Understanding Electronic Data Interchange (EDI).
Distribution businesses are challenged with increasingly complex supply chains and the need to be ever more customer centric. At the same time, the need to drive profitability and efficiency means they must minimise costs, maximise sales and improve productivity.
To differentiate themselves or to remain competitive, they are turning away from paper-based methods and embracing digital transformation via EDI.
The market for EDI is projected to be worth US$ 49,213.1 million by 2027 – a growth rate of more than 9.5% for the 2020-2027. Against the backdrop of the fallout of the pandemic, potential global recession and limited spending, that’s a huge growth, which reflects the value of the technology in helping companies. Spending on EDI is worth the investment to businesses as the return helps them to achieve greater profitability.
To combat supply chain complexity and to bring together all its technological components, the electronic exchange of business documents – like purchase orders, invoices, delivery notes and advance shipping notices – delivers great leaps for companies that want to realise better digital communication with their trading partners.
Implementing EDI brings speed and efficiency – but must be done without compromising on compliance or security.
Here’s a look at how businesses can greatly reduce manual admin while reducing document delivery speeds, improving financial performance and maximising cash flow.
EDI-compliance provides distributors with a distinct competitive advantage, placing them ahead of rivals in securing business from companies looking to decrease costs, improve accuracy and automate their processes.
What is EDI?
Definition and description.
EDI stands for Electronic Data Interchange. It is an electronic method used by two parties to exchange information. Using a common ‘language’ – a set of standards that define a common protocol – EDI enables businesses to share information and to undertake business transactions, even if they don’t each use the same software or operating system.
Using EDI, businesses can communicate automatically with each other. Documents are processed entirely by each company’s computer systems, without need for manual intervention.
Within the supply chain, EDI is an effective method for exchanging information in a standardised format with both suppliers and customers. Combining speed, accuracy, and reliability, EDI provides both buying and selling parties with the ideal method of exchanging vital business documentation.
EDI can be used with all the components of your supply chain technology stack: your ERP system, WMS, TMS, automation and robotics, e-commerce, third-party marketplaces, and more. Using it across the board streamlines processes, reduces or eliminates manual entry, and allows you to trade seamlessly with customers, suppliers and marketplaces – and to exchange information with financial institutions.
Which documents can be exchanged using EDI?
A wide variety of documents can be exchanged using EDI. For supply chain businesses, these are the most typical business documents that are transmitted from system to system:
- Purchase orders – a customer sends a PO to order materials or goods from a supplier.
- Advanced Shipping Notices – the ASN is sent by the supplier to the customer, advising about the date of the shipment and its contents. It is sent before the shipment has been received.
- Invoices – this request for payment is sent from the supplier to the customer.
- Remittance advice – this is sent from the customer to the supplier to acknowledge payment of an invoice.
- Bills of lading – although a BoL will typically accompany a consignment – as a physical document – they can be sent electronically too.
- Acknowledgements and receipts – these act as recognition to the sender that a document has been received.
- Product activity data – this is information shared between partners about stock levels, sales details or other information about products.
Are there any standards or protocols?
While EDI is referred to as a common language, in reality there is no uniform standard. Instead, there are several variations of EDI.
Any methods of sending and receiving can be used – as agreed in advance by the two transferring partners. Largely though, transmission these days is via the internet.
As EDI has become more widely used, these varying standards and data formats have been developed. Each one stipulates the characteristics and rules of the communication, including aspects such as how the data is structured and formatted or which character sets are used.
There are two main standards:
- EDIFACT – this is an international standard, recommended by the United Nations. It is used predominantly outside of North America.
- ANSI ASC X.12 – sometimes simply termed X12. This is the US standard and is used mainly in North America.
Other commonly used standards include:
- EANCOM
- TRADACOMS
- XML and its subsets, including cSML, cXML, ebXML, xCBL, etc.
Some EDI standards are used solely within a particular industry sector – like ODETTE, a European automotive industry standard; HL7, a standard governing the transmission of healthcare data; and SWIFT, the banking standards.
Other standards regulate the transmission of certain documents – like ZUGFeRD and Factur-X for invoices in Germany and France; cXML for procurement and commerce-based systems; BMEcat for product catalogue data; and the PEPPOL protocol for pharmaceuticals.
Some EDI standards are even proprietary to a certain software. For example, ERP provider SAP has its own EDI format, IDoc.
These are only some of the more well-known standards.
Compliance requirements.
Some industries have regulatory compliance requirements. This is especially true of sectors where lack of adherence to conditions or practices might cause harm – like in healthcare, energy and construction.
But largely, compliance is important when it comes to trading with the larger companies. To ensure data accuracy and consistency from all their supply chain partners, for example, some businesses will stipulate certain compliance conditions. Large supermarket chains and third-party marketplaces may require that suppliers use a certain standard, or may even have their own, more specific, compliance requirements.
Who is EDI for?
EDI is appropriate for any distribution business that wants to streamline trade and communications within its supply chain – with both customers and suppliers. Any company that exchanges business documents can benefit. This is the case whatever the size of the company, but where there is a larger volume of documents to be exchanged, then obviously there will be a greater return in terms of time and manual labour that can be saved.
Buying organisations with multiple suppliers will improve efficiency in procurement and the processes involved, so will also benefit from implementing EDI, achieving faster and more accurate document exchange with suppliers.
EDI is in widespread use in highly regulated industries, like pharmaceuticals and healthcare or food and drink. Since the product provenance and shelf-life is critical to quality, EDI brings advantages in speeding up trade and enhancing traceability.
Sometimes a customer will mandate that their suppliers trade via EDI. This is particularly the case in retail. Large retailers, like supermarkets, will often insist on their suppliers using EDI as it brings consistency to their supply chain and ensures that all their trading partners meet their requirements.
Third-party marketplaces – like Amazon and Wayfair, for example – will also require larger suppliers to make business transactions via EDI. This will often involve using their own EDI systems and compliance standards.
The drawbacks of not using EDI.
What happens if you don’t use EDI?
Due to globalisation and increased levels of international commerce, the world is becoming ever more connected. Distributors without sufficient levels of electronic connectivity will lose out to their competitors. Buyers will choose instead to trade with businesses that have the flexibility and agility that EDI provides.
Without EDI, you are forced to retain conventional methods of document transfer. Paper-based documents are the norm and need to be transferred using slower, less secure and more expensive means – like post and courier.
The entire document exchange is lengthy and inconvenient. The business sending a document needs first to print it out. It may be a purchase order or invoice, for example. They then send this to their supplier or customer.
Someone at the receiving company must then manually enter the details into their own computer systems. This takes time, delaying the trading process whilst the business data is transferred, then entered, checked and processed.
Without EDI, you will suffer from:
Slow manual processes.
Without automation, your processes are slow and manual. Data entry is often unnecessarily repetitive and laborious, not to mention tedious for your staff.
Risk of errors.
Using manual methods of data entry risks user error. Aside from any reputational damage to the company resulting from mistakes, these errors cost your business money. If the wrong amount is invoiced, you will lose revenue. Alternatively, paperwork errors might mean you are subject to chargebacks. Then there’s the cost of rectifying the error – you’ll have to spend more time and work to correct the situation.
Low productivity.
It takes longer to process documents, transfer data between systems and to initiate procedures without EDI. With staff focusing on time-consuming processing, rather than on other core business activities, they are not as productive as they could be.
Higher costs.
Mistakes and reduced productivity will both impact your financial performance. But you will also have increased costs from printing out and physically sending documents by courier and post. Plus, since resources like your staff will be performing at sub-optimal levels, you will have lost opportunity costs.
Limited scalability.
The goal of all businesses is to grow. Growth means more suppliers, more customers, more logistics partners. But without EDI, it is harder to manage the complexities of your growing supply chain, which impacts your ability to easily scale up your business.
Insecure data.
Without EDI, your documents need to be physically exchanged, emailed or faxed. As above, this slows the process down, with data needing to be re-keyed, and has associated risks of errors. But with the additional processing requirements, and often a physical interchange, there is a greater risk that documents can go missing and data can be lost. With less secure methods, there isn’t just the worry that documents get there in time – there’s risk that they don’t get there at all.
No audit trails.
Without an electronic trace of the documents that you send and receive, you have no way of tracking back if you are faced with unforeseen problems. Without the visibility that EDI provides, you cannot easily prove that a document was sent or received and must revert to checking through paper-based trails of records or relying on your staff to recall events or trawl through emails.
The benefits of EDI.
Streamlining the exchange of business documents through EDI allows you to trade more effectively with others.
You will gain greater control over your supply chain and the reduction in manual admin will bring more efficiency and reliability to your operation.
Implementing EDI within your distribution business increases productivity and promotes operational efficiency.
Here’s a closer look at the benefits of EDI.
Time savings.
Electronically transferring documents takes just moments. This contrasts sharply with the manual processing of printouts and sending them via post, which can typically take three to five days. The time gained allows your employees to focus on other tasks. It also speeds up ordering, meaning you will receive goods from your suppliers more quickly.
The time savings speed up ordering – meaning goods are received from suppliers more quickly. Some estimates suggest that the quick processing afforded by EDI can speed up business cycles by 61% and order-to-cash cycles by 20%.
Reduced costs.
Automating manual processes brings a reduction in costs. Research by GS1 UK identified that using EDI saves £14 per order. EDI negates some obvious costs – like stationery, printing and postage – but you can also save by reducing the number of disputes coming from inconsistent or inaccurate data. Plus, the reduction in admin time and manual paperwork saves money.
EDI reduces payment times. The transactions are processed more quickly, often resulting in invoices being paid sooner. This of course improves cash flow and reduces your borrowing.
When acting as a buyer, the automation and faster processing that is facilitated through EDI will often attract early payment discounts, saving you money on your purchasing.
Better data accuracy.
EDI reduces errors. Without the need to manually transcribe invoices or purchase orders, you maintain better data accuracy. EDI can even eliminate some manual errors: there’s no illegible handwriting to decipher, no mistyped digits and no lost paper documents.
With your EDI transactions taking place via a secure network, and with no need for human processing, your accuracy rates will be higher.
With EDI, your staff don’t need to manual rekey information. When they receive an invoice or purchase order, they don’t have to type the details and figures into your own system, which means fewer errors and maintain accuracy in your transactions.
Higher levels of accuracy will improve your relationships with suppliers and bring greater customer satisfaction.
For some trusted suppliers, you can get to a point where you assume complete accuracy. Using advance shipping notices (ASNs) sent by EDI, the shipments can be automatically linked to the correct purchase orders, and quantities and accuracy can be checked for each order received. As you trade more often with that partner, you can gradually check fewer consignments, and assuming they are always accurate, you will reach a point where you trust the shipment without the need to check. Your received goods can immediately be unloaded without counting quantities or verifying products.
Data security.
Preserving data security is paramount. With EDI, the electronic transmission method uses a secure network that does away with more insecure channels such as the post. Your documents are delivered directly to the intended recipients, without risk of compromise. Having this security of data builds trust for both parties and enhances trading relations.
Improved efficiency.
EDI makes for greater efficiency and enhanced productivity in your operation. You don’t risk the type of problems that are inherent with human processing, such as forgetting to transfer a purchase order or failing to send an invoice on time.
Each party also receives swift confirmation that documents have been successfully transmitted and received. This speedy processing can mean fewer out of stock situations or cancelled orders, which is vital to a distribution business. Equally, warehouse operations benefit from faster order processing and delivery times, meaning you can reduce your stock holding too.
You can automate your order entry and by integrating it through your ERP system and, if it’s appropriate to your type of business, you can accept online order entry from customers that you grant access to your systems, directly through EDI.
If you sell to retailers, they can supply ePOS data directly to you via EDI. When they sell a certain number of items, this can automatically trigger a repeat order to replenish the goods that have been sold. They don’t have to manually check stock, then raise a purchase order and send it off. Efficiency levels are increased for you too, as you receive an automatic order, which immediately be sent to the warehouse for picking and despatch.
Reduced stock holding.
If you exchange documents using EDI, they are delivered more quickly than paper-based ones, which reduces the time between order and receipt. So, you get your goods sooner, allowing you to sell them without a delay. Because faster processing and delivery times mean you can restock quickly, you can minimise your stock holding.
EDI also helps with forecasting and planning. Receiving early notification of orders helps you plan and adjust stock levels. With the speedy processing that EDI delivers, you will have fewer out of stock situations or cancelled orders.
Real-time visibility for all parties.
Giving your customers access to their order statuses benefits everyone in the supply chain. They can place their orders directly using EDI and then track the order status. This can all take place without them needing to speak to you.
Especially in cases where the order volumes are high, like with B2B sales, allowing the customer this level of visibility helps streamline buying and selling. Lead times are reduced, stock holding can be minimised and you have access to real-time data that can inform your decision-making processes.
With traceability for both you and your trading partner, you each have access to the full document history, helping you quickly investigate and solve any issues. Plus, with confirmations and notifications, both parties receive swift confirmation that documents have been successfully transmitted and received, giving you the validation that your orders have been received or your invoices have been paid.
Improved trading relationships.
With accurate and speedy document exchange with your business partners, you ensure that shipments are correct, payments are timely and visibility is thorough. And better sharing of sales and stock information can improve planning for all parties. This helps improve your working relationships with suppliers and customers.
Competitive advantage.
Simply being a business that uses EDI can make you more appealing to prospective customers, as they will find working with you more efficient than with paper-based competitors. It will be less expensive for them to use automatic and electronic processes and will require less manual labour than creating paper documents and manually processing orders, deliveries and payments.
Better forecasting abilities.
With robust trading partnerships in place, you will be better able to see historical sales patterns. This will help with your demand forecasting and planning, allowing you to carry more appropriate levels of stock as well as order or manufacture additional goods in good time.
Improved compliance.
In certain industries, compliance is critical. For example, the provision of pharmaceuticals and healthcare has implications for patient safety and supplying food and drink necessitates a duty of care to prevent consumer harm.
Working to certain coding and messaging standards helps distributors in these industries to deliver valid, safe and compliant products. The use of EDI can improve traceability within the supply chain and compliance brings efficiency savings, especially through better stock control, faster invoicing and payment and speeding up product recalls.
Compliance minimises lost business, prevents you from being fined for non-adherence and helps you win new contracts.
How can you implement EDI?
Using EDI doesn’t happen automatically. It needs to be purposefully integrated into your technology stack so that it works correctly and that all parts send and receive using the same, understandable ‘language’.
If you have separate systems that each run a separate aspect of your distribution operation, then there is a worry that it will not all integrate well. Will your ERP work with your warehouse management system, and will they integrate properly with your voice-directed picking solution, your warehouse control systems and your ecommerce website?
Besides integrating your own systems, there’s a question about how your systems will communicate externally – with your suppliers and customers. Will sales and invoices be pulled through into your ERP? Will order details be sent accurately to shipping suppliers for distribution?
To guarantee all this, you cannot rely on hoping everything will all work out. You need to seamlessly integrate EDI into your systems in a way that not only ensures that your internal technology works, but also enables effective communications with your external partners too.
There’s no need for expensive hardware to achieve EDI integration. But integrating your entire end-to-end supply chain technology stack is necessary.
When you have several pieces of software, each contributing to the success of your warehouse operation, you need to integrate systems so that they work together. Disparate systems bring disparate results, so you want software that can work together.
The Balloon approach.
At Balloon, we integrate the various components of your supply chain technology and pull them all together into one seamless network.
To work properly, and to make the most of your set-up, your ERP needs to transfer information back and forth with the WMS and ecommerce website. Your WMS needs to control the WCS. The stock control and forecasting applications need to receive data from the WMS and ERP to produce accurate forecasts based on financial outcomes. The WMS and ERP need to integrate with your TMS and multi-carrier management to produce the correct shipping labels for the correct orders. And so on.
Through EDI, these systems can successfully be integrated and also allow your customers and suppliers to interact with your systems.
Through supply chain integration and connecting your internal systems with your business partners’ systems , you’ll immediately recognise increased supply chain performance and reduced costs.
When you have software that works properly together, you gain an integrated view across the whole of your distribution business – through purchasing, receipt, putaway, in-warehouse management, replenishment, sales orders, picking, despatch, logistics and final mile delivery. Not only does your view across this allow you to see what’s going on in your company and its customers, but it spreads across the full ecosystem – including your suppliers, retail or distribution partners and 3PL providers.
In our experience, non-technical users can only achieve an initial simple integration, employing off-the-shelf software. Instead, we find that distributors require solutions that address aspects such as what happens when there are errors or when a transaction needs to be resubmitted.
Solving these issues, as well as handling non-trivial business data and processes at high performance requires software development by technical experts. Past a certain level of complexity, business processes are more efficiently expressed using a modern programming language – rather than user-level configuration options and graphical user interfaces.
To enable the use of EDI, we therefore have our own general-purpose integration software, Springboard Server. We also write and provide APIs for our customers. The APIs map fields across disparate systems, ensuring accurate coding to whichever EDI standards are being used.
We will either give a customer access to our API so that they can build integration and EDI links themselves – or we can help them by developing it for them when we implement their systems.
We often work alongside our customer users in the same project, making the best use of the skills of both groups. For example, a business user may be able to implement a simple flow for sending remittance advice notices to suppliers. But our project delivery team has the expertise to build other, harder integrations, such as multiple data flows with a third-party logistics provider.
Our development team can also write external applications that connect with third-party systems. Whether you need an integration to the Wayfair platform, Amazon’s marketplace, or the Screwfix hub, Balloon developers can provide the applications and technology you need.
This seamless integration of all parts of your supply chain technology reduces administration, bringing greater productivity and savings in time and money. Having systems that communicate with each other eliminates duplicated manual input and manual workflow actions, speeding up your processes through automation and augmenting throughput and efficiency.
Balloon brings innovative solutions into our customers’ end-to-end supply chain solutions. We advocate any form of technology that streamlines a company’s processes and ultimately drives customer satisfaction. We have solutions that seamlessly format EDI transactions so that they match with your trading partners’ requirements and will smoothly integrate with your ERP system for an automatic process.
Integrating the end-to-end supply chain.
A variety of systems can be integrated into a single end-to-end supply chain network, to which suppliers and customers can connect via EDI too.
Case studies.
Before automation, a Balloon client was taking around five hours to process a single 30-40 line Amazon order. After integrating their K.Motion WMS with Amazon, handheld scanners now capture the information and transmit it automatically via EDI to Amazon, reducing their processing time for the same 30-40 line order by at least four hours – an 80% reduction in labour costs.
Balloon has created an EDI integration that works for companies using BluJay, a carrier system. Order data such as package contents, dimensions and weight are read by Balloon’s Springboard Ship platform. Springboard Ship processes the data as an XML file and uploads it via EDI to a BluJay FTP server. Via an automated process, BluJay takes the file, reads the data and converts it to a label. The label image is saved at the client’s end into the correct folder, so it can be used to ship the consignment. A later status update file for the order is created, then sent via EDI to the FTP server as a status update for BluJay.
For a pet products company, Balloon created an EDI integration that sends orders from the company’s website. The order is created in XML format and sent via EDI to a shared folder. A continually running task in the WMS takes any XML file from the folder, processes it and imports it into the WMS to be managed.
Balloon developed an integration for a leading wine delivery business. The company generates CSV files containing purchase order data, which are imported into K.Motion WMS via EDI.
Conclusion.
EDI enables streamlined, faster and more accurate trading with your suppliers and customers through the secure exchange of business documents.
Businesses benefit from improved productivity and greater visibility into the supply chain, from customers to suppliers.
Trading more efficiently thanks to implementing EDI processes gives a business greater control over its supply chain and promotes operational efficiency.
With a fully connected, fully integrated digital supply chain that leverages EDI, your systems will actively communicate with each other, sharing data in real time and bringing visibility and transparency to the supply chain – for you, your suppliers and your customers.
Increase collaboration through an end-to-end integrated supply chain to optimise the management of every part of your supply chain.
With EDI, your warehouse will have greater agility and efficiency. And if you have multiple warehouses and depots, in many national or international locations, with large numbers of SKUs, then your supply chain will benefit from the streamlining and automation that EDI can bring to your complex operations.
Eliminating manual processes and speeding up the entire supply chain process – from purchase order, through invoicing, order processing and receipt, to fulfilment and delivery – it simplifies and automates your procedures and brings greater operational efficiency.
For a faster, more secure and efficient end-to-end supply chain, get in touch today.
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