Electronic Data Interchange (EDI) 101

EDI (Electronic Data Interchange) is the concept of businesses sharing information between two companies that was traditionally communicated on paper. Business information includes purchase orders, inventory feeds, invoices, shipping notices, etc.

EDI plays a vital role and preferred means to exchange documents and transactions between businesses both small and large these days.

B2B EDI integration ensures that the data provided by all business partners involved in a common business process and automatically shared with other business partners. Similarly, EDI integration can be associated with almost all the ERP systems you see in the market. This is a breakthrough feature that businesses can utilize to gather all the business information and analyze them. Also with modern technologies, the possibilities are endless — Use business intelligence with the help of Machine Learning and AI tools. (Example: The Domo Business Cloud )

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 payables are recorded timely manner than 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

EDI standard is a common format where 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 readable view. This enables real-time business document processing easier and the EDI software can be managed by absolutely anyone who is having the 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 drift.

First, we need to learn ANSI X12 Document Types — Each document is identified by a 3 digits 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 (Assume DSCO is the EDI partner)

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