EDI Integration & Why It’s Important to Your Business
Here is everything you need to know about EDI integration:
- What is EDI Technology?
- What is EDI Integration?
- How EDI Integration Works
- Why EDI Integration?
- What are the Advantages of EDI Integration?
- 4 Future Trends in EDI Integration
- 3 Indicators That’ll Tell You Your EDI Integration Is Broken
What is EDI technology?
In its most simple form, EDI (Electronic Data Interchange) technology allows the computer-to-computer exchange of business documents in a standard electronic format between different business partners. The perks of moving to an EDI platform that specializes in EDI integration include:
- Reduced costs
- Automated workflows
- Faster document processing
- Fewer errors
- Smoother relationships with partners and customers.
So, how does EDI work?
First, a buyer submits a purchase order for a product from a supplier, next the supplier sends an invoice, and finally, both parties exchange acknowledgment receipts.
In the example EDI exchange below, Business A is purchasing a widget from Business B:
Another common EDI transaction referenced in the diagram is an advanced shipping notice (ASN), which is a notification of pending delivery. Its primary purpose is to provide tracking and packing information ahead of delivery. Located within an ASN are a purchase order number, ship notice numbers, and the location where the product will be shipped.
What is EDI Integration?
EDI integration is created when an EDI workflow is established between trading partners. EDI integration is achieved through two steps:
1) Establishing the EDI documents, protocols, transactions, and endpoints that you will use to exchange data with your trading partner
2) Converting EDI data into a format that can be used in your own back-end technical environments, such as your ERP system or accounting solution.
In the center of the EDI integration diagram below, data structures are translated into a mutually agreed upon EDI standard format (ANSI X12, EDIFACT, etc.). Translating internal data into EDI files enables both trading partners to speak a common language and communicate with one another.
The EDI files in the center are then converted into a proprietary file (IDoc, JSON, or another ERP specific format) that can be easily ingested into the back-end systems on the left and the right (SAP, Acumatica, etc.)
It is important to note that EDI integration occurs in both directions, originating from an ERP, or originating from a trading partner.
How EDI Integration Works
While the technology itself has been around for decades, many organizations now are seeking EDI integration software and solutions for EDI modernization initiatives, which can extend EDI data integration and automation capabilities beyond a traditional EDI message to support emerging business requirements. It is critical for enterprises to find an EDI system that delivers an integrated approach for delivering automated workflows, increasing visibility into operations, and improving customer service, regardless of the industry.
Step 1: A sender exports a business document from an in-house system or application. A common example is a purchase order to buy goods or services.
Step 2: The business document, in this case, a purchase order, is converted from the in-house computer system into the EDI format through data transformation mapping software or any of the various EDI translators.
Step 3: The EDI business document is next run through EDI processing software to ensure that it is structurally accurate based upon the agreed-upon EDI standards currently in place.
Step 4: The data from the EDI document is either transmitted to a value-added network (VAN) via a secure communication protocol like SFTP, HTTPS, or AS2, which can then be built into the same validation software or another application, or it can be transmitted right to the client via a direct connection over similar protocols.
Step 5: Direct EDI over AS2, for instance, creates a secure line between two different businesses, and enterprises can connect to trading partners without any document fees and gain real-time communication capabilities. The receiving party receives the file, verifies the credentials, authenticates the source, and decrypts the file so it can ingest the EDI doc right into its systems. It also sends back a message disposition notice (MDN) to acknowledge delivery.
Another option, if perhaps a bit outdated, is to go through a VAN, which makes a determination how it should route the data and then either switches it to a different VAN that is used by the recipient or delivers it to the VAN mailbox (if the sender and receiver are using the same VAN service). The data has officially crossed over to the receiver, and it is the receiver’s responsibility and their VAN service.
Why EDI Integration?
In today’s hyper-digital business world, most organizations that need to use EDI systems for their critical B2B transactions are actually already doing just that. But the businesses that are utilizing EDI integration to their fullest potential, are the ones who are truly reaping automation rewards through improved visibility over business partner transactions and the elimination of manual processes.
What are the Advantages of EDI Integration?
There are many different reasons that enterprises continue to use EDI within their enterprise. From saving countless amounts of money to improving speed, accuracy, and efficiency, EDI remains an incredibly useful tool.
Data accuracy: Automating EDI transmission to your trading partners, along with ingestion and transformation into your ERP eliminates the need for manual data entry. By nature, manual data entry is plagued by errors and the creation of automated data flows prevents mistakes from occurring in the first place, ensuring that you remain EDI compliant.
Business cycle speed: EDI integration allows your enterprise to cut down processing time. Order-to-shipment business cycles can be reduced by as much as 50-60%. EDI transactions that are exchanged in minutes instead of days means a faster time to completion.
Trading partner visibility: EDI integration done right means your business can spend more time focusing on the business. Knowing data is accurate, automated, and easily accessed within your ERP gives you the ability to easily view how your EDI partners are affecting your entire business.
What are the 3 Types of EDI Integration?
There are three types of EDI integration: direct EDI integration, indirect EDI integration, and hybrid integration.
Direct EDI integration: Direct EDI integration is created using a specific protocol like AS2 or FTP to establish a connection from your EDI trading partners (customers, suppliers, and service providers) to your internal ERP. This specific instance of direct integration is called EDI ERP integration. Oftentimes direct integration results in a business managing thousands of individual partner connections resulting in added complexity, especially if your business doesn't have a standardized protocol. Direct EDI integration is well suited to larger-scale integrations that move lots of data back and forth between ERP and trading partners.
Indirect EDI Integration: An indirect EDI integration is established through the use of an outside EDI value-added network (VAN) or another type of broker. The VAN acts as the middle man between your ERP and your trading partners. A message is sent from your ERP to the VAN. Once that message is received, the broker or VAN transforms and then sends the message into the necessary format preferred by your EDI trading partner.
Hybrid EDI Integration: In some cases, an organization wants a combination of indirect and direct EDI integration. For example, a VAN might handle some of an organization's EDI transmissions, but critical customers are connected via direct EDI integration. Hybrid EDI integration is essentially a combination of managed EDI services with in-house EDI resources to create a flexible EDI solution.
4 Future Trends in EDI Integration
According to Chandana Gopal, research manager at IDC, “Enterprises have to continue to invest in modernizing B2B integration software in order to stay competitive in the digital economy.” Let’s take a look at four trends that stand to impact the future of EDI providers and EDI integration.
IT Skills Shortage
Business Process Integration
Growth of Blockchain Technology
IT Skills Shortage: Cloud computing is rewriting the rules for EDI technology deployment and service consumption models. More businesses are looking to migrate applications, connections, data, and integration to the cloud. This includes cloud EDI. However, as cloud computing has grown to astronomical levels, the need for good talent within an IT department has never been higher.
The London School of Economics estimates that a lack of cloud skills has cost businesses $258 million annually. Cloud computing is designed to provide elasticity, flexibility, and save money, but without the right internal resources in place to handle cloud migration, cloud service adoption, or a cloud-first IT strategy, it’s unlikely that the enterprise can modernize critical EDI process to the cloud unscathed.
When IT departments are faced with a skills shortage, one common approach that many have opted to take has been to outsource. Partnering with an external IT service can reduce costs, overhead, and provide 24/7 coverage that an understaffed or short-skilled IT or integration competency center cannot. Outsourcing the EDI integration skillset means integration competency is no longer an internal requirement. This will inevitably increase the reliability of the digital business transactions, and also provides control over support and services engagement required to ensure successful migration and maintenance.
E-commerce Growth: Without a doubt, e-commerce is by leaps and bounds the fastest growing sector in retail. Online shopping is everywhere, it’s become a way of life, and for traditional brick-and-mortar corporations, the allure of jumping into the e-commerce space is too tempting to pass up – if not to reap untold riches, at least as a life raft.
Between the increasingly disruptive Amazon effect and headline-making, paradigm-shifting acquisitions in the retail space, the e-commerce explosion continues to have a very powerful impact on multiple industries.
As the e-commerce growth in the market expands by record margins, a new challenge begins to present itself. And that challenge revolves around the ever-increasing complexity of data and the sheer volume of data e-commerce business processes produce. Because an e-commerce business model depends on many different technologies, from supply chain management solutions to application, data, and B2B integration capabilities, the end result is a very complex environment.
E-commerce supply chain data has an interesting composition. The data comes in all forms, from customers, partners, and retailers. The challenge that enterprises face is around data access, integration, and management. That’s why a modern B2B infrastructure approach is more important than ever, and not something that enterprises should undervalue or take lightly. Even enterprises that have a tentative handle on their current data demands recognize the cascading complexity in the near future. Often, existing technology is more stable and should be considered first when looking to address new and upcoming challenges relating to the e-commerce boom.
EDI is a foundational technology at connecting ecosystems for the seamless flow of supply chain, inventory, and retail data. EDI continues to act like the existing communications standards for most industry-specific supply chains.
See common EDI standards throughout the world below:
- ANSI ASC X12 or X12 for short represents EDI standards for finance, transportation, supply chain, and insurance in North America
- EDIFACT is a common standard outside of the US
- RosettaNet, based on XML, is used broadly in the supply chain, manufacturing, and services industries
- GS1 EDI is used in retail globally
- TRADACOMS or GS1 UK is dominant in retail in Great Britain
- ODETTE is the standard used by the European automotive industry
- HL7 required by HIPAA regulation is predominant in US healthcare
Go anywhere in the world and you can use EDI to conduct business, therefore, the growth of e-commerce is providing a new area of expansion and implementation for EDI.
Business Process Integration: Modern EDI offers extensive capability benefits in and around business process integration.
The benefits of modern EDI include:
- Any-to-any format transformation, data mapping, and integration
- Process orchestration for intelligent automation
- Asynchronous, synchronous, and real-time transactional capabilities
- Visibility and analytics capabilities that serve operational and business intelligence use cases
- Extensive integration capabilities for on-premise and cloud applications, systems, data, and partners
To underline the importance of business process integration, consider the example of digital modernization:
In this day and age, businesses need the ability to conduct business process integration quickly and efficiently to increase business agility. That’s why many modernize enterprise resource planning (ERP) software in order to better conduct business with greater flexibility and reliability. But ERP cloud migration is complex, costly, and risky if done without a guiding strategy that includes business process integration. That’s where EDI, or rather, modern EDI comes into play.
EDI must coincide with integrated business processes with ERP systems and other core business applications that run the enterprise. It’s EDI that connects the data, applications, trading partners, and underlying revenue-generating business processes. Across every back-office system, from the enterprise financial solution to your customer relationship management (CRM) program, EDI provides a versatile toolset to ensure business process integration.
Growth of Blockchain Technology: It seems like every few years or so, the latest and greatest technology appears, and all of a sudden, everyone says it’s going to replace EDI. Years ago, it was XML. A few years back, it was APIs. Now? Enter blockchain. Even Gartner recognizes that the mechanisms of industry hype have promoted blockchain to a fever pitch before its time has realistically come for most businesses.
The truth of the matter, however, is that while blockchain is effective for certain types of processes, it will not replace all B2B transactional technology. If anything, blockchain technology will only stand to augment existing EDI systems and work hand-in-hand with them.
The end result is that the way enterprises currently conduct B2B transactions does not necessarily have to change drastically – if at all. In fact, it can continue to operate the way that it has, while at the same time, blockchain can add an increased amount of visibility between three parties that only makes EDI a more powerful technology.
In 2019, EDI and XML accounted for approximately 88%-95% of all B2B transactional volume. While blockchain represents a disruptive force, the fact is that EDI remains ingrained in transacting everyday business processes across every industry, making EDI a natural fit as a component in any B2B integration technology stack.
As Ken Vollmer, former principal analyst at Forrester described EDI: “Its ongoing growth means it will continue to be the dominant document exchange alternative for many years to come.”
4 Indicators That’ll Tell You Your EDI Integration Is Broken
Relying on outdated and often disparate solutions simply does not provide organizations with the ability to best serve their customers, and stay one foot in front of the competition. It’s never easy moving away from something you’re comfortable with, but the business benefits gained from a modern integration platform are remarkable, both in the short and long-term.
EDI remains the most common and widely used standard for B2B transactions. But if you’re one of those organizations (and there are a lot of them) that remains in a legacy environment, odds are you’re having difficulty supporting EDI integrations.
If that is the case, i.e., if you can’t support end-to-end EDI integration, here are fou indicators that should tell you why your EDI is broken, and what you can do about it.
- EDI does not connect to your back end systems
- EDI documents are not automatically integrated into your back-office applications, such as an ERP
- Custom scripts that require constant maintenance
- Constantly needing to update in-house custom scripts
- Manual processes
- Manual intervention is needed for an actual EDI transaction integration
- Your EDI Implementation hasn't progressed
- EDI implementation issues have caused you continual headache connecting to EDI trading partners
If any of this sounds familiar and you can’t support end-to-end EDI integration, fear not, because there is a remedy! There are steps you can take immediately to become more agile, flexible, and easy to do business with than ever before. For instance:
1. API and EDI on one integration platform
It is no longer an either-or question. In order for your business to grow and modernize, you must be able to support EDI and APIs on the same integration platform. EDI and APIs are complementary to each other, that’s why you need both working together for you. API integration augments EDI and provides a deeper context to B2B integrations within your business ecosystem.
2. Support for batch and real-time processes
Businesses need end-to-end visibility across the extended supply chain in order to bring real-time API and batch EDI together in the same view, so all stakeholders both inside and outside the business can see how all of the integrations are performing. This makes your business highly flexible and integration simpler, easier, faster, and more reliable.
3. Application connectors for direct integration
Often, businesses struggle to integrate different parts of their business ecosystem, whether that might be enterprise applications, SaaS, or EDI. That doesn’t have to be the case, however, through a unified, minimally complex process. Application integration connectors allow enterprises to expand and evolve, something every organization needs to be able to do in 2021.
4. Integration process orchestration and automation
Businesses that can quickly design, configure, and orchestrate integrations with popular and widely used applications and marketplaces make saying ‘Yes’ to prospective customers instead of ‘No’ much easier. Imagine having the technology to dynamically orchestrate end-to-end business processes and integrate data flows to any cloud or on-premise location – that’s what a modernized integration platform can and will do for you.
So … if your B2B integration is broken …
If your current integration strategy does not support end-to-end EDI integration, you ought to embrace a modern integration platform that transforms an EDI document and puts it into your back-end system to complete its lifecycle B2B transaction. EDI and API on the same platform will help you leverage integration for the benefit of not just your company, but your entire business ecosystem.
There are other smart moves you can make to fix B2B integration at your company, and we’ll be writing about them in future blogs. But if you want the full story now, download our booklet, ‘Your B2B Integration Strategy is Broken – Here’s What to Do About It’
Discover the benefits of using Cleo Integration Cloud for EDI integration by watching this short demo video:
Want to learn more?