What the Heck is EDI and Why Should I Care?

September 3, 2012
One of the backbones of ecommerce is EDI (Electronic Data Interchange), a standard method of exchanging files that has been around since the 1980s. EDI is used in some degree in almost every industry. Over the years, it has become widely adopted throughout the retail, manufacturing, transportation, and health care industries for exchanging data between entities. Some industries require their trading partners to use EDI in an effort to reduce ordering costs for things such as ordering, invoicing, and shipment notifications.

Defining EDI

Electronic data interchange, Fishbowl Inventory BlogEDI has evolved a great deal since its creation. Some of the changes over the years include the introduction of EDI translation software and Value Added Networks (VAN), and now the Internet and EDI providers who store “maps” of all the possible transaction sets and trading partners. What used to be an expensive proposition for small companies is now quite attainable by taking advantage of some of these technological advancements. Put simply, EDI is the process of transferring standard business documents between trading partners. Perhaps the most common transactions for general business are:
  • Purchase Order (EDI 850)
  • Invoice (EDI 810)
  • Advance Shipping Notice/ASN (EDI 856)
Each of these documents has a standard format developed and maintained by the American National Standards Institute (ANSI) known as the ASC X12. In practice, however, each trading partner may deviate slightly from the standard, making it necessary to have intermediaries to map the data accurately from one entity to the other. Make sense so far? Okay, good.

Still Useful

So, you still may be asking yourself, why do I care about all this? EDI is old, outdated technology, developed years ago and sure to be rendered extinct by now, right? Not really. There have been advancements in data exchange with the Internet, such as XML, which allows for a standard format for exchanging data online. But EDI is still here and it shows no sign of going away. More and more small to medium-size businesses are turning to EDI as a way to keep pace and cut costs in a competitive market. As IT/Finance consultants, we need to be aware of these market shifts in order to help our clients stay profitable. There are many EDI companies out there and a plethora of Inventory/ERP software packages available that interface with each of these companies, but for today, let’s just look at Fishbowl Inventory and the integration opportunities involved. Fishbowl has been successfully integrated with TrueCommerce, as well as B2B Gateway. Fishbowl has recently established a partnership with SPS Commerce and more details will be forthcoming about that partnership soon. All of these options offer integration with Fishbowl as well as online EDI, which is a way of being EDI compliant without the cost of integration. Customers simply go to their EDI Web portal and print out their orders, but the orders still need to be manually entered. For many companies, this is an acceptable solution. But with increased volume, integration will be needed to be more efficient and reduce data entry errors.

Using EDI

Let’s look at a typical EDI transaction using Fishbowl Inventory:
  1. Retail trading partner places an order with customer. They issue an EDI 850 Purchase Order (PO), which is then sent electronically to the EDI provider.
  2. EDI provider translates the document using their maps and sends it to the customer.
  3. PO is picked up electronically by the customer, brought into Fishbowl as a Sales Order (SO), and the product is shipped to the retail trading partner.
  4. EDI 856 Advance Shipping Notice is sent to the trading partner by way of the EDI provider to inform them of the shipping information.
  5. EDI 810 is sent to the trading partner (again, by way of the EDI provider) for payment.
All of the data is passed along using one of several methods of data transport. Some of the most common are:
  • VAN is a go-between for trading partners to pass files.
  • File Transfer Protocol (FTP) is used to pass files from one computer to another using a login, but still passes that data as clear text. File Transfer Protocol Secure (FTP/S) provides an extra level of security by encrypting text.
  • EDI-INT is a set of standards for securely transferring EDI files through the Internet. Those standards are defined through Applicability Statements using AS1, AS2 or AS3. AS2 is the most common and defines the standards for sending files using HTTP (Web browser).

Next Steps

If you have managed to get through this article without gouging your eyes out with sharp objects, keep in mind that you don’t have to know everything there is to know about EDI to get started. You can refer customers directly to an EDI provider. Don’t leave opportunities on the table. Check with someone in your network of associates; chances are someone knows something about EDI. And stay tuned for more details about Fishbowl and SPS Commerce.