How does EDI Work #retail #ecommerce #automotive #transportation #food #supplychain #logistics

Introduction

EDI, or Electronic Data Interchange, facilitates electronic communication of business documents between two computer systems. This article explains the basic process involved in EDI transactions, particularly in the retail sector but applicable to various industries like healthcare, automotive, logistics, and supply chain management.

The Sending Computer: Initiating EDI Transactions

In the context of EDI, let’s consider an example involving Amazon as the sending computer. When a business wants to engage in EDI with Amazon, they establish a relationship, during which Amazon provides essential information about how to connect and exchange data. This exchange typically involves several methods of communication such as:

AS2 (Applicability Statement 2): A protocol for transmitting data securely over the Internet, allowing Amazon to push documents directly into your system.
FTP (File Transfer Protocol): This method allows your system to connect and pull data files or upload them to Amazon's designated server.
VAN (Value Added Network): Think of this as an EDI mailbox, where documents can be sent and received without the need for direct point-to-point connections.

Amazon not only provides connection details but also maps or specifications—guidelines for how the EDI documents should be formatted, which could be in ANSI X12, EDIFACT, or other standards relevant to your business.

The Receiving Computer: Processing EDI Information

As the receiving side, your enterprise must equip itself with several components to handle the EDI transactions effectively. These typically include:

Communication Tool: Often referred to as Managed File Transfer (MFT) solutions, this tool can be hosted on-premises or managed by a third-party provider.
Translation Software: This software parses the incoming EDI format and converts it into a more readable format—like XML, PDF, or just an email—for your team to interpret.
Integration System: This is a crucial component as it connects the translated EDI data to your back-end accounting or ERP system (such as QuickBooks, NetSuite, or Acumatica). The idea here is to automate the data entry process and avoid manual handling.

Once documents are received and processed, the data can be formatted again into EDI to send back to Amazon—a reciprocal exchange that might involve various formats such as purchase orders (EDI 850), acknowledgments (EDI 855), advanced ship notices (EDI 856), and invoices (EDI 810).

Conclusion

In summary, EDI acts as a bridge facilitating communication between two systems for exchanging business documents in a structured format. The sending and receiving databases work together to ensure a seamless flow of information, ultimately enhancing efficiency and accuracy in business operations.

Keywords

EDI
Electronic Data Interchange
AS2
FTP
VAN
Communication Tool
MFT Solutions
Translation Software
Integration System
ANSI X12
EDI 850, EDI 855, EDI 856, EDI 810
Accounting Software
ERP System
Automation

FAQ

Q1: What is EDI?
A1: EDI stands for Electronic Data Interchange, a system that allows businesses to exchange documents electronically in a structured format.

Q2: How does the EDI process start?
A2: The EDI process starts with the sending company (like Amazon) providing connection details and format specifications to the receiving company.

Q3: What are the common methods of EDI communication?
A3: Common methods include AS2, FTP, and VAN, which facilitate the secure transfer of EDI documents.

Q4: What tools are required on the receiving end to process EDI transactions?
A4: The receiving end typically requires a communication tool, translation software, and an integration system to connect to back-end accounting or ERP systems.

Q5: What type of documents can be exchanged via EDI?
A5: Common EDI documents include purchase orders (EDI 850), purchase order acknowledgments (EDI 855), advanced ship notices (EDI 856), and invoices (EDI 810).