What is EDI integration and why is it important?
Communication is critical to an efficient and effective retail business. Inventory, order, invoice information and more must be communicated successfully and accurately to all business areas, from the back office and warehouse to all suppliers and trading partners. EDI software is the best tool for making that happen.
Why use EDI integration?
EDI integration is an effective solution for facilitating communication between trading partners and the tools they utilize within a business (like an ERP or WMS). It minimizes human error by organizing data into standardized formats and automating the way that data is shared, reducing the time and cost of manual entry. Many suppliers who exchange data with a trading partner are participating in EDI without realizing it. This might especially be true if their retailers or other partners require specific formatting for documents like purchase orders and invoices.
Main Points:
What is EDI integration?
What capabilities are gained through EDI integration?
What are the types of EDI connections?
What are the key steps involved in setting up EDI integration?
What are the advantages of EDI integration?
Which future trends are expected in EDI integration?
How do you tell if an EDI integration is broken?
How can SPS help?
Frequently Asked Questions (FAQs)
What is EDI integration?
Electronic Data Interchange (EDI) integration connects businesses electronically to automate the exchange of sensitive digital documents from various systems and trading partners in a single, standardized format. This process simplifies data exchange and reduces the likelihood of human data entry errors.
Using EDI integration, electronic documents like invoices, purchase orders and shipping notices are generated in a standardized data format in one system and transmitted to other systems and trading partners. This data transmission can occur through a secure EDI network like a Value-Added Network (VAN).
When the data is transferred to a connected system, it is integrated with the existing data. This process involves analyzing the EDI document, extracting relevant information, and entering it into the appropriate structure of the new database. Because this data extraction process is automated, the EDI documents must have a standardized format.
Transferring data through EDI offers several benefits. It accelerates the speed of accurate data exchange by reducing manual effort and the potential for human error. It also encourages seamless collaboration between business partners throughout the whole supply chain.
EDI is particularly useful in industries that require multiple moving parts—including buyers, suppliers, manufacturers, logistics partners and more—and where data needs to be communicated at every stage to ensure speed and accuracy. The process also helps companies meet trading partner and system requirements and comply with industry regulations.
EDI integration simplifies data exchange by standardizing document formats, automating processes and improving collaboration between systems and trading partners.
What capabilities are gained through EDI integration?
In general, EDI integration makes it easier to do the day-to-day tasks that are needed to run a supply chain business through automation. It saves time and effort for employees, who otherwise would have to manually create, update or share documents with various partners. This is true across the board, as trading partners could involve retailers, manufacturers, distributors, logistics partners and other contributors.
Here are some examples of how EDI integration might be used:
Share purchase orders:
A supplier might use EDI to automate communication between themselves and their logistics partners, so when they receive a PO (purchase order) it’s also sent to their warehouse or 3PL (third party logistics). This enables the warehouse or 3PL to anticipate shipments and manage inventory.
Connect accounting systems:
A business might connect an accounting software like QuickBooks to their EDI documents so that when they send an invoice it automatically appears in QuickBooks, streamlining payment processing.
Automate fulfillment:
A brand receives purchase orders from various retailers via EDI. Once these are received, the brand’s system updates its production schedule and starts fulfilling orders. They can also share those purchase orders for production with their manufacturing partners through EDI. These orders indicate the quantity, specifications and delivery times for products, guiding the brand’s production schedule.
Monitor inventory:
A supplier syncs its inventory system using EDI. This keeps inventory levels updated across systems in real time, ensuring efficient order processing and visibility into inventory levels. The supplier can also monitor its manufacturing partners’ inventory levels via EDI and vice versa. When inventory levels drop, the supplier sees it in their system and can automatically re-order to request additional production of goods.
Optimize receiving and production:
A supplier sends ASNs (advanced shipping notices) to retailers via EDI before shipment arrival, detailing contents for efficient receiving. Similarly, they can share ASNs to their component supplier or vendor through EDI helping plan production and resource allocation.
What are the types of EDI connections?
EDI systems may vary between providers and in their unique features and benefits. So it’s essential to understand which type of EDI platform is most suited to a particular business.
Below is a list of the common types of EDI:
Direct EDI:
Direct EDI integration involves establishing a point-to-point connection between two systems and requires trading partners to have compatible systems. Direct EDI offers a high level of control over the data exchange process.
AS2 (Applicability Statement 2):
AS2 is a common protocol used for reliable data transmission over the internet. It enables organizations to exchange EDI documents directly with their trading partners using end-to-end encryption and digital signatures for increased data security and integrity. AS2 leverages existing internet infrastructure to facilitate near real-time data exchange.
EDI API integration:
This method combines the benefits of EDI with modern API technologies. It involves exposing EDI functionality through APIs, which allows organizations to implement EDI processes directly into their applications.
VAN (Value Added Network):
A VAN is a third-party service provider that acts as an intermediary between trading partners and manages the EDI process. Instead of connecting directly, trading partners will connect through the same VAN. The team in charge of the VAN ensures the secure exchange of data.
Web EDI:
Web EDI is a program that allows parties to exchange data through a web-based browser. This method provides a user-friendly and accessible approach to EDI integration, particularly for small to medium-sized businesses that may not have the resources to invest in a fully articulated EDI system.
File Transfer Protocol (FTP):
With an FTP in place, data is transferred between a client and server on a computer network. This makes it one of the most secure connections for EDI.
What are the key steps involved in setting up EDI integration?
Setting up an integration involves several key steps, as follows:
Select an EDI solution provider:
When selecting a provider, consider factors such as experience, scalability, integration capabilities and cost-effectiveness. Ensure the solution is compliant and aligns with industry standards. Decide whether you need a managed or full-service provider. A full-service provider will handle everything from setup to testing and ongoing maintenance, acting as an extension of your business. A managed service provider will guide you through the process from the outside, requiring you to accomplish the various IT tasks involving setup and maintenance in-house.
Verify the connections:
Make sure your selected provider can connect with the systems and/or partners you currently work with or hope to work with in the future.
Identify necessary EDI documents:
Choose which documents to share with your trading partners and ensure that your provider supports those documents. A good provider should consult with you on this process.
Configure and test EDI software:
Set up the necessary parameters, such as document types, communication settings, data mappings and partner profiles within the EDI interface. If you selected a full-service EDI provider, they will handle the bulk of this step, along with testing a validating the exchange of data.
Maintain the integration:
Ensure ongoing monitoring and support for EDI integrations by implementing robust systems, comprehensive training and responsive support mechanisms. This step is often managed by a full-service EDI provider.
What are the advantages of EDI integration?
EDI integration can offer several key advantages to help streamline data transfer between trading partners.
The most common of these benefits are listed below:
Streamlined business processes:
EDI facilitates the exchange of standardized business documents between trading partners. This eliminates manual entry and paper trails from the data exchange process, which results in streamlined business workflows and faster order processing and invoicing.
Data accuracy:
Manual data entry can be prone to human error and inaccuracies. Using an EDI system, data can be converted into a standardized format and transferred automatically, significantly reducing the likelihood of errors.
Cost savings:
EDI integration can lower the cost of business data transfer in various ways, from eliminating paper document handling and printing fees to the postage costs and labor costs associated with manual data entry. Streamlining the process and reducing errors also cuts costs incurred from reworking old documents.
Faster transaction processing:
EDI integration enables real-time or near real-time data exchange between systems. This means there is little to no delay in updating information, and all trading partners have access to the same real-time data simultaneously. This eliminates potential communication errors where documents get lost in the flow of endless information.
Improved business relationships:
Seamless data transfer through EDI integration can help companies respond to partner-specific criteria promptly and improve business relationships between trading partners.
Standardized data and document formats:
EDI provides standardized document formats, ensuring all documents are structured similarly. This improves consistency and compatibility during data exchange.
Compliance with industry regulations:
EDI integration helps organizations and their trading partners meet the latest industry standards and regulations by keeping all data exchanged transparent and in a unified format while complying with data security regulations.
Which future trends are expected in EDI integration?
The value of EDI integration will only increase as retailers look to achieve accuracy, consistency and efficiency while taking advantage of the global supply chain.
However, the process will continue to undergo innovations as those across the supply chain strive to add value where possible. Below are some of the key trends we can expect to see in the future of EDI:
Cloud-based EDI:
Cloud-based EDI will continue to increase in popularity, as it doesn’t require an on-site infrastructure and is cost-effective to run while saving on maintenance and server upgrade costs.
Integration with ERP systems:
ERP (enterprise resource planning) software can improve collaboration with trading partners, provide scalability and flexibility and ensure compliance with regulatory requirements. By seamlessly integrating EDI with ERP systems, businesses can automate processes, reduce errors and adapt to evolving market conditions, ultimately gaining a competitive advantage in today’s dynamic business environment.
Integration with AI:
With the increased prominence of artificial intelligence (AI) and machine learning (ML), these technologies will quickly find their way into the EDI integration process, where they’ll be used to further automate the process with enhanced document analysis tools. This will also lead to improved decision-making and the faster extraction of valuable data.
Enhanced security integration:
Data sharing inherently comes with security and data confidentiality risks. As a result, security measures will need to keep pace with new threats, including authentication and encryption technologies.
How do you tell if an EDI integration is broken?
Sometimes EDI integration can stop functioning and, if left unresolved, result in duplicate or false data. Any malfunction will disrupt the communication between trading partners.
Below are some common symptoms of a malfunctioning EDI system that will need attention to ensure efficient and accurate data exchange:
Failed or delayed document exchange:
Delays in document exchange between one company’s EDI system and a trading partner may be due to connectivity issues or problems analyzing and separating the data.
Rejection of EDI documents:
If EDI documents are rejected and returned, it could indicate that they do not comply with current rules or standards outlined by the receiving platform. These errors may include poor formatting, missing data or invalid values.
Data inaccuracies:
Data inaccuracies or inconsistencies between documents could mean a problem with data mapping or translation during the EDI integration process. Inaccurate data can lead to order fulfillment errors, invoicing discrepancies and inventory management issues.
How Can SPS Help?
SPS Commerce offers pre-built EDI integrations to standardize data transfer and align all trading partners, allowing users to set up their business for frictionless, scalable growth. We offer a full-service EDI solution, managing setup, handling any complexities or issues that arise, and providing ongoing support and maintenance on behalf of our customers, consulting with them about their unique business needs and best practices. With over 200 EDI integration solutions available, SPS is a reliable partner that saves businesses time and resources, especially when compared with manual processes.
Frequently Asked Questions (FAQs)
Q: What is an example of EDI integration?
A: Imagine a company that manufactures consumer goods, like shoes. They will have a network of manufacturers, suppliers, retailers and business solutions. EDI integration automates critical business processes such as the recording and exchanging of data between these business partners in a single, unified format–reducing manual data entry (and therefore human error) and enhancing efficiency in order processing, financial transactions and inventory management.
Q: Is EDI still being used?
A: EDI is still commonly used in various industries and sectors. While web-based services are newer, many companies still prefer traditional EDI for electronic data exchange between companies within a supply chain. This is because many industries have already established EDI as a basis for their data exchange for years, so transitioning away from EDI would be more costly and time-consuming.
Q: Is EDI integration required?
A: EDI integration is meant to simplify and speed up the process of exchanging data between supply chain networks, meeting their specific demands around how the data is formatted. It may not be a requirement to do business with all trading partners. However, businesses may find EDI integration necessary when dealing with the complex and unique requirements of multiple trading partners and systems.
