What is EDI and How Does it Work?

What is EDI and How Does It Work?

By Angela Carver

Intro to EDI

• EDI was developed over 30 years ago, but the usefulness of this technology was not realized by the supply chain and logistics industries until much later.

• Communicating via mail and fax became cumbersome and manual data entry was often riddled with errors, causing significant chargeback costs related to inaccurate order fulfillment and other processing errors.

• Warehouse operators realized the benefit EDI communication could provide and the use of EDI is now an industry standard rather than a mere convenience.

What is EDI?

• Electronic data interchange (EDI) is a communication method that provides a variety of standards for exchanging data via electronic means.

• Both the data sender and the recipient must adhere to the same set of standards for EDI to be a viable communication method.

• During the transmission of EDI documents, no human intervention is required for processing.

EDI Transmission

• EDI messages can be transmitted via multiple electronic methods including:

– Peer to Peer : using this transmission method trading partners exchange messages directly with one another

– Value-added Networks: a VAN acts a third-party message routing service. The VAN receives the message from the sender, examines the delivery data and routes the EDI transaction to the end recipient. VAN’s typically offer additional EDI services that the trading partners cannot handle internally

EDI Transmission

• EDI messages can be sent using a variety of methods with varying ranges of human interruption including:– Email

– File Upload (typically done through web portal)

– FTP

– Web Service Calls (formatted in XML)

– Flat File

EDI Document

Original Translation

EDI Document Components

• Document creators must include data elements required by designated formatting standards for the EDI translation to be successful.

• Each standard set requires different data components to be included.

• In this example, a purchase order, elements including the buyer’s company name, PO number, item name, quantity ordered, price, etc. must be included to eliminate any required manual order entry.

EDI Document Standard Types

• Many document standards exist and are used in different industries including:– ANSI ASC X12

– EANCOM

– UN/EDIFACT

– HIPAA

– ODETTE

– RosettaNet

– SWIFT

– Tradacoms

– VDA

– VICS

• Learn more and when and where these standards are used here.

Most Commonly Used EDI Standard

• In the US and Canada supply chain and logistics industry the most commonly used EDI standard set is the ANSI ASC X12 standard.

• This standard has been chartered by the American National Standards Institute for over 30 years. The most common businesses utilizing the ASC X12 schema include health care, insurance, transportation, finance, government, supply chain and more.

• Within the X12 standard there are more than 275 transaction sets –the standards used to electronically conduct business-to-business operations.

EDI Transaction Sets

• Within the ASC X12 EDI Standard there are hundreds of EDI Transactions or “T-Sets” available. See the full list here.

• The most common supply chain EDI T-Sets include:– 840 Request for Quotation

– 846 Inventory Inquiry

– 850 Purchase Order

– 855 Purchase Order Acknowledgement

– 856 Ship Notice/ Manifest

– 860/865 Purchase Order Change Request

– 869/870 Order Status Inquiry & Report

– 882 Direct Store Delivery Summary

– Many More….

How Does EDI Work?

850

810

Sender EDI Vendor Recipient

How Does EDI Work?

1. Original document is created (i.e. advance shipping notice)

2. Document is sent using selected method (i.e.Web Service Calls, FTP)

3. Formatted document is “read” by 3rd party system to determine recipient

4. Document is reformatted by 3rd party system to make file readable by recipients EDI software

5. Reformatted file is received by recipient and data is entered automatically into WMS by EDI integration

No human interaction required

Who Uses EDI?

• The most frequent industry uses include:

– 3PLs

– E-commerce fulfillment operations

– Warehouses

– Distributors

– Manufacturers

– Retailers

Key Trading Partners for Warehouses & DCs

• Suppliers

• Retailers/e-Commerce

• Transportation Service Providers

Trading Partner Agreements

• Companies utilizing EDI exchange normally require a signed EDI Trading Partner Agreement. These agreements vary in length and detail by trading partner and different considerations are made in each.

• Here are some considerations made in trading partner agreements:– Document Standards

– Third Party VAN use – who pays for this

– Systems Operations

– Security Procedures

– Signatures

– Receipt

– Verification

– Acceptance

– And More…

Why Use EDI?

Learn more here

Benefits of EDI

• Make your operation “Green” by reducing paper use related to communication with trading partners

• Improve data availability with real time document transmission

• Increase response rates to potential supply chain disruptions

• Reduce manual data entry and associated errors

• Increase daily activity volume

• Capture new business with larger trading partners

Benefits of EDI

• Increase forecasting and reporting accuracy – helps to reduce “safety stock” inventory and associate holding costs

• Free up resources to focus on other business critical functions –increase workforce productivity

• Reduce overall inventory handling/processing costs

Stay tuned into this series to learn more about reducing costs with EDI

Conclusion

• EDI provides significant value to supply chain businesses worldwide, allowing them to reduce costs, capture new business and make their existing operation more efficient

• Stay tuned into this series on EDI to learn more about terminology, costs and cost considerations, selecting an EDI vendor and EDI project planning.

Sources: http://www.edibasics.com/what-is-edi/what-comprises-an-edi-document/https://en.wikipedia.org/wiki/Electronic_data_interchangehttp://www.spscommerce.com/edi-guide/http://www.edibasics.com/edi-resources/document-standards/http://www.x12.org/http://www.x12.org/x12org/docs/EDITransactions.pdfAn Executive Briefing on EDI by Rik Drummond

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