Trading partners need to communicate efficiently more than ever in today's interconnected market. Manufacturers, retailers, suppliers, distributors, and other businesses along the supply chain must have efficient ways to share data and documents.
Electronic Data Interchange (EDI) is a staple of communication in supply chain management. This technology allows companies to exchange documents electronically in a format their trading partners can process. Becoming EDI capable can open new business opportunities with other partners, suppliers, and vendors. This guide explains the benefits and process of becoming EDI capable.
What Does EDI Capable Mean?
When a company is EDI capable and compliant, it has gained the ability to transmit business documents between trading partners using an EDI system. An EDI solution uses standardized data formats called transaction codes to share data between business partners electronically rather than manually, eliminating the need for traditional communication methods like email, PDFs, or faxes. The EDI system sends documents like invoices and purchase orders between trading partners, usually in batches. This communication method streamlines data in real-time and allows businesses to expand their partnerships.
Becoming EDI capable and compliant is a process of automation, integration, and standardization. EDI capability requires that businesses set up an infrastructure for sending and receiving EDI messages with their trading partners. For EDI capability to work throughout a supply chain, companies must configure a new EDI connection for each partner in their network.
EDI capability is a critical supply chain tool for business growth in the modern market. Examples of EDI-capable trading partners include retail giants like Walmart, Home Depot, and thousands more. These businesses often require their trading partners to be EDI capable to ensure ease of communication about purchase orders and invoices. When companies utilize EDI, they can drive business growth and conduct trade in multiple directions.
What Do You Need to Become EDI Capable?
EDI requires specific technology to function efficiently. EDI documents can either be sent via an indirect connection over a Value Added Network (VAN) or a direct connection with trading partners through on-premises or cloud EDI solutions.
Companies wishing to be EDI capable and use a direct connection must do one of the following:
- Build an in-house EDI system
- Purchase an on-premises EDI solution using a data center
- Utilize a third-party EDI cloud service
How to Become EDI Capable
Deciding how to incorporate an EDI solution into your business communications is a significant task. Here are the steps for how to become EDI capable:
1. Understand Your Trading Partners' Compliance Requirements
Understanding and following the EDI compliance requirements of your trading partners is essential. Even if you already have an EDI solution, you need to make sure you can send EDI documents that meet that specific partner's requirements consistently.
An EDI solution should help your company follow complex EDI compliance mandates. You can generally find a trading partner's EDI requirements and specifications on their website, which can help you incorporate compliance standards into your daily operations and create benchmarks for success. However, since those mandates can change frequently, the best option is to choose an EDI provider that offers automatic mapping updates across your entire trading partner portfolio.
In addition to EDI compliance requirements, your trading partners may also issue mandates around GS1 label usage, or partner-branded packing lists. Having a solution that can help ensure compliance across all these requirements can make managing a breadth of trade relationships much easier.
2. Decide on In-House or Outsourced EDI
Managing EDI in-house requires the company to develop the software for exchanging EDI messages. An outsourced EDI platform provider can offer more advanced EDI integrations and relieve the burden on your team.
Choosing whether to outsource EDI or perform it in-house depends on your company's needs and abilities. Building EDI capabilities in-house can be costly and time-consuming for many companies, especially small businesses, so using an EDI platform might be more cost-effective.
3. Purchase EDI Software
If you are unable to, or don't want to create a custom EDI system in-house, you'll need to research and choose the right EDI platform for your business. On-premises EDI solutions are still used by many brands, because they provide greater control over your EDI environment. However, cloud-based EDI platforms are the most popular option today, because they require no hardware maintenance, and can more easily scale up or down to meet changing buyer demand.
4. Test Your EDI Solution
Testing is the final step in the EDI setup process. To ensure the EDI system is effective and data can be properly exchanged, a company sends documents to a trading partner and checks for accuracy. Testing requirements may differ between industries, so careful planning is crucial. EDI system testing reviews document integrity, implementation of external compliance codes, and more.
Businesses should also test whether they can receive files in EDI format as required. The EDI system is ready to work if the data arrives and sends in the correct format.
Benefits of Becoming EDI Capable
Simple EDI capabilities can be a significant asset to businesses of any industry, whether in manufacturing, distribution, retail, or another operation along the supply chain. Using EDI can help small to mid-size companies expand, develop trading partnerships, streamline operations, and reduce costs.
Consider a few of the benefits of becoming EDI capable:
1. Streamlined Data Sharing
Manual data-sharing processes are time-consuming and labor-intensive. An EDI platform is an effective solution for data sharing. EDI originally arose from a need to cut back on emails and faxes and share larger quantities of business data faster. Many EDI systems use automation to speed up order and invoice processing and create responding documents. Instead of mailing or faxing documents, trading partners can effectively share large batches of data electronically. Integrated EDI streamlines communication between supply chain partners by connecting to the Enterprise Resource Planning (ERP) system. Since a company's ERP system doesn't natively understand EDI messages an integrated EDI system also serves to translate incoming raw EDI data into ERP-friendly formats, and outgoing ERP messages back into EDI data.
2. Fewer Errors
Manual data processing can be fraught with errors. Even if a company uses a VAN to transfer files, that virtual mailbox must still be checked regularly. Then, someone must retype the data into the company's ERP system.
With a direct connection and integrated EDI, receivers can benefit from automated document processing. An integrated EDI solution connects seamlessly with the user's business system to exchange data automatically. EDI ensures that data is accessible and transmitted correctly to meet partner expectations. Increased data accuracy can reduce a company's chargebacks and fees and boost partner service levels.
3. Increased Security
When compared with emails and paper messages, EDI capability provides significantly greater security against data breaches. Many EDI solutions provide in-transit and at-rest encryption to protect sensitive data like pricing and contact information. Other security measures like SSL and password encryption can prevent unauthorized access to EDI data. For extra peace of mind, EDI buyers should look for solutions that meet third-party cyber-security standards, like SOC 2 Type II and ISO 27002 standards.
EDI also enables better audit trails and document tracking since it integrates with other business systems. The product traceability provided by EDI systems is especially important in industries like grocery retail and healthcare. In addition, increased visibility into EDI messaging ensures greater transparency between business partners.
4. Lower Costs
Increasing efficiency and performance at any stage of the business cycle can positively impact your company's bottom line. Automated EDI makes workflows more controllable and productive, reducing costs and freeing employees to work on more profitable tasks. When companies utilize EDI, they also save on paper, document storage, and mailing costs.
EDI systems can also provide savings through improved compliance. Incorrect documents can lead to chargebacks and adverse effects on a supplier's vendor scorecard, adversely impacting profits. An effective EDI solution prevents chargebacks and may boost vendor scorecard performance.
5. Improved Compliance
Most retailers and manufacturers impose certain compliance specifications on their trading partners. These mandates standardize communication between business partners and speed up order and invoice processing. Generally, EDI compliance requirements address the correct document format and necessary information.
EDI systems translate documents from one supply chain partner into the format another requires to process. The benefits of improved EDI compliance include:
- Preference over competition from retailers
- Improved internal processes
- Better chance of getting products on shelves
- Fewer chargebacks and other penalties
- A consistent process for providing accurate data
The Main Challenges to Becoming EDI Capable
An EDI system provides valuable long-term benefits and is vital for success in managing a supply chain. However, implementing an EDI solution is no small undertaking. Reaching successful EDI implementation requires time and skill in integrating the solution with other business processes.
Consider a few of the main challenges of becoming EDI capable:
1. Lack of EDI Team
Developing and implementing an EDI solution requires several technical skills. Some suppliers, especially small businesses, may not have the resources to have a dedicated EDI team. Other companies might need their IT departments to focus on other tasks.
For these companies, in-house EDI might be impossible. Fortunately, outsourcing your EDI solution and utilizing an EDI platform removes the need to handle EDI management in-house. A fully managed EDI service provider offers the skills, infrastructure, and expertise to manage an EDI system successfully.
2. Difficulty Scaling an EDI Solution
EDI is widespread, yet different companies use their own networks and solutions. As small businesses grow, they must configure new EDI connections with each supply chain partner in their network. Many companies might find it challenging to scale their EDI solution to include these new trading partners.
Integrated EDI is an agile solution that supports business growth and accommodates unique business requirements. A managed and integrated EDI solution effectively solves difficulties scaling an EDI system. The integrated system works with the business' ERP to allow companies
to add training partners and reduce overhead. It eliminates the need for manual processing, while minimizing opportunities for human error, so your business can grow unencumbered.
3. Reducing Bad Data
Bad data is duplicate, incomplete, or incorrect information. Bad data can be a damaging supply chain blind spot. Whether it's an incorrect purchase order or duplicate shipping verification, bad data can cause confusion. For instance, erroneous transactions can lead to costly chargebacks and negatively impact your vendor scorecard. Companies strive to improve data quality to eliminate these situations.
Advanced EDI solution analytics can reduce bad data by providing greater insight into data performance. You can use EDI analytics to spot and remedy data issues before they move further down the supply chain.
4. Rising Costs
Many types of EDI solutions are costly to configure and implement. In-house solutions require significant investment, and legacy EDI systems need hardware and software, which can be considerable upfront costs. These solutions also require significant IT resources, which smaller businesses usually don't have.
Companies can reduce the cost of their EDI solution by utilizing a cloud-based system. Cloud-based EDI systems eliminate the need for hardware installations and effectively streamline document transmission to avoid delays and compliance violations. If you choose a cloud-based solution supported by a fully managed service model, you can also reduce your IT burden.
How TrueCommerce Can Help
EDI capability is a non-negotiable for businesses looking to grow their supply chain partners and streamline communication processes. An EDI system enables businesses to transmit large amounts of data to their trading partners without the difficulties of manual communication processes. EDI can also reduce document errors and overhead costs while improving security and compliance so companies can complete their order processes more efficiently.
Whatever your company's needs and where you are in the process of becoming EDI capable, TrueCommerce can help. TrueCommerce provides a cloud-based EDI platform that securely transmits documents through the web to enable companies to do business in any direction. Whether you are a retailer, third-party logistics provider, or supplier, TrueCommerce can help accelerate workflows and maintain your business' agility.
Consider the benefits of choosing the TrueCommerce EDI solution:
- Scalability: With the TrueCommerce EDI platform, businesses efficiently work through challenges like scaling their system and managing new trading partners. Seamless integration with the top ERP and business systems allows companies to streamline data transmission with virtually any business partner. EDI allows companies to efficiently manage an increasing data flow and reduce manual effort in the data transmission process.
- Outsourced EDI management: Small to mid-size businesses can benefit from outsourcing EDI management to the TrueCommerce EDI platform. Companies with no internal IT team or one large enough to handle EDI management can use TrueCommerce's EDI architecture to gain adaptability and free up resources. With TrueCommerce, you also get access to our award-winning customer support team.
- Increased visibility: TrueCommerce's advanced EDI analytics help your company achieve EDI compliance with your partners' and customers' requirements. Companies can use increased visibility into their data quality to improve performance and enhance trading partnerships.
Become EDI Capable with TrueCommerce
Despite the potential challenges of implementing EDI capability, the system can significantly increase a company's access to data sharing and pave the way for growth in a competitive market. If your company is considering how to become EDI capable, TrueCommerce has the EDI architecture and experience to manage your needs. The TrueCommerce platform removes barriers and simplifies communication to help you do business in every direction.