EDI Integration & Why It’s Important to Your Business
What is EDI (Electronic Data Interchange)?
In its most simple form, EDI is a computer-to-computer exchange of business documents in a standard electronic format between different business partners. The benefits from moving to an EDI service include reduced costs, automated workflows, faster document processing, fewer errors, and much smoother relationships with partners and customers.
EDI data contains critical information about a business transaction, and some popular examples of EDI at work include a retailer submitting a purchase order for product from a manufacturer, the manufacturer sending an invoice, and both parties exchanging acknowledgement receipts.
Another common EDI transaction is an advanced shipping notice (ASN), which is a notification of a pending delivery. Its primary purpose is to provide tracking and packing information ahead of a delivery. Located within an ASN are a purchase order number, ship notice numbers, and the location where the product will be shipped.
Why EDI Integration?
In today’s hyper-digital business world, most organizations that need to use EDI for their critical B2B transactions are actually already doing just that. But the companies that are utilizing EDI to its fullest potential are the ones who are truly reaping automation rewards via EDI data integration tools and solutions.
How EDI Integration Works
While the technology itself has been around for decades, many companies 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 have a single, integrated EDI approach that can deliver automated workflows, increase visibility into operations, and improve 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 companies 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.
The Importance of EDI Standards
One of the most common complaints those in the technology world have had about EDI is due to its rigid standardization. However, this very same standardization has helped EDI stick around for as long as it has and become a way of life for enterprises. Without standardization, it becomes difficult to maintain and scale B2B data exchanges.
A lack of true EDI standards that dictate a universal format is one reason that APIs have not replaced EDI when it comes to B2B-type data exchanges. APIs can be customized to do just about anything, which means developers a pretty wide range of what he or she can do to meet the requirements of the business. Such wide-ranging business rules tend to not scale well in most organizations.
The most common EDI standards include:
- 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 U.S.
- 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 U.S. healthcare
Key Benefits of Using EDI
There are many different reasons that companies 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.
1. Cost Savings
Through the use of an EDI service, companies can execute workflows that reduce costs. Previous paper expenses, ranging from printing, reproduction, storage, and postage, are gone. A streamlined documentation process helps companies comply with EDI service standards, which helps to avoid fines due to SLA violations, delays, and other performance gaps.
EDI allows enterprises to cut processing time remarkably through automation, speeding up business cycles. Order-to-shipment cycles in particular can be cut by 50 percent to 60 percent. There is also a tremendous difference in a transaction that is exchanged in minutes instead of days or weeks, as is common with many forms of manual transfer.
Nobody wants to make errors, and that’s exactly what EDI helps organizations avoid. When employees are forced to manually enter data into enterprise resource planning (ERP) software or order systems, odds are that a mistake will happen eventually. EDI solutions are designed to automate that cumbersome process and eliminate human-caused errors.
EDI is proven to be fast and accurate, which is why it’s such a popular integration and automation method to enterprises everywhere. No longer are companies expected to perform hands-on processing, so customer relationships are improved, errors happen less, and the delivery of goods and services are expedited.
Companies can feel safe and secure when they have an EDI model in place. In fact, EDI solutions are designed to ensure security and only allow strict access to authorized users and are usually equipped with archive tracking and audit trail capabilities. Companies are also able to share data securely across many communication protocols and security standards, to ensure compliance with mandates in global business.
EDI Integration for Modern Businesses
So, if EDI integration is so critical to meeting customer demands, improving employee efficiency, and streamlining the delivery of goods and services, why wouldn’t an enterprise use it? And how is a business supposed to decide which integration solution is the right fit for its needs?
Manage and govern your business transactions better with Cleo EDI software and services. Cleo automates EDI processes that connect, transform, and route EDI and non-EDI documents between internal and business partner applications, without the need for custom code. This enables businesses to reduce operational latency and costly errors, and allows companies to start doing business with new trading partners faster.
Cleo offers a bit of everything to meet your EDI needs, from automated EDI integration tools to self-managed EDI integration processes, including automated partner onboarding. Or our Cleo integration experts can manage all the EDI and B2B integration processes for you, with the flexibility and scale that you truly need. Regardless of how you move your EDI files, Cleo will always make sure that you have full access to all your data in real time, including web-based dashboards, transaction reports, and automated alerts. Request a demo today.