Electronic Data Interchange (EDI) 101

Electronic Data Interchange, commonly referred to as EDI, is a digital method of exchanging business information between two companies. This eliminates the need for traditional paper-based communication, as EDI allows for the transfer of various important documents such as purchase orders, inventory feeds, invoices, and shipping notices. This efficient and secure system has become increasingly popular in the modern business world, streamlining communication and enhancing accuracy and reliability.

The integration of EDI facilitates the exchange of data between different companies involved in a collaborative process. This automated system ensures that all relevant information provided by each partner is shared seamlessly with the others. This feature is compatible with almost all ERP systems available on the market today.

Also, with modern technologies, the possibilities are endless. For instance, the use of business intelligence with the help of Machine Learning algorithms enables a much more comprehensive understanding of any given business. This can prove invaluable when it comes to making informed decisions and driving overall growth and success. A perfect example would be using The Domo Business Cloud with ERPs like Oracle NetSuite, SAP, etc.

How does EDI work?

EDI improves productivity and creates cost savings by eliminating manual processes. With an EDI solution, vendor invoices are received on a timely basis and accounts payable are recorded in a more timely manner than with other traditional channels. The vendor’s EDI system receives the purchase order, acknowledges the purchase order, notifies the shipping department to ship the goods, and generates an EDI invoice to be transmitted directly to the buyer’s accounts payable system.

EDI can be configured as an on-premise EDI system or an outsourced managed service to automatically send business documents between trading partners without human interaction.

Small-sized companies may outsource an EDI solution using cloud-based EDI software that integrates with the company’s ERP.

EDI Standards

The EDI standard is a common format in which these different EDI systems can talk to each other. Let’s take a look at ANSI X12 and EDIFACT — two of the most widely used standards.

*ANSI X12 — ANSI X12 is an American EDI standard developed in 1979 and stands for American National Standards Institute X12. The most widely used standard in the United States and much of North America.

*EDIFACT (also called UN/EDIFACT)—EDIFACT was developed by the United Nations Economic Commission. Outside of North America, it is the most widely used standard.

The graphic below illustrates a sample purchase order in printed form and how it would look once it’s translated into the ANSI and EDIFACT EDI formats.

An EDI translator within the EDI software translates EDI data elements and formats into a readable view. This makes real-time business document processing easier and the EDI software can be managed by absolutely anyone who has a business understanding.

My company uses the ANSI X12 standard so I can briefly give you some idea of how EDI works with ANSI X12 standard so this article will make more sense.

First, we need to learn ANSI X12 Document types. Each document is identified by a 3-digit code number.

Common ANSI X12 Document Types (Transaction Sets)

• EDI 810 Invoice
• EDI 820 Payment Order/Remittance Advice
• EDI 846 Inventory Inquiry/Advice
• EDI 850 Purchase Order
• EDI 855 Purchase Order Acknowledgment
• EDI 856 Ship Notice/Manifest (ASN)
• EDI 997 Functional Acknowledgement

More Document types — https://en.wikipedia.org/wiki/X12_Document_List

Let’s look at a purchase order’s EDI life cycle below (assuming DSCO is the EDI partner)

As a final note, I would like to share a helpful tool that I use every day. This tool can benefit those who are currently working with EDI or are already utilizing it in their daily business processes. I use this tool to analyze and inspect the raw EDI data that is sent by our business partners.

https://www.stedi.com/edi/inspector

This powerful tool is incredibly detailed and provides in-depth information on every EDI segment and element, allowing us to quickly and accurately troubleshoot any issues that may arise.

Credits —
truecommerce.com, edibasics.com, tipalti.com, datatrans-inc.com, stedi.com, and wikipedia.org