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Chapter 6

An Introduction to EDI

This article was contributed by one of our partners: SPS Commerce, experts in EDI solutions.

What is EDI?

EDI stands for Electronic Data Interchange. EDI combines a system and processes to give businesses the ability to exchange documents and transactions between trading partners in a standard electronic format. For example, a retailer can send a purchase order (PO) to a vendor digitally through EDI, rather than send a paper document or fax.

EDI automation can reduce or eliminate paper documents, while also ensuring no transactions get lost in the shuffle. EDI vastly diminishes or eliminates manual data entry and processing needs, as well as the costly human errors that come with it. EDI also serves as a line of defense against improper documentation and fraud.

A wide variety of business and transactional documents can be standardized and exchanged via EDI, including:

  • Invoices

  • Purchase orders (POs)

  • Credit adjustments

  • Purchase order acknowledgements (POAs)

  • Purchase order changes

  • Advanced ship notices (ASNs)

  • … and more

EDI enables all of the retail supply chain agility needed to better deliver on consumer expectations in today’s shifting landscape. On the consumer side, EDI supports the process management that pulls ecommerce orders through the fulfillment and shipping queues to keep delivery promises. EDI decreases stock outs, backorders and late deliveries that frustrate customers.

On the business side, EDI shortens lead times and enables retailers, suppliers, distributors, brands, manufacturers and other stakeholders to improve inventory management while engaging in accurate and speedy communications. With EDI, businesses can gain efficiency, save money, scale easily and address the needs of working with larger trading partners.

Benefits of an EDI integration

Not all EDI solutions are created equal. They have different strengths and weaknesses. They range from the most basic, which is simply a web portal through which business documents are sent, all the way to fully integrable EDI systems that can connect with other systems in the business.

When an EDI system is integrated with other systems, the possibilities for gains in efficiency and reductions in errors can multiply exponentially. EDI systems can break down the silos that exist within companies that use multiple systems for different departments and duties.

Fully integrated EDI solutions can connect to:

When all of these systems can “talk” to each other, organizations gain the cross-channel and cross-departmental visibility and communication necessary to meet the demands of today’s retail and supply chain landscape.

Learn how you can reclaim time and resources using EDI automation.

Comparison of in-house vs. outsourced EDI

In addition to integrated EDI versus non-integrated EDI, there’s also in-house EDI and outsourced EDI. Each business is different, with varied capabilities, resources and needs, which means you’ll need to choose the EDI solution that best fits your business.

1. Traditional in-house EDI

Traditional EDI solutions are “do-it-yourself”, in-house and onsite at the business. When EDI is built from scratch, it will cost more upfront to invest in hardware, software, staffing and other resources. The costs may be less once the system is in place, but may increase as the company grows and more upgrades are needed.

2. Online EDI solutions

With an online EDI solution, a portal can be accessed via the internet, such as with a web browser or an app. Online EDI solutions can reduce expenses when compared with a traditional EDI department. However, they may not be capable of full integration to other systems, which means some manual data entry may need to remain. Additionally, online EDI solutions may still require investment in onsite resources to ensure the existing network has the bandwidth to accommodate the flow of data.

3. Cloud-based EDI providers

Cloud-based EDI solutions are a bit of the best of both worlds. There is usually an upfront setup cost and a monthly subscription fee, but it’s significantly less than traditional in-house EDI and scalable to the business’s needs. Some cloud EDI users have reported savings of 75 percent or more. Because the cloud EDI provider maintains the hardware, network, software, upgrades, compliance requirements and more, cloud EDI reduces infrastructure expenditures and staffing needs compared to traditional EDI.

Discover the differences between managed EDI services and full-service EDI.

Five reasons to implement an EDI solution

Many businesses seek out an EDI solution because they’ve been asked to by an existing or potential trading partner. However, even without a trading partner asking for it, there are many reasons why retailers, vendors and others in the supply chain could benefit from implementing an integrated EDI solution.

1. Processes take too long to flawlessly complete.

Consumers are driving change in purchasing behavior, and as a result, the whole supply chain is moving at a much more rapid pace than in the past. If a valued partner needs guaranteed deliveries in two days, but existing processes require a minimum of three days, that’s a problem that puts the business at a serious disadvantage against the competition. EDI automation of documents enables accurate, efficient and streamlined processes to meet the high-speed demands of today’s retail, supply chain and consumer expectations.

2. Costs of inaccuracies are starting to add up.

Businesses without EDI systems tend to rely heavily on manual data entry at multiple points throughout the order process and across the organization. Each point of manual data entry is a chance for keystroke errors, which can be compounded if the mistakes are circulated to other parts of the business. The costs of late shipments, delivery of incorrect orders and paying inaccurate invoices adds up. Additionally, inaccurate data leads to faulty forecasts for inventory, growth and budgets. EDI removes human error from the information transmission and reconciliation process. The only time a human must review the transaction is if the automatic reconciliation process reveals a mismatch in the documents.

3.  Inventory surpluses and stockouts happen frequently.

When points of sale, ecommerce order submission, fulfillment processes, shipment tracking and other systems don’t communicate together, it increases the chances of miscommunication and inventory problems. To manually reconcile all of the information makes forecasting extremely labor intensive and prone to miscalculations. With an integrated EDI solution, ecommerce platforms, accounting, ERP and other business solutions can communicate with each other, enabling the most accurate transmission, collection and analysis of data.

4. Trading partners are becoming impatient.

With the speed of the retail supply chain accelerating, retailers, distributors, vendors, 3PLs and other organizations need to be on the same page. Links in the supply chain that rely on legacy systems and outdated processes can slow down the whole network. Some retailers and brands won’t even consider working with a partner that doesn’t have EDI. The improved efficiency, accuracy and automation that EDI offers an organization can help retain trading partners and secure new opportunities. It can also help businesses obtain value from new trading relationships faster with standardized, streamlined onboarding.

5. Resource limitations have been reached.

As a business grows, resources such as inventory, staffing, space allocation and other needs grow as well. Often organizations run into bottlenecks that hinder the pace of expansion. EDI can add agility, elasticity and scalability to existing assets. With information and forecasting ability, EDI enables tighter management of inventory, staffing, warehouse operations and other assets. When manual data entry requirements are reduced or eliminated, employees that previously performed these tasks can be retrained and redeployed to other positions that help the business perform and grow.

Further Reading

How to Create Opportunites to Work with Larger Suppliers Using EDI

How You Can Reclaim Time and Resources with EDI Automation

How EDI Automation Can Make the Payment Process a Breeze for Retailers

Secrets of the Advanced Shipping Notice or EDI 856

Post-Promotion Audits Made Easy with EDI

Evaluating Your EDI Options: Seven Building Blocks of Full-Service EDI

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