Documentation errors cost your business time and money. They also make it harder to track your products as they move through the supply chain. Electronic Data Interchange, or EDI, can help.
EDI replaces the old manual data sharing processes with automated document transfers. In this article, we’ll explain what EDI is, why it’s so important for logistics teams, and how you can implement it in your business.
Table of Contents
- What Is EDI (Electronic Data Interchange)?
- Why Is EDI Critical for Modern Logistics Operations?
- How Does EDI Integration Work in Fulfillment Centers?
- What Are the Different Types of EDI Solutions?
- Choosing the Right EDI Solution for Your Business
- FAQs
What Is EDI (Electronic Data Interchange)?
EDI is a direct exchange of business documents from one computer system to another. It is a highly secure, reliable means for business partners to exchange purchase orders, invoices, shipping notices, and other key documents, all with minimal risk of manual error or data loss.
EDI uses standardized electronic formats to safely transmit documents directly from system to system. Unlike paper documents or traditional digital records, EDI doesn’t require much human involvement. It connects directly to your databases and business platforms, automatically updating your records without the need for manual data entry.
Many large businesses have already replaced their paper-based processes with EDI. Today, smaller organizations are also adopting EDI, thanks to a greater understanding of the benefits the technology delivers.
EDI is significantly faster than manual document exchange processes. It is also much more accurate than either manual or digital data exchanges. Just as crucially, EDI saves organizations money by increasing efficiency, speeding up transactions, and slashing the costs associated with invoicing errors.
What Is the History of EDI?
The roots of EDI go back to the 1940s, when the US military needed an efficient system to manage its logistics during World War II. The approach matured and came into its own in the 1960s; that’s when leading logistics and transportation companies began using electronic document transmission instead of paper.
In the 1970s and 1980s, EDI transmission standards were introduced so that logistics companies could count on their data exchanges working. Today, organizations use cloud technology to securely transmit documents. They also integrate EDI technology with platforms like Enterprise Resource Management (ERP) and Warehouse Management System (WMS).
EDI Document Types and Codes
EDI uses a system of standardized, 3-digit codes to refer to the different types of documents that users can exchange over their computer systems. The codes allow computer systems to instantly recognize, process, and store data from different kinds of documents.
Some of the most common document types and codes in logistics include:
- EDI 850: Purchase Order
- EDI 856: Advanced Shipping Notice
- EDI 940: Warehouse Shipping Order
How EDI Works: The Basic Process
EDI is straightforward and easy to learn. Here are the essential steps:
- The sender creates a business document, such as an invoice or a shipping order, in their internal system. That typically means their company’s ERP or WMS.
- EDI translation software converts the document into a standardized EDI format for transmission.
- The document is transmitted securely to the recipient via a secure transfer. The most commonly used transfer methods are VAN (Value-Added Network), a third-party secure network, AS2, an encrypted data transfer tool that uses digital certificates for an additional layer of security, and SFTP, a direct file transfer protocol with an extra layer of data protection.
- The recipient’s EDI software converts the incoming message into a format that their system can read and extract data from. This is an automated process that eliminates the need for manual data entry or updating across different platforms.
- The recipient’s ERP or Warehouse Management system automatically imports data from the new document. The new data is now in the recipient’s system, where the new steps in the workflow can proceed. For example, imagine that a retailer sends a purchase order to their supplier using EDI technology. As soon as the purchase order arrives in the supplier’s computer system, the system generates a sales order and initiates the picking and packing process. The result is a smooth, speedy transaction.
Why Is EDI Critical for Modern Logistics Operations?
Here are some of the most important benefits of using EDI:
Greater speed
EDI speeds up key processes like ordering, shipping, and invoicing. Legacy paper documentation systems get bogged down in enforced idleness while teams manually enter the details from order forms, shipping notices, and invoices. Orders can’t be processed or shipped. Payment can’t take place either.
EDI transmits data near-instantly, so processes don’t stall. In fact, transactions that took days are now complete in minutes or hours.
Improved Accuracy
Manual data entry is error-prone. Even the most careful employees make mistakes when they’re tired. Those mistakes cost your business time and money.
EDI automates the data transfer process so you don’t have to worry about the errors that plague paper-based systems. It’s a boost for efficiency and for your bottom line.
Reduced Costs
EDI leads to greater efficiency and accuracy, keeping your costs low.
Inaccurate data from order forms leads to shipping errors, wasting packaging, and raising your postage expenses. You’ll also see chargebacks from retailers. Likewise, invoicing errors lead to missed charges or to duplicate payments that must be returned. Data entry errors also waste labor hours, as employees need to correct their mistakes.
Real-Time Visibility
EDI replaces unreliable paper-based processes with automated, direct data exchanges, enabling real-time tracking of shipments, inventory levels, and order status across the supply chain. EDI’s document transfers automatically update the recipient’s systems, so teams and partners have access to the latest information as soon as possible.
Scalability
By automating many of your documentation workflows, EDI makes it easy to scale.
The technology enables you to easily tackle higher transaction volumes during your peak seasons, without needing to hire and train additional employees.
EDI also supports rapid growth, since faster order processing leads to improved customer satisfaction and retention.
Compliance Requirements
EDI can help your business stay compliant with industry expectations. Many major retailers, like Walmart, Target, and Amazon, and third-party logistics providers mandate EDI for business partnerships.
How Does EDI Integration Work in Fulfillment Centers?
EDI integrates seamlessly with your Warehouse Management System (WMS), so fulfillment centers have instant access to the data they need. Purchase orders, for example, flow directly into the WMS, so that your team can start picking and packing right away.
EDI integrations make inventory management easier, since you can share real-time updates on your stock levels with your partners. That means you can set realistic expectations for your customers and stay ahead of stockouts.
EDI also enables automated shipping confirmations, or Advance Ship Notices (ASNs), which alert buyers as soon as orders ship. ASNs drive more efficient supply chain management, allowing better planning and helping teams catch any shipping errors early in the process.
Finally, EDI enables automated invoicing, with billing documents created and transmitted electronically for faster processing and greater accuracy.
EDI Integration With AMS Fulfillment Systems
With more than 20 years in logistics and order fulfillment, AMS combines cutting-edge technology with a deep bench of experts. We take a hands-on, customized approach to EDI integration, with a focus on each customer’s unique needs.
Our EDI integrations offer seamless connectivity with our customers’ eCommerce platforms and marketplaces, and real-time order processing from receipt to shipment confirmation and automated inventory updates across all sales channels.
Just as crucially, we offer support for multiple EDI standards and communication protocols. We work closely with each client to ensure that their EDI solutions work well for them, and we are on hand to answer any questions or help with the troubleshooting process.
What Are the Different Types of EDI Solutions?
There are a number of options available if you’re looking for an EDI solution, as follows.
- Direct EDI (Point-to-Point) offers a dedicated connection between you and one trading partner. This is an excellent choice if you have a high volume of trade with one other company. However, if you work with many suppliers, a point-to-point EDI may not meet your needs.
- EDI via VAN (Value-Added Network) provides a third-party network that acts as an intermediary. The third party provides mailbox services, protocol conversion, and security for all parties. EDI via VAN offers simplicity and ease, since a third party handles the complexities of data transmission. However, some organizations find that it doesn’t offer enough customization.
- Web EDI acts as a bridge between legacy spreadsheet documentation and modern EDI. Web EDI translates manual data entry into web forms that generate EDI documents. It’s often a good choice for small companies that are just venturing into EDI, although it’s not sophisticated enough for companies with larger workflows.
- Mobile EDI offers specialized applications that enable EDI transactions via smartphones/tablets. Mobile EDI delivers data in real-time and can be a great choice for teams operating in the field. However, the technology can come with a high upfront cost.
- EDI as a Service is a cloud-based subscription service in which a third party handles EDI infrastructure and maintenance. The model offers relatively low operational costs and requires less in-house technological expertise. However, it also offers less control of operational details.
Choosing the Right EDI Solution for Your Business
There is no universally perfect EDI solution. Instead, focus on finding the right match for your business.
Begin by carefully assessing your transaction volume and the number of trading partners you have. Consider your internal IT resources and technical expertise, and evaluate the integration requirements for your existing systems.
Finally, consider your budget and forecasting, as well as your scalability needs for future growth.
EDI can save your organization time and money while improving efficiency and performance. Working with AMS Fulfillment is a great way to implement a customized EDI solution. Contact us today to get started.
FAQs
How long does it take to set up EDI with a new trading partner?
EDI onboarding takes 4 to 12 weeks, depending on the setup. At AMS, our experienced providers typically deliver results more quickly by working through our established relationships.
Is EDI secure for transmitting sensitive business data?
Yes, EDI is highly secure. It uses encryption, digital certificates, and authentication to securely transmit documents between trusted partners.
Can small businesses benefit from EDI, or is it only for large enterprises?
Small businesses benefit greatly from EDI, especially when selling to major retailers who require it. EDI also facilitates scaling for small businesses.
