What Is EDI & How Is It Used?

Acronyms like EDI can seem daunting and ambiguous. What do they mean?

In this case, the acronym stands for Electronic Data Interchange, a fancy term for business-to-business data exchange in a paperless form.

EDI is done with specific standards to help meet regulations and protocols for protecting said information. There are also specific standard formats for this process, which outline the regulations and protocols for handling that data. In this post, we will discuss how this works, the formats used, the protocols and regulations, and the implementation process for EDI.

Without further delay, let's dive right in.

Electronic Data Interchange

Electronic Data Interchange aims to replace the traditional paper methods of data exchange. The standards set for EDI also help regulate automation of data exchange, removing much of the manual work done by people. There are many benefits to using this method over the manual paper methods employed in the past.

Benefits of Electronic Data Interchange

Electronic Data Interchange has a few significant advantages due to automation, such as cost reduction and a decrease in human error. It also saves massive time; electronic data exchange is faster than standard paper methods.

Automation creates a more efficient workflow by reducing manual labor, which leads to less opportunity for human error. Furthermore, automation decreases its time to process information and perform tasks, thus saving more time.

Let's hardline these benefits for the sake of clarity. EDI:

• Saves time and money through automating a process previously executed manually.
• Improves efficiency because more business documents are shared and processed faster.
• Reduces errors through rigid standardization, ensuring correct formatting before data enters business processes or applications.
• Integration improves traceability and reporting because businesses can incorporate documents into various IT systems supporting data collection, visibility, and analysis.
• Automation supports positive customer experiences by enabling efficient transaction execution and prompt, reliable product and service delivery.

How does EDI work?

EDI message standards are defined and set by organizations like ODETTE, TRADACOMS, GS1, Peppol, and the Accredited Standard Committee X12 (ASC X12). These standards are vital for ensuring safe and accurate data transmission eliminating problems caused by missing, inaccurate, or breached data.

The importance of governed Electronic Data Interchange standards is underlined by the need for consistency when working with sensitive information. Data envelopes structure data types and contain information about the sender and receiver. EDI document — or message — flow describes the movement of EDI messages to and from departments and partners to execute processes or transactions.

A few different programming languages support and complement the Electronic Data Interchange process. Languages such as JSON, XML, and the increasingly popular blockchain technology all complement the process of EDI due to the way they structure data. The structure of these languages allows for uniformity and consistency; they also support the security needed for EDI.

EDI Software and Methods

It's best not to solely think of EDI in terms of software but also in terms of methods. This is because there are different types of Electronic Data Interchange, each serving other purposes.

Let's go over a few Electronic Data Interchange methods and discuss what they are and how to use them.

Direct EDI/Point-to-point

This method directly connects two business partners; it facilitates the individual connection between them. The primary use of this method is to connect large partners with suppliers.

EDI via VAN

VAN stands for Value Added Network; this is a service typically provided by a third party who manages the network and provides communication methods such as mailboxes for partners to send and receive data documents.

EDI via AS2

AS2 is an internet communication protocol for transmitting and receiving data securely, delivering EDI with the universality of the internet.

Web EDI

In some ways is similar to AS2; however, this method uses standard internet protocols via web browsers. In addition, this method utilizes online forms; these forms help format the data transmitted under company and partner requirements.

Mobile EDI

Mobile EDI is exchanging data between mobile devices; however, the adoption of this process has been slow due to security concerns. However, as technology improves and security techniques are updated, mobile applications serving these needs increase.

Blockchain Technology

Blockchain technology — initially created to securely share scientific papers — is growing rapidly in popularity. With blockchain technology, articles and relevant information would be assigned to a new chain or added to an existing one. In this vein, blockchain technology is very well suited for EDI and comes with stringent security built into it.

EDI Outsourcing

This method leverages the benefits of external sources as a means to handle Electronic Data Interchange. Many companies do not have the internal resources to handle these tasks and, as such, outsource the work to third parties.

EDI Implementation

Not all organizations have an easy time implementing Electronic Data Interchange processes due to varying data formatting needs. The formatting needs of organizations often vary enough to require robust methods for making the various formats that are available work with each other — additionally, the ever-changing landscape of government regulations standards for data exchange.

These factors have led many companies to outsource their EDI needs, which eases the workload on the company. However, whether the process gets handled internally or externally, implementation requires mindfulness of some basic requirements and considerations. In addition to document types, security, hardware, and software, a well-built EDI process should consider the following:

Translation or Mapping Software

This type of software takes the data, identifies the various formatting fields, and creates a map to facilitate data standardization and vice versa.

Batch Enveloping or De-Enveloping 

These capabilities allow partners to bulk wrap and unwrap large batches of data to simplify and expedite the data interchange process. Furthermore, transactions can then be split and divided into groups and sent to their respective departments.

Message Routing

After data is received — and unwrapped if needed — the recipient must take steps to send the information to their appropriate destination within the recipient's organization. This is where message routing mechanisms come into play; they facilitate the process of document division according to the recipient and destination data.

Trading Partner Agreements (TPA)

Trading partner agreements serve as contractual agreements between businesses and partners. It outlines the agreements on terms and conditions and establishes the standards for communication, business documents, and protocols between partners.

Using Electronic Data Interchange (EDI)

Let's wrap up this post by looking at a basic summary of EDI.

As a broad-stroke definition, Electronic Data Interchange is the electronic method businesses use to exchange information such as sales, shipments, transactional data, and more. Some of the most popular EDI methods include Web EDI, Direct EDI/Point-to-point, and EDI via VAN. Recently on the rise is the use of blockchain technology to secure and simplify business data between partners.

The various methods differ, but any implementation will require due diligence to ensure successful EDI practices. To ensure well-built EDI processes, any organization will need:

1. Translation software to facilitate data format compatibility between partners.
2. Batch enveloping/de-enveloping software for organized management of large batches of data.
3. Message routing identifies target destinations and facilitates data exchange to appropriate departments within partner organizations.
4. Trading partner agreements to outline the terms of the data exchange between business partners.

EDI practices and implementation can seem overwhelming but armed with the right tools and information you should be able to accomplish adding this technology to your company workflow.