between trading partners. Typically connected using protocols such as AS2 or SFTP, point-to-point connections are fast and secure and typically do not include EDI transaction fees. 

However, while point-to-point connections do streamline the connection, they only connect two partners. If a manufacturer wants to implement EDI with multiple vendors, the company’s IT team will have to set up a point-to-point connection for each vendor. This can create workflows that are expensive and difficult to manage. 

VANs are private networks that create what’s called a “mailbox.” Documents are dropped into the VAN mailbox and the VAN allows approved partners to retrieve them. This structure enables a single connection to service many different clients: the VAN simply routes documents to their intended recipient. This convenience can also come with a per-document cost, making it less valuable in cases with only a single client, but its scalability can be a benefit for multi-client situations.

Browser-based EDI portals, also known as web EDI, are lightweight methods of instituting EDI without the high cost and overhead of more in-depth systems. Web EDI portals are websites that provide basic EDI services, such as receiving purchase orders and submitting invoices. Web EDI portals guarantee compliance and eliminate the need for dedicated EDI infrastructure management.

However, web EDI portals also more manual labor than full-service options. Employees still must read, interpret and execute orders received through web EDI and manually mark orders as shipped or received. Web EDI is often used for either smaller businesses or as a test to see whether EDI would be a beneficial addition to the organization. The initial investment is low, but it offers limited scalability. 

Deciding whether to self-manage or to outsource management is one of the most important choices an organization can make in the process of implementing EDI.

A self-managed EDI operational model is one in which the organization takes complete ownership of the EDI implementation and management process. In this model, the organization purchases all necessary software and licenses itself, configures its own servers and employs IT and EDI staff to manage EDI systems. This setup provides greater control, increased privacy and reduced per-transaction costs but requires a greater initial investment.

In this scenario, the organization pays for a fully managed EDI service. A third-party managed services provider hosts their own EDI software in the cloud and this vendor handles EDI onboarding and EDI implementation: data mapping, translation, security and more.

Many EDI providers have pre-approved EDI links with major retailers. This structure can be convenient and cost-effective, especially for smaller organizations without the resources to conduct these tasks in-house, but it does outsource control to a third-party. Pricing is often bundled in SaaS models—monthly subscription fees, per-partner fees, per-transaction fees—and this lack of transparency can make it difficult to predicts costs when transaction volume or partner count grows.

A SaaS option presents a middle ground between managed services and self-managed EDI. The provider still hosts the EDI translation software in the cloud, but in a SaaS setup, the client team builds the data maps, addresses errors and exceptions and updates the SaaS software when the compliance requirements change. A key benefit of SaaS EDI is that it typical includes direct integrations to ERP systems and WMS platforms. It is a lower cost option than a fully managed system, but requires a level of internal expertise. 

Once the organization has chosen integration and operational models, the implementation team can start configuring the internal systems that will support EDI operations. Organizations using a managed third-party provider will have much of this handled on their behalf, but understanding the components involved might still be useful for oversight and troubleshooting. 

Internal EDI infrastructure has four broad layers:

• Working environment: This is a sandbox where engineers can install and configure software without risk to live systems.
  
  
• Connectivity layer: This includes the certificates, endpoints and server configurations that enable secure transmission between partners.
  
  
• Integration layer: This connects EDI software to internal platforms such as ERPs; this ERP integration can be built using older mailbox-style polling or newer API and webhook approaches that trigger exchanges in real time.
  
  
• Data management layer: This includes both the upfront work of cleaning and organizing internal data and the ongoing archiving of raw transaction records required by many regulatory frameworks.
  
  
• *Mapping—how internal data fields translate into EDI-compliant formats for each trading partner—cuts across all these layers and is typically the most time-consuming part of the process.

Once the internal infrastructure is constructed, the team can begin the testing phase. This step is essential for finding errors, mistranslations, inefficiencies and data security flaws that can cause business problems down the road.

In the unit testing phase, small components of the overall process are run within a test environment to help ensure they respond as desired. Our auto parts manufacturer could, for example, create a test invoice for the sale of a single part to a single client. The team will then analyze the output to see whether the EDI translator successfully and completely read and translated the file into a compliant document.

Once the team is satisfied with the results of unit testing, end-to-end testing can begin. In this phase, the complete process on the internal side will be tested. For example, the organization might take a purchase order, import it into the ERP, create a sales order, simulate shipping and request an invoice. The goal is to confirm that data flows correctly between internal systems.

This phase is where communication with a trading partner’s EDI coordinator really pays off. The coordinator can give your team access to their own testing environment to run a simulation. Then the two partners will work together to check that all technical specifications are met, security protocols observed and documents are sent and delivered without error. This might include a particular document called an EDI 997, which is a document that confirms receipt and indicates acceptance or rejection.

The moment a new system like EDI goes live is sometimes called a “cutover,” a reference to moving from the test environment to a live production environment. But this cutover process doesn’t need to be an all-or-nothing proposition. Many organizations might find it prudent to launch in stages. That could mean going live for EDI for a single partner, or for a single type of document. This smaller launch minimizes the potential that one error can foul up the entire business.

After the EDI process is live, monitoring is especially vital for the first few weeks. Any errors, failures or delays should be caught as quickly as possible and addressed. Communication with business partners should be frequent and consistent to ensure compatibility and accuracy in all functions. The team should also monitor data mapping, translation and data integration to ensure that all is working as intended. Errors and exceptions will likely pop up, which is why close monitoring is a necessity in this early period post-rollout.

One way to check for efficacy is with that all-important 997 document. There should be a matching 997 for each sent business document (and each 997 should be checked for acceptance). Each invoice the auto parts manufacturer sends to a client, for example, should return its own 997. If the number of invoices doesn’t match the number of 997s, or if there are rejections, there’s a problem somewhere.