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
- EDI Integration for Modern Business
What is EDI technology?
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 company 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 systems at work include a buyer submitting a purchase order for a product from a supplier, the supplier sending an invoice and both parties exchanging acknowledgment receipts.
In the example EDI exchange below, Company A is purchasing a widget from Company 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 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 find an EDI service 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 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.
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 integration to its 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 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.
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.
Speed: 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.
Accuracy: 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.
Efficiency: 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.
Security: 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.
4 Future Trends in EDI Integration
According to Chandana Gopal, research manager at IDC, “Enterprises have to continue to invest in modernizing B2B infrastructure 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 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 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 have 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 company 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, companies 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 companies 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.”
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.
Discover the benefits of using Cleo Integration Cloud for EDI integration by watching this short demo video:
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