Electronic Data Interchange, commonly referred to as EDI, refers to the electronic exchange of business information using an established standard format. Allows one company to electronically send its messages and documents directly to another company rather than via paper documents.
Many business documents can be exchanged via EDI solutions with purchase orders and invoices being the two primary ones. At a minimum, it replaces mail preparation and handling associated with traditional communication; but its real power lies in standardizing information communicated within documents allowing a “paperless” exchange process.
Traditional invoices serve as an example of what this can entail: most companies create invoices using computer systems, then print paper copies before mailing them directly to customers for receipt and entry into their own systems. Upon arrival at the customer’s site, the customer often marks up and enters data directly from the seller’s computer to the buyer’s system via EDI systems, including specialized solutions like EDI 834 services. By leveraging EDI managed services, businesses can streamline this entire process of information transfer between computer systems, eliminating manual steps and reducing errors in data exchange.
- Its Importance in Business Operations
Organizations using electronic data interchange (EDI) systems for their B2B transactions already use it, yet those taking full advantage of its full potential to automate business partner transactions and remove manual operations are seeing real automation benefits.
EDI solutions provide retail supply chains with all of the agility necessary to meet consumer expectations in today’s dynamic landscape. On the consumer end, EDI helps process management pull e-commerce orders through fulfillment and shipping queues quickly to fulfill promises on delivery promises. Consequently reducing stock outs, backorders, and late deliveries which frustrate customers and potentially stock outs, backorders or failed deliveries that create stress to their customer base.
On a business level, electronic data interchange (EDI) offers many benefits to retailers, suppliers, distributors, brands, and manufacturers. Other stakeholders in terms of speedy inventory management as well as accurate communications between stakeholders. Businesses using EDI gain efficiency while saving time, money. Scaling easily while meeting larger trading partner requirements more readily than before.
How EDI Integration Works
Although electronic data interchange has existed for years, organizations today are looking for modernization initiatives that extend EDI data integration capabilities beyond their original message to meet modern business requirements.
Step 1:
An organization exports an important business document such as an invoice from its internal system or application – such as purchasing goods or services – using one or more third-party systems or apps. A common example would be a purchase order to purchase those goods/services.
Step 2:
An order EDI cycle document from your in-house computer system must then be converted to its required format using data transformation mapping software or any one of several EDI translators.
Step 3:
Once created, an EDI business document should be run through a conversion software to ensure its structure conforms with current EDI standards and that its accuracy meets them.
Step 4:
Data extracted from an EDI document will either be sent through a secure communication protocol such as FTP, HTTPS, or AS2, then integrated with validation software or another app; or sent directly to clients through direct connections using similar protocols.
Step 5:
Direct EDI over AS2, for example, establishes a secure channel between different businesses that allows enterprises to connect directly to trading partners without incurring document fees and gain real-time communication capabilities.
What are the 3 Types of EDI Integration?
There are three different forms of EDI integration:, direct integration, indirect integration, and hybrid.
Direct EDI Integration:
This is created using protocols like AS2 or FTP to establish a connection from all your trading partners (customers, suppliers, and service providers) directly into your ERP. This type of direct integration is commonly known as “EDI ERP Integration.” However, direct integration may add considerable complexity if your business doesn’t follow an agreed-upon protocol for managing partner connections individually.
Indirect EDI Integration:
When setting up indirect EDI integrations, an outside value-added network (VAN) or broker serves as the intermediary.
Hybrid EDI Integration:
Sometimes an organization desires both indirect and direct EDI integration for optimal operation, like using VAN transmission for certain EDI transmissions while directly connecting critical customers using direct integration. Hybrid integration refers to using managed services alongside in-house resources to develop an adaptive solution.
What Is an EDI Provider?
An EDI provider refers to any company offering electronic data interchange (EDI) software or services; some, like VANs and Service Bureaus, specialize in services but they may also offer software.
- The Role of Outsourcing in the EDI Process
An EC/EDI relationship between you and your trading partners may become complex over time as global trade and technology change rapidly. It may become impossible to keep pace and continue trading effectively without one! EDI Service Providers make life simpler!
Many companies opt to outsource EDI operations using service providers. This trend has gained significant traction recently and competes directly against vendors offering software. Services for Data Transport, Data Translation, and Transformation (DTDT). Both approaches may work, although this whitepaper won’t discuss the pros/cons of either method in detail.
Service providers take over responsibility for managing the Data Transport, Translation, and Transformation components of your trading partner relationships. However, data integration component still must run alongside business applications,
- Types of EDI Service Providers
There are two basic categories of EDI providers. AS2 providers fall under one of those umbrellas while VAN operators fall into another one.
1) AS2 Providers
With AS2 (applicability statement 2) providers, data such as EDI and XML is sent and received over the internet using HTTP protocol (TCP/IP), using certified servers. In today’s digital ecosystem, this method of integration between trading partners has proven extremely popular across industries and has seen extensive implementation.
AS2 can handle virtually all file formats and needs to send message disposition/delivery notifications (MNDs) when documents or data have been delivered or received by trading partners. AS2 provides an outstanding way of sending data securely and directly from one source to the other.
2) Value-added Network Service Providers
By contrast, an EDI VAN (value-added network) delivers transactions over one single connection, similar to how postal mail works – thus offering efficient data transport between trading partners via one shared mailbox service.
Relying solely on VANs to conduct business has become obsolete due to more modernized and cost-efficient EDI-managed services and solutions that offer end-to-end connectivity as well as solutions to complex integration.
VANs first gained popularity during the 1980s due to their security and reliability; these qualities proved essential for businesses that handled bank information or other sensitive records from customers.
Factors to Consider While Evaluating an EDI Service Provider
- What connections and integrations are supported?
An EDI Solution provider may offer numerous connections that meet your business requirements; so, before selecting them as an EDI Solution provider, be sure to evaluate how these can fit together for the best results.
Next, determine what integrations between ERP, business systems, EDI solution providers, and your ERP are necessary. Consider updating or switching out ERP as necessary – especially if pursuing an integrated solution. once selected verify whether it can integrate seamlessly into the current platform and has any required integration tools available to it.
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