EDI 101: A Crash Course

Matt Smith
July 12, 2017
EDI 101 - a crash course, Fishbowl BlogThe big box retailer that you’ve been trying to get into just agreed to your first big purchase order, but now they want you to implement EDI and you’re uncertain of everything that it requires. Sound familiar? Many of your fellow vendors implement EDI because a major retailer or other key customer demands it. Why? EDI streamlines and improves workflow and it enhances supply chain visibility and predictability. Digital transactions processed through EDI are so efficient that companies that use these systems often give preference to trading partners that already have EDI in place. While it’s true that having an EDI solution can give you an edge in negotiations, EDI can also help support your business’s success in the modern digital retail world.

What is EDI?

EDI is an acronym for Electronic Data Interchange. EDI is a combination of a system and processes that enable the exchange of business documents in a standard electronic format between business partners. EDI automation can eliminate the need for the transfer of paper documents between trading partners, such as invoices and purchase orders. For example, a vendor can send an invoice to a retailer digitally via EDI rather than send conventional paper documentation. EDI can also vastly diminish the need for manual entry and processing of documents. Many different varieties of business and transactional documents can be standardized and exchanged through EDI. Purchase orders, purchase order acknowledgements, invoices, credit adjustments, advance ship notices, and more can all be handled electronically, without human involvement. EDI replaces much of the need for the manual processing, handling, and mailing by a human related to traditional business communication, while at the same time reducing errors, improper documentation, lost forms, and inventory issues.

How can EDI help my business?

EDI helps the players in the retail supply chain better deliver on consumer expectations. On the consumer side, EDI ensures that online orders placed by customers are quickly routed into the fulfillment queue for speedy delivery. On the business side, EDI enables retailers, vendors, distributors, manufacturers, 3PLs, and more to better manage inventory while engaging in fast, reliable, and accurate communications. This process provides orders that are promptly received, accurately fulfilled, and shipped in a timely manner. EDI decreases late deliveries, stockouts, and backorders that send customers elsewhere. EDI supports a variety of functions that help vendors succeed. Vendors can gain efficiency, save money, scale readily and it opens up possibilities for working with larger retailers and brands. Retailers can easily determine product availability prior to placing an order. If the vendor is temporarily out of stock, the order can be shipped directly from the manufacturer, with the vendor still receiving credit for the sale. EDI also encourages sales by supporting end-to-end inventory visibility directly to an ecommerce website, as well as enabling drop ship capabilities for direct-to-consumer deliveries. EDI can relay shipment tracking information to consumers, letting them know their package is on its way and when to expect it. This is just the tip of the iceberg for the many ways EDI can help vendors collaborate better with trading partners.

Can other systems integrate with EDI?

Absolutely – as long as the right EDI solution is selected. EDI solutions can integrate with ERPs, content management systems, accounting software, shipping programs and more. Notably, when these systems are replaced or upgraded, EDI can be adapted to accommodate the changes. Keep in mind that not all EDI solutions are the same. Some cost more than others and need varied resources. There are three ways to accommodate an EDI system, each with its own pros and cons.

1. Traditional in-house EDI systems:

Traditional EDI systems are in-house and onsite at your company. As a result, these will cost more upfront with the investment in hardware, software, and other resources. Additionally, they will require continuous staffing and system upgrades that may increase as your business grows.

2. Online EDI solutions:

An online EDI solution can reduce expenses when compared to a traditional EDI department, but may still require investment in onsite resources to ensure your network has the bandwidth to accommodate.

3. Cloud-based EDI solutions:

Cloud-based EDI solutions drastically cut both upfront costs and long-term expenses. Though they have recurring subscription costs, cloud EDI reduces staffing needs and infrastructure expenditures. EDI enhances efficiency, supports supply chain integrity and enables streamlined communication between you and your trading partners. With all of these improvements, you can better manage resources, redirect workers to more fruitful projects, and strategize better for growth. From financial, operational, technical, and strategic perspectives, the right EDI solution can be a game changer. Interested in learning more about how SPS Commerce solutions can augment your current Fishbowl solution? Check us out here!