A Beginner’s Guide to EDI

There are few moments more exciting for a brand than when they strike their first retailer relationship. After the champagne, however, is when the real work begins.

Needless to say, there is a ton to do. Goals and expectations need to be set. Inventory management systems need to be reworked. Quality, packaging and labeling standards need to be met. Marketing plans need to be developed. But the task that brands are perhaps the most unfamiliar with is…

Electronic data interchange, otherwise known as EDI.

EDI is a standardized method for transferring business documents electronically between brands and trading partners (retailers). It replaces traditional paper-based communication, reducing errors, speeding up transactions and improving overall efficiency. For brands new to EDI, understanding its fundamentals is crucial for seamless implementation and successful integration into existing systems.

The first reason why EDI matters to a brand is that just about every retailer requires it – and the onus is on the brand to set it up and get it right.

But there are benefits!

EDI dramatically improves efficiency, speeding up the exchange of business documents, such as purchase orders and invoices. It reduces the need for paper, postage and manual data entry, therefore saving money. EDI also enhances data accuracy, minimizing human errors associated with manual data entry. And perhaps most importantly, EDI (done right), strengthens the brand-retailer relationship.

It Starts with Standards

EDI relies on standardized formats to ensure all parties interpret data consistently. The two most common standards are X12 (widely used in North America) and EDIFACT (predominant outside North America). These standards keep everyone on the same page.

Learn more about the differences between X12 and EDIFACT.

Software

It wasn’t that long ago that EDI happened via fax. Today, however, software does the job. EDI software (like Lingo) facilitates the translation, transmission and receipt of EDI documents. EDI software also integrates with core business systems like ERPs, IMSs and accounting applications to ensure data accuracy throughout the brand’s business.

When it comes to trading partner relationships, there is perhaps no decision more important than what EDI software a brand selects. 

Communication Methods

There are a number of ways brands and their trading partners can transmit EDI files – they just need to be secure. Secure document transmission is crucial in EDI to protect sensitive business information exchanged between trading partners from unauthorized access, ensuring data integrity, confidentiality and compliance with regulations. Secure communication methods examples include:

•  AS2 (Applicability Statement 2), a protocol for securely exchanging business data over the internet.
• SFTP (Secure File Transfer Protocol), a secure method for transferring data between businesses, ensuring encryption and authentication during the transmission of sensitive business documents like invoices or purchase orders.
• VAN (Value-Added Network), a secure, private network that acts as a middle ground to facilitate the exchange of documents between a brand and multiple trading partners.

Want to learn more about these communication methods? The eZCom team is happy to answer your questions.

Launching EDI starts with an assessment of business needs, most notably the trading partner’s requirements.

Next, brands will want to select an EDI solution. Obviously, you’ll want to go with something that is compatible with your trading partner, but if expansion into multiple retailers is in the plans, you want an EDI solution that can grow with you. This is where picking an EDI solution that offers custom development matters. Other EDI software considerations include choosing between in-house software, a cloud-based platform, or a managed service provider based on your budget, technical expertise, and transaction volume.

Then it’s on to data mapping. This is where a brand ensures that its internal data formats align with the trading partner’s EDI standards.

Testing is the next big piece of the puzzle. Brands must test and validate their EDI solution to ensure data accuracy and smooth communication with the trading partner.

Learn more about EDI testing.

Finally, it’s time to go live and monitor performance to address any issues promptly.

For brands just starting out with EDI, initial challenges are to be expected. Here are a few of the most common – and how to overcome them.

Complex Setup

Setting up EDI can make doing taxes look simple. It’s not as straightforward as you might think. The best way to remedy initial setup complexity is to partner with an experienced EDI provider. It’s literally what they (we!) do all day, every day.

Integrating with Existing Systems

In today’s interconnected world, your EDI solution must integrate with your other business systems to ensure the smooth flow of data. To solve for this, ensure that your EDI software can integrate, at a minimum, with your ERP, your accounting system and your inventory management system.

Training

Someone within your brand has to own EDI – and it’s often a new knowledge set. Identify your internal EDI lead and involve them from the get-go with your EDI software partner.

EDI introduces a whole slew of terms that, at the start, might as well be in a foreign language. Here’s a quick breakdown of the most common EDI terms and what they mean.

• X12: A widely used EDI standard in North America.
• AS2: A secure protocol for transmitting EDI documents over the internet.
• Chargeback: A financial penalty issued to a brand by a trading partner for noncompliance. EDI software helps to all but eliminate chargebacks!
• Data Mapping: The process of aligning data fields from one system to another.
• EDIFACT: An international EDI standard used in many industries.
• Managed Service Provider (MSP): A third-party company that handles EDI processes on your behalf.
• SFTP: A secure file transfer protocol used for EDI communication.
• Trading Partner: A business entity, typically a retailer, with which you exchange EDI documents.
• Value-Added Network (VAN): A third-party network provider that facilitates EDI communication.
• XML (eXtensible Markup Language): A flexible text format often used in EDI.

And then there are numbers! In EDIFACT, each EDI document is assigned a three digit number. Here’s a rundown of the most common.

• 850 Purchase Order (PO): A document used by buyers to place an order with a supplier.
• 810 Invoice: Sent by a supplier to request payment for goods or services provided.
• 855 Purchase Order Acknowledgement: Used by the supplier to confirm receipt of a purchase order.
• 856 Advance Shipping Notice (ASN): Provides detailed information about a pending delivery, including contents and shipment details.
• 997 Functional Acknowledgment: Confirms the receipt of EDI transactions.
• 940 Warehouse Shipping Order: Directs a warehouse to ship goods to a specified location.
• 943 Warehouse Stock Transfer: Requests the transfer of inventory between warehouse locations.
• 945 Warehouse Shipping Advice: Confirms the shipment of goods from the warehouse.
• 846 Inventory Inquiry/Advice: Communicates current inventory levels between trading partners.
• 832 Price/Sales Catalog: Shares product pricing and catalog information.

Getting EDI right with your first trading partner can have a major impact on the trajectory of your business. With the right partner, it’ll become second nature.

Have EDI questions? The eZCom team is here to help!

Frequently Asked Questions (FAQ)

What is EDI and why do retailers require it?

EDI, or Electronic Data Interchange, is the electronic exchange of business documents in a standardized format. Most retailers require EDI because it streamlines communication, reduces errors, and increases transaction speed between trading partners.

What documents are typically exchanged through EDI?

Common EDI documents include the 850 Purchase Order, 810 Invoice, 855 Purchase Order Acknowledgment, 856 Advance Shipping Notice (ASN), 997 Functional Acknowledgment, and others related to inventory, shipping, and product catalogs.

Is EDI only for large businesses?

No, EDI is used by businesses of all sizes. Many retailers require even small or growing brands to use EDI to streamline supply chain communication and ensure compliance.

How long does it take to get started with EDI?

The EDI implementation timeline can vary depending on the complexity of your systems and the number of trading partners. However, with the right EDI provider, setup and testing can typically be completed within a few weeks.

What kind of software do I need for EDI?

You’ll need EDI software that can translate, send, and receive standardized documents, such as Lingo. It should integrate with your ERP, accounting, and inventory systems for smooth data flow.

What’s the difference between AS2, SFTP, and VAN?

All are secure methods for transmitting EDI documents:

• AS2: Secure protocol using encryption over the internet.

• SFTP: Secure file transfer via encrypted connections.

• VAN: A private network that routes documents between trading partners.

What’s the easiest way to learn EDI?

Work with an experienced EDI provider who offers support, training, and integration guidance. They’ll help simplify the process and make learning EDI much easier.