Electronic Data Interchange, or EDI, is a process that enables the rapid, automated and secure electronic exchange of documents between businesses. An EDI solution converts business documents such as purchase orders and invoices into a standard EDI format and sends it to another EDI user, usually a trading partner. But how does EDI work?

1. Preparation and organization of data

In the case of sending a purchase order to a supplier via EDI. Rather than creating and printing a purchase order and sending it via post, fax or email, the first step is to gather the PO information and prepare it to be translated into the standard EDI format you and your trading partner have agreed to use. Typically this is done by exporting the PO data from your accounts or ERP system, however some businesses may simply export it from a spreadsheet or report.

2. Translation to the EDI format

Once your PO data is ready, it is then run through an EDI translator to convert it from your non-standard internal format into a standard EDI format. EDI software uses the data elements and segments in your original spreadsheet or file to ‘map’ to the EDI format.

The most common EDI standards used globally include:

• EDIFACT
• EDI XML
• EANCOM
• ANSI X12

Businesses can buy and install EDI software to use in house, or choose to partner with an EDI managed service provider to have the process taken care of on their behalf.

It’s important to note that the process of EDI mapping does involve some specialist expertise when defining the data to be mapped and translated, so opting for an EDI service provider can be a huge advantage. An EDI managed service, like the one offered by TrueCommerce, handles the entire EDI mapping and EDI translation process, so businesses can be free to focus on what they do best.

3. Transmitting the EDI documents

With your purchase order now translated into a standard EDI format, it can now be sent to your trading partner who will follow the same process in reverse, translating the EDI document from the EDI standard into the format required by their internal systems. In the case of an integrated EDI solution, the data can be automatically sent to your internal system—no manual rekeying required. Again, there are options when it comes to how to do this.

The files can be sent via a VAN (Value Added Network) or alternatively direct connectivity can be set up between the trading partners using FTP (File Transfer Protocol), SFTP (Secure File Transfer Protocol) or AS2 (Applicability Statement 2) protocols which means VAN’s are not required.

There are many benefits of EDI for businesses of all sizes and types, from saving time and money to eliminating costly administrative errors.

EDI can be a daunting prospect for many companies due to the complexities involved in the use of multiple standards and connectivity protocols. To overcome these complexities and the cost of managing them in-house, companies of all sizes choose to outsource their EDI requirements to an EDI managed service provider. 

EDI transmission generally falls into two basic types:  

• Point-to-Point or Direct Connections 

Two computers or systems connecting directly over the internet, typically using secure protocols. 

• Value-Added Network (VAN) 

A third-party network manages data transmission, usually employing a mailboxing paradigm. 

Protocols for EDI internet transmission include: 

• Secure File Transfer Protocol (SFTP) 
• Applicability Statement 2 (AS2) 
• HTTPS-based protocol 
• Simple Object Access Protocol (SOAP)
• Application Programming Interface (API) 
• and others 

EDI data elements consist of items such as sender ID and receiver ID. Data segments, which combine two or more related elements, provide greater meaning. For instance, combining FNAME and LNAME forms CUSTOMERNAME. Envelopes in EDI structure various types of data and include 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. 

EDI documents can be transmitted using various protocols, each offering different levels of security, speed, and integration capabilities. Here’s how the most common options compare:

SFTP (Secure File Transfer Protocol): A secure method for transferring EDI files between systems over an encrypted connection. It requires authentication and is commonly used for batch file exchanges.

HTTPS (HyperText Transfer Protocol Secure): A web-based protocol that allows secure data transmission over the internet. It’s often used for real-time transactions and is suitable for businesses that require web-based EDI integration.

AS2 (Applicability Statement 2): A widely adopted standard for securely transmitting EDI documents over the internet. AS2 uses encryption, digital signatures, and MDN (Message Disposition Notifications) to confirm successful delivery, making it a preferred choice for retail and supplier networks.

API-based File Exchange (Application Programming Interface): Unlike traditional file-based methods, B2B API file exchange enables businesses to securely transmit structured data files through API end points. This approach allows for faster, more flexible data exchange compared to batch –based protocols while maintaining compatibility with various systems and formats.

Choosing the right protocol depends on business needs, trading partner requirements, and the level of security and automation required. 

As a supplier, EDI can be used to eliminate manual order processing and automate document management. EDI data transfers not only allow you to provide timely order and inventory confirmations to your retail partners but also ensure smooth operations and communication between you and your retail partners. EDI integration enables suppliers to track the status of transactions, which allows them to verify if documents have been successfully sent or received.

EDI provides full visibility and access to trading partners, documents, and transactions. Suppliers can connect with over 1000 trading partners. A managed service EDI also streamlines processes as you manage the entire EDI transaction lifecycle, including acknowledgments, status updates, reprocessing, and related documents. Suppliers can manage and configure trading partners across multiple environments whilst maintaining flexibility and efficiency.  

EDI enables retailers and their trading partners to exchange business documents such as purchase orders, invoices, and shipping notices in a standardised structure. With EDI, retailers can automate many business processes and significantly reduce the need for manual data entry. EDI automates document exchange to improve efficiency and reduce errors. Retailers can experience cost savings through reducing paper-based processes and manual admin. The risk of costly mistakes is reduced, which also enhances relationships with trading partners by fostering transparency and trust.