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Electronic Data Interchange

A Guide to Answer All Your Questions

Electronic Data Interchange

Do you know that for each purchase cycle, a business processes almost seven documents? Yes, you heard it right. Moreover, as the size of a business grows and its operations expand, the payment cycle becomes even more complicated. Needless to say that it leads to more chances of errors or missing documents. The stakes are too high to allow these mistakes to repeat. Suppose, a buyer denies the order after you have fulfilled it, it can be difficult to force payment. Or, if you get the wrong total in your invoice, it will delay the cash flow as identifying the issue and sending a new invoice is time-consuming. Do you think that these errors of missing documents and wrong data entry are unavoidable in business? The answer is no, it’s not. With EDI, Electronic Data Interchange, you can maintain a standardized relationship with buyers and suppliers while ensuring smooth electronic data exchange at the warehouse level.

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EDI refers to a technology that enables businesses and trading partners to electronically exchange documents, such as purchase orders and invoices. EDI software is a perfect solution to get more tasks done within faster logistics timelines and also mitigates errors by reducing human intervention and automating B2B communication. EDI solutions are used by many industries and enterprises, such as the ones selling goods, offering healthcare services, producing ships, and many other retailers and manufacturers. EDI transactions are standardized and independent of the communication system used by organizations to send and receive EDI data.

Although EDI was introduced in the 1970s, it has evolved immensely in the past years and exploring new uses now, including enabling supply chain automation, streamlining workflow and business processes, and digital transformation. Also, there are several other concepts to understand about EDI.

Therefore, we have prepared a comprehensive guide, a resource hub, that will give an insight into every aspect of EDI. Here’s a sneak peek into all the points that we have included in this blog:

What Is EDI (Electronic Data Interchange)?

Electronic Data Interchange (EDI) is a digital technology used by supply managers as an automated way for computer-to-computer exchange of standardized business documents between partners. Companies can send and receive information within minutes from another business entity via a secure connection, thereby ensuring paperless and effective communication. The technology has replaced paper-based data exchange, such as fax and mails.

It uses structured data which means that it has digitized the information that was previously transmitted manually. Earlier, employees used to handle the documents and enter data manually, which often resulted in delayed transactions and increased errors. Now, EDI manages these processes in a few hours or even minutes.

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To make things clearer and give you a complete sense of EDI, we have explained every factor below:

Computer-to-Computer

With EDI, businesses can switch from manual B2B communication, such as postal mails and fax. Documents can directly flow from the sender’s computer application system to the receiver’s system via a secure network connection.

Business Documents

Using EDI, organizations can exchange 1000s of standard business documents automatically. Some of the common examples of EDI documents are invoices, inventory documents, purchase orders, shipping statuses, payment confirmations, custom information, etc.

Business Partners

The two different organizations or business entities that are involved in the exchange of EDI documents are referred to as business or trading partners. For example, company X places an order to buy goods from company Y. The former sends the purchase order to the latter and it sends back invoices and shipping notices to the former.

Standard EDI Format

Computer systems process EDI documents using standard computer-friendly formats. The standard describes data and its format, such as type, parties involved, actions to take, date/month/year, etc.

With standard format, there are no company-to-company variations and all the computer systems of business partners communicate in a common language. Popular EDI standards are EDIFACT, ANSI X12, HIPAA, and more. Each industry and region use different EDI standards which we will discuss later in this blog.

What Is an EDI Transaction?

EDI transaction is a term used for business documents or messages that are shared between trading partners. The companies or partners use EDI standards to streamline and automate the entire process, such as invoices, purchase orders, tracking, payments, and other reports. The most frequently used EDI standard is EDIFACT which was developed by the UN and used globally. Another one is ANSI X12 which is used in the USA. Every EDI document must include a minimum amount of critical data because, without it, the document is useless. With strict adherence to EDI feed formatting rules, it is precisely defined where and how each part of the data will be found on the document.

EDI transactions are denoted through numbers and each document is assigned one of these numbers from the EDI public format. For example, an 850 transaction number is for purchase order and 810 is used for invoices. Once the EDI translator receives a document, it uses an alpha-numeric identifier to instantly recognize the order number, company name, items in the order, and price per product. The purchase order will be ORDR and the invoice will be INVOIC. The EDI transactions used by businesses depend on the industry and geographic region and the list can be quite long as it covers all areas, such as order information, patient details, and more.

In simple terms, EDI transactions replace printed documents and facilitate the information exchange between companies. They enhance the overall data transfer process through seamless integration and automation of B2B workflow between internal and external systems, cloud ecosystems, and applications.

List of Common EDI Transactions and EDI Codes

EDI 204 Motor Carrier Load TenderEDI 210 Motor Carrier Freight Details and Invoice
EDI 211 Motor Carrier Bill of LadingEDI 214 Transportation Carrier Shipment Status Message
EDI 270 Healthcare Eligibility/ Benefit InquiryEDI 271 Healthcare Eligibility/ Benefit Response
EDI 276 Healthcare Claim Status RequestEDI 277 Healthcare Claim Status Notification
EDI 278 Healthcare Service Review InformationEDI 310 Freight Receipt and Invoice (Ocean)
EDI 315 Status Details (Ocean)EDI 753 Request for Routing Instructions
EDI 810 InvoiceEDI 811 Consolidated Service Invoice/Statement
EDI 812 Credit/Debit AdjustmentEDI 816 Organizational Relationships
EDI 819 Joint Interest Billing and Operating Expense StatementEDI 820 Payment Order/Remittance Advice
EDI 824 Application AdviceEDI 830 Planning Schedule with Release Capability
EDI 832 Price/Sales CatalogEDI 834 Benefit Enrollment and Maintenance
EDI 835 Healthcare Claim Payment/ AdviceEDI 837 Healthcare Claim Transaction
EDI 840 Request for QuotationEDI 843 Response to Request for Quotation
EDI 844 Product Transfer Account AdjustmentEDI 845 Price Authorization Acknowledgment/Status
EDI 846 Inventory Inquiry/AdviceEDI 849 Response to Product Transfer Account Adjustment
EDI 850 Purchase OrderEDI 852 Product Activity Data
EDI 853 Routing and Carrier InstructionEDI 855 Purchase Order Acknowledgment
EDI 856 Advance Shipment NoticeEDI 857 Shipment and Billing Notice
EDI 860 Purchase Order Change Request – Buyer InitiatedEDI 861 Receiving Advice/Acceptance Certificate
EDI 862 Shipping ScheduleEDI 864 Text Message
EDI 865 Purchase Order Change Acknowledgment/Request – Seller InitiatedEDI 866 Production Sequence
EDI 867 Product Transfer and Resale ReportEDI 869 Order Status Inquiry
EDI 870 Order Status ReportEDI 875 Grocery Products Purchase Order
EDI 879 Price InformationEDI 880 Grocery Products Invoice
EDI 888 Item MaintenanceEDI 889 Promotion Announcement
EDI 894 Delivery/Return Base RecordEDI 930 Automotive Inspection Detail
EDI 940 Warehouse Shipping OrderEDI 943 Warehouse Stock Transfer Shipment Advice
EDI 944 Warehouse Stock Transfer Receipt AdviceEDI 945 Warehouse Shipping Advice
EDI 947 Warehouse Inventory Adjustment AdviceEDI 950 Warehouse Inventory Adjustment Advice
EDI 990 Response to a Load TenderEDI 997 Functional Acknowledgment
EDI 999 Implementation Acknowledgment

How EDI Works?

There are mainly three steps followed in the process of EDI exchange. EDI integration mainly automates the transaction of purchase orders and invoices. So, let’s take a brief look at the procedure:

Preparing the Documents

The process starts with collecting and organizing the data so that it works well with EDI. if we take the PO as an example, then instead of printing the order, the system creates an electronic file containing all the significant information. The approach and method available to generate EDI documents include:

  • Manual data entry via screens.
  • Exporting computer-based data from spreadsheets.
  • Reformatting electronic reports into data files.
  • Enhancing applications to automatically create output files that are ready for EDI standards translation.
  • Buying application software with a built-in interface to convert documents into EDI files.

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Translating the Documents

The second step involves feeding electronic data via EDI translator software to convert internal data format into the EDI standard format. It uses appropriate segments and data elements. Businesses can also buy translation software that is managed and maintained on-premise but it needs specialized mapping expertise to determine how data can be mapped. There are several translation software options available to meet varied budget requirements and size of the enterprise. Another option is to seek translation services from an EDI service provider who manages translation to and from the EDI format.

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Connecting & Transmitting EDI Documents

As documents are translated to appropriate EDI format, it’s time to transmit them to the supplier or trading partner. There are various ways to connect with partners for transmission, such as:

  • Direct or point-to-point EDI connection using a secure internet protocol like AS2
  • EDI via VAN (Value Added Network) provider
  • Combination of both Direct and VAN depending on the volume of transactions or partners involved.

For VAN, a buyer uses a preferred communication protocol that ensures security and reliability during EDI transmission. The network provider connects to the supplier using the appropriate protocol so that the supplier receives the order. Yes, EDI via VAN saves the need for setup and maintenance but it is a bit expensive as there is a fee for each transaction or even line item.

Significance of EDI for Your Business

Irrespective of the size of a company, EDI offers a plethora of benefits by improving the supply chain and ensuring accuracy, speed, lower costs, and enhanced efficiency. We have covered some of the greatest benefits that EDI solutions provide:

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Faster Business Processing

EDI can improve the speed of business cycles by 61% as it enables transactions in minutes which earlier used to take hours, days, or even weeks. It automates most of the paper-based tasks, thereby allowing staff to concentrate on core activities and be more productive. There are no or fewer order cancellations, reworks, or stockouts. Also, data is shared within the stipulated time and tracked in real-time.

Reduced Operating Costs

Of course, with reduced manual labor and human tasks, there are fewer costly errors but EDI reduces operational costs by going way beyond this. It saves expenses by approx 35% by eliminating paper-based work as companies need not spend on paper, printing, postage, filing, reproduction, storage, and document retrieval. As transitions are electronic and instant, it also reduces maintenance, administrative, and resources costs.

Less Human Intervention

All the manual tasks, such as sorting, review of documents, copying, filing, etc., are no longer necessary once businesses integrate EDI. The automation takes care of constructive work and allows more time to employees while cutting down costs significantly. The order processing is put on autopilot and total work hours also reduce. The staff gets engaged in other interesting and core tasks which add to their efficiency and work satisfaction.

Improved Accuracy & Fewer Errors

EDI also takes over the full-time job of maintaining accuracy. As manual processes are highly prone to errors due to illegible writing, manual data entry, lost mails, re-keying errors, etc., EDI mitigates these mistakes in transactions by 30-40 percent. Needless to say that there is a drastic improvement in data quality with less need to rework on orders.

Streamlined Business Communication

Businesses not only streamline communication with trading partners but also improves response time according to market conditions. Now, enterprises can adapt to environmental factors more effectively and quickly without any disruptions. The processes between sales and other partner activities are in sync. EDI brings precision and facilitates order fulfillment, planning, response, and delivery time while keeping all these factors aligned with customers’ best interests.

Secure Transactions

One of the major concerns during communication between trading partners and businesses with customers is security. However, EDI service providers providers assure the utmost security of transactions by safely sharing data across communication protocols and security standards. An EDI software places several layers of protection for transactional data exchanged between businesses and networks. Hence, no unauthorized person can access the information or hamper the communication flow.

Better Business Relationships

Sellers and suppliers can improve their cash flow and reduce order-to-cash cycle time by more than 20% which further enhances the relationship between business partners and their customers. There are fewer errors so partners can save their time correcting those mistakes. It also reduces frustrations and disputes caused due to improper data handling.

Enhanced Customer Experience

The key to the success of any business is customer satisfaction. If organizations fail to meet the expectations of clients or buyers, then even the most popular brands can fall flat and face failure soon. To help businesses retain success and customers, EDI equips them with essential tools and methods required for accurate and timely updates. It provides a competitive advantage by delivering top-notch customer services which is important to stay in the market.

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What Are EDI Standards?

Since the introduction of EDI in the 1970s, enterprises are trying to standardize B2B communication. With diverse business requirements, industries decided to optimize their EDI message formats. Therefore, creating more than a dozen EDI standards that are used worldwide today. When EDI documents are managed and interpreted by computers, the systems transfer data and format them in a way that both the involved parties can understand. The aim is to minimize any complications, and other costs.

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UN/EDIFACT

EDIFACT is one of the most widely implemented EDI standards in Europe that stands for United Nations rules for Electronic Data Interchange for Administration, Commerce, and Transport. IT is maintained by UN/CEFACT (United Nations Center for Trade Facilitation and Electronic Business). EDIFACT standard is a set of internationally standardized communication guidelines used for exchanging data tags and messages between computer systems. It structures data into segments, segments into messages, and messages into a protocol for interactive exchange.

EANCOM

This EDI standard integrates information that is shared electronically along with the physical flow of goods through the supply chain. EANCOM is a subset of EDIFACT and consists of messages that are used in business applications. Hence, eliminates all superfluous or optional messages from EDIFACT. The standard messages available in this EDI standard can be divided into different categories:

  • Master Data
  • Commercial Transactions
  • Report & Planning
  • Transporter

ANSI ASC X12

The American National Standards Institute (ANSI) developed the X12 EDI messaging standard in 1979 to facilitate the exchange of structured information between US companies. No matter whether you call it ANSI X12 or simply X12, this standard is used to communicate digital B2B transactions and it maintains consistency among documents. It consists of a set of standards with corresponding messages that define specific business documents used in varied industries, such as healthcare, finance, government, transportation, etc. There are over 300 different X12 EDI standards, each delegated by a different three-digit number.

HIPAA

Health Insurance Portability and Accountability Act is a subset of X12 with healthcare-specific requirements. It is an initiative to establish standardized mechanisms for EDI, confidentiality, and security of healthcare-related data. Apart from covering the exchange of electronic documents between healthcare providers, it is also used by health insurers and other medical service providers while transferring any critical administrative information. The goal is to reduce hundreds of healthcare data formats to one universally implemented standard which greatly increases the portability, accessibility, and cuts down additional costs.

TRADACOMS

TRAding DAta COMmunicationS is an early and primary EDI standard used for domestic trading in the UK, especially in the retail sector. One of the precursors to the UN/EDIFACT standard, it has deprecated in favor of the EDIFACT EANCOM subsets. TRADACOMS uses multi messages rather than relying on a single messaging format and comprises 26 messages structured in a hierarchy.

ODETTE

ODETTE stands for Organization for Data Exchange by Tele Transmission in Europe, which is an interest group that represents the automotive industry in Europe, develops tools, and provides recommendations to enhance supply chain management. This EDI standard creates protocols, such as OFTP, OFTP2, etc., for enhanced security through encryption methods and digital certificates for EDI data exchange. By deploying ODETTE-certified solutions, such as B2B and MFT (managed file transfer), companies can communicate with complete security and efficiency via software.

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Types of EDI Integration Solutions

There are various EDI software options available based on the company’s size, trading partners, transaction frequency, etc. Many factors contribute to the way you approach EDI to connect with partners. Have a look at these different EDI solutions that you can choose from:

Direct EDI/Point-to-Point

Direct EDI also known as point-to-point EDI was brought to prominence by Walmart. This EDI solution establishes a single connection between two partners and you connect with each of them individually. It offers control for the trading partners and is mainly used by large enterprises with a larger customer base and a high volume of daily transactions.

EDI via VAN

EDI VAN is an alternative to the direct EDI model. Value Added Networks (VANs) are private networks that allow the exchange of business documents electronically while protecting businesses from all EDI complexities of supporting varying communication protocols required by partners in a single connection. The network provider manages the network and provides companies with mailboxes to send and receive EDI documents. EDI via VAN service also includes management information, back-office integration, EDI outsourcing, community and business partner enablement, etc.

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EDI via AS2

AS2 is an internet communication protocol that transmits data securely through the internet. Thus, making it one of the most popular methods for reliable and secure data transport. With internet access, EDI through AS2 provides different functionalities of EDI. when organizations opt for EDI network providers to get AS2 connectivity, they also get constant ability to receive EDI transmissions.

EDI via FTP/VPN, SFTP, FTPS

EDI via FTP over SFTP, VPN, and FTPS are communication protocols used for EDI documents exchange over the internet. These can be used to either connect to the partners directly (Direct EDI) or via EDI network service provider.

Web EDI

Web-based EDI replaces paper-based documents by web form that contains fields to enter personal information by users. Once the information is filled, it will automatically convert into an EDI message and shared through a secure internet protocol. EDI is conducted using a standard internet browser. It is an easy and economical EDI software solution for small and medium-sized businesses that occasionally utilize these services.

Mobile EDI

When it comes to adoption and utilization, mobile EDI is limited due to security issues with mobile devices across EDI infrastructure. Also, another primary concern is restrictions with the available technology of mobile devices. The screen size and quality are not up to the mark and fail to meet expectations. Hence, users traditionally preferred EDI by a private network, such as VAN or the internet to exchange business EDI documents. However, with growth and development in the software application industry, companies are introducing apps to mobilize the supply chain. Soon, people will be able to download EDI and supply chain based applications from app stores.

EDI Outsourcing

EDI outsourcing or managed B2B services or B2B outsourcing, you can call it by any name. It is the fastest-growing EDI software service option that allows companies to seek external help from specialist resources to handle the EDI environment on a daily basis. It is mainly preferred by companies that want to integrate with back-office business systems, such as ERP (Enterprise Resource Planning) platforms. As in-house EDI can be quite expensive and demands a lot of time and effort, companies outsource the service.

EDI Use Cases: By Industry

EDI is applied in varied industries to address different business processes and challenges. You cannot define EDI without mentioning its real-life applicability. Over the past few years, more than 160,000 companies have moved to EDI to enhance operational efficiencies. We have listed common industries that widely use EDI to handle transactions:

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Financial

EDI has transformed the financial sector immensely as automation has improved the entire accounts receivable and payable processes. It also deals with managing investments and loans on behalf of customers which was earlier manual or paper-intensive.

Logistics & Supply Chain

We hardly need to mention the significance of Electronic Data Interchange solutions in the supply chain. It has handled every aspect of the supply chain amazingly and organizations can experience the change now. From purchasing, order fulfillment, and international orders to shipping confirmations, shipment scheduling & tracking, and more, EDI has taken care of everything.

Retail & eCommerce

The first sector to fully embrace EDI technology is retail and e-commerce and since then it has stayed at the forefront of leveraging the benefits of EDI to drive competitive advantage.

Automotive

With the growth in the OEM industry across the world, there is an increase in the global manufacturing process. There is a need for automation along with the concept of Just-in-Time and Lean Manufacturing. EDI plays a key role in achieving these objectives.

High-Tech

High-tech value chain is quite complicated and EDI ensures that these processes are efficient. With assistance from external partners, companies can design and manufacture their products.

Healthcare

EDI implementation has offered time and cost-effective solutions in the healthcare industry. Managing patients’ information and history in medical and healthcare centers can be complicated and tedious, especially when it comes to medical records and insurance reimbursement details. EDI helps in exchanging information, prescriptions, insurance processing, etc.

EDI Implementation Process

A systematic approach is required for the successful implementation of EDI software across the organization. Here is a look at all the steps followed throughout the process:

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Developing Organizational Structure: To make sure that you invest the money in the right direction and get the best returns, the right organizational structure is crucial. So, different factors of structure include an EDI coordinator who is a professional and can be either in-house or an outsourced EDI service provider. You also have to select a committee that consists of department heads and legal & IT representatives. There is one senior management sponsor and a team to handle the entire project.

Requirement Analysis: You must also decide what you expect from the EDI solution. You and your EDI service provider must discuss a few points, such as what features you are looking for in the software, what are the problems you want to solve, business processes that need to be supported, etc. This will help you evaluate if your EDI has everything that you need or not.

Strategic Review: EDI will bring positive changes in different business units and enhance various processes. With a strategic review, you can identify the areas that will experience maximum improvements with the change. Consider all the aspects, including suppliers, system applications, transactions, customers, and more, describe the current system and changes that you are expecting after EDI implementation.

Right EDI Solution: Every company has unique demands and requirements for which they need a special EDI system to support their business processes and solve problems. Also, there are many factors that affect the choice of EDI software that you must select, such as the size of the company, industry, volume of transactions, business partners, and whatnot. So, after analyzing all the points, choose the most suitable EDI solution for your business. You also have to decide whether you prefer in-house EDI or managed service based on your business needs and goals.

EDI Integration: EDI integration mitigates any need for human intervention which further eliminates manual errors. Smooth integration avoids any disruption in the business and automates the information exchange. An experienced team understands all the EDI standards, formats, communication protocols, and systems required for effective deployment. The EDI experts handle various tasks, such as creating EDI documents, integrating EDI with the ERP system, installing and configuring the software, etc.

Pilot Project: Even after being meticulous and focused throughout the EDI implementation process, you cannot launch the system without testing it with a few selected partners. The pilot project is reviewed and tested by transmitting documents to these partners who confirm once the data is processed accurately. After completing the test, the partner sends real orders to check if the software can meet daily business processing requirements or not. Once both the involved parties are satisfied with the performance of the software, paper-based tasks are completely replaced.

Roll Out EDI: Now, it’s time to roll out an EDI program for real-world data. You might come across some errors or flaws in this step as well which were not discovered in the pilot phase. EDI professionals will handle the project and keep a close watch on its performance.

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In-house vs Managed EDI

One question that every company has to answer before integrating an EDI system is- In-house or Outsourced EDI. Based on the size of the company, business strategy, and goals, transactions, etc., companies have to decide which option is better. So, here is a brief comparison of the pros and cons of on-premise and managed EDI solutions:

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Investment

Of course, with an in-house EDI set up, you have to hire professionals, invest in hardware and software, and spend a significant amount to establish a new department dedicated to the EDI. Managed EDI services save all these expenses and you only have to pay a subscription fee and setup fee.

Resources

For EDI solutions, you need to upgrade your facilities, technologies, and methods. Also, you need a team of EDI experts who can manage the entire implementation process and system proficiently. Can your company afford to spend so much? If not, then prefer outsourcing EDI solutions.

Responsibility

With EDI software, you will be dealing with new responsibilities and tasks. Whether you seek service from a third-party service provider or opt for on-premise EDI, there will be a lot of additional work to manage. However, the extent of the responsibilities will differ in both cases. When you outsource solutions from EDI experts, they will handle hardware, mapping, translation software, communication networks, etc. with do-it-yourself EDI, you will be accountable for all these tasks.

Control

In-house EDI integration allows you to have more control over your business data. There are reduced risks related to security breaches, downtime, and other threats that can disrupt business operations. With outsourced EDI, there is a constant fear of data theft but with reliable and authentic service providers, you are assured of utmost confidentiality and security.

Technical Support

With a trusted company offering you EDI solutions, you also have access to connect with them round-the-clock in case of any glitch or issue. Yes, 24*7 support is available in on-premise EDI as well but there can be certain problems for which you need an experienced and professional person. Also, this may affect your business process as well. On the contrary, managed EDI service takes care of all the issues without hampering your workflow.

Wrapping It Up!

Now that you have all the information required before starting with EDI, we are sure that your journey will get easier and hassle-free. One more thing that we would like to mention is that the EDI solution is a bit complicated. Hence, you need a trusted and reliable partner to guide you throughout the process.

A3logics is a one-stop solution for all your B2B EDI integration needs. We have covered everything from the transmission to translation to mapping and more under one roof. With world-class support for cloud and EDI solutions, we will help you at every step. So, get in touch with our team now to discuss your next EDI project.