Electronic Data Interchange (EDI) Explained

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As more and more retailers and ecommerce businesses look into strategies for speeding up their processes (especially those surrounding fulfillment), EDI should be a part of the equation. EDI automation offers a variety of benefits for streamlining communications and processes, while reducing errors and delays.

What is EDI?

EDI is an abbreviation for electronic data interchange. EDI is a combination of both a system and processes that give retailers the capacity to exchange documents and transactions with their suppliers, vendors, and brands in a standard electronic format. For example, a retailer can send a digital purchase order to a vendor through  an EDI transaction instead of sending a paper document or fax. The reverse is true as well – a vendor can send digital invoices and other transactional EDI documents to their retailer partners electronically.

EDI systems offer a range of benefits that can improve the speed and accuracy of a retailer’s most important business documents. EDI automation can diminish or even eliminate paper documents, while at the same time ensuring that no transactions or orders get lost or stuck in the system. EDI greatly reduces manual processing and data entry needs, including the costly human errors that can hurt your bottom line. EDI also functions as one barrier of protection against improper documentation and fraud.

A wide range of business documents can be standardized and exchanged through EDI implementation, including:

  • Invoices
  • Purchase orders (PO)
  • Credit and debit adjustments
  • Purchase order acknowledgments
  • Purchase order changes
  • Advanced ship notices
  • Inventory inquiries
  • And more!

But what does that mean?

In a world where we expect everything to be fast, EDI can empower the links in the retail supply chain with much of the agility needed to better deliver on what consumers want from their buying experiences.

For consumers, EDI automation streamlines the processes that propel ecommerce orders through fulfillment and shipping queues to make good on delivery promises. With improved inventory communication capabilities, EDI decreases the stock outs, backorders and delayed shipments that frustrate customers.

On the business process side, EDI enables retailers, suppliers, distributors, brands, manufacturers, and other stakeholders to improve inventory management while engaging in accurate and speedy communications. It breaks down the barriers between departments and systems within organizations, which increases connectivity and shortens lead times. With EDI, businesses in retail and retail supply can increase efficiency, save money, scale quickly, and meet the requirements of larger trading partners, many of which now require EDI.

Benefits of full EDI integration

Just as with other important business systems, there are a variety of EDI options on the market with assorted strengths and weaknesses. They range from the very basic, which is often a separate web portal through which business documents are entered, to fully integrable EDI systems, which can connect directly to other systems. Some EDI solutions have a limited number of computer systems they can connect to, while others can be configured to connect to pretty much any channel or system your ecommerce business uses.

Fully integrated EDI solutions can connect to your:

When EDI is integrated with other business systems, the opportunities for efficiency gains and error reductions can grow exponentially. EDI solutions can break down the silos between the systems that companies use for different departments and duties. Once all of these systems can “talk” to each other, businesses gain the cross-departmental and cross-channel visibility and communication they need to meet the requirements of today’s retail and supply chain engine and the consumer demands fueling it.

Comparison of in-house vs. outsourced EDI

Beyond the type of EDI system, there’s the decision about how to implement it. The two most common options are in-house EDI and outsourced, cloud-based EDI.

1. Traditional in-house EDI

Traditional EDI software is a “do-it-yourself” affair, with all of the responsibilities and resources residing in-house and onsite at the business. With this DIY style of EDI, there can be considerable upfront costs related to hardware, software, staffing, and other resources. Though the costs may lessen after the system is in place and all of the bugs have been worked out, that could change as the company grows and more upgrades are necessary.

2. Online EDI solutions

As mentioned previously, some EDI systems can be accessed via an online portal, such as through a web browser or an app. These online EDI solutions are great for startups and smaller companies, as they can reduce expenses when compared to a traditional EDI department. However, it’s easy to outgrow these systems. Many aren’t capable of full integration with other systems, which means manual data entry needs often remain. Furthermore, online EDI solutions often still demand investment in onsite resources to make sure the existing network can support the flow of data.

3. Cloud-based EDI providers

Cloud-based EDI solutions have the best of both worlds. A cloud EDI provider maintains the hardware, network, software, upgrades, compliance requirements, and more, significantly reducing infrastructure expenditures and staffing needs compared to traditional EDI. There is an upfront setup cost and a monthly subscription fee, but the overall cost is significantly less than traditional in-house EDI. Most importantly, cloud-based EDI is infinitely scalable to the business’s needs. Some users who have moved from traditional EDI to cloud EDI have reported savings of up to 75 percent.

The world is accelerating, and that’s especially true in retail. Consumers want everything to move faster, and to keep them happy, retailers need to speed up their processes and communication – both within the organization and outside of it. EDI can do that and more, making it a vital component for any winning retail strategy.

To learn more about SPS Commerce and how their Fulfillment (EDI) solution can help optimize your supply chain, click here.

Why your ecommerce business should consider EDI

Our partners at SPS Commerce have put together a list of five reasons to invest in EDI for your business.

1. We’re living in an omnichannel retail world

Consumers are driving the evolution of retail and the retail supply chain, finding new ways to shop and purchase goods. Retailers and suppliers are responding by adding on sales channels to make sure they’re getting out in front of consumers. These new sales channels don’t typically play nice with the older sales channels and they’re often siloed from one another.

When your sales channels can’t communicate, you risk selling the last of your inventory through one sales channel, while still accepting orders through another. Then you have to explain to customers why their order is canceled or delayed.  

If you sell through multiple siloed channels and you’ve never accidentally oversold a product, you’ve gotten lucky. As your company grows and more channels are added, the need for an omnichannel approach intensifies. EDI solutions can integrate multiple systems and sales channels to help your business achieve a truly omnichannel fulfillment and retail strategy.

2. Accurate, consistent, and thorough data is more critical than ever

When your business systems and sales channels can’t communicate, you end up relying on manual data entry and manual processes, usually at several points across your organization. The potential for keystroke errors is inherent to manual processes. When that information is transferred to other departments, the errors could be compounded across the organization.                                                                                             

Let’s pretend for a minute that every keystroke is accurate. When the data can’t be transferred automatically, more manual processes are necessary to integrate the data for making better inventory forecasting decisions. The workarounds used to combine the data often cause process errors and flawed results that could steer you in the wrong direction.  

The more comprehensive the data you collect, the more insights can potentially be gained. To get that comprehensive data, manual processes and system silos must be eliminated, and EDI automation can help.

EDI can connect your vital business systems, including ERP, IMS, OMS, WMS, accounting software, e-commerce platforms, and more. Not to mention you can more precisely collect and transmit data, leading to better forecasting for your business.

3. Tighter inventory management makes a big difference

When forecasts and decisions are made based on inaccurate, incomplete, and inconsistent data, surpluses and stockouts are common. A product that wasn’t a great performer suddenly sells out as fast as it hits the shelf. An item that looked particularly popular was actually a glitch in the data. EDI automation can help you see the big picture to make a better category, assortment, and inventory choices.

Inventory visibility reduces the chances of surpluses and stockouts. EDI can help you see where your ecommerce inventory is now, where it’s coming from, and when it’s moving to its next destination. Automated inventory status inquiries via EDI can keep retailers updated on their suppliers’ inventory, and vice versa, to help keep goods flowing smoothly.

Manual steps in your inventory replenishment process can cause problems if you accidentally send the same purchase order twice or fail to submit a purchase order. EDI assists with transmitting replenishment orders only after inventory has reached a specific threshold, decreasing or even eliminating the potential for surpluses and stockouts.

4. Resources and assets are finite

As an organization matures and grows, the requirements of resources like staff, inventory, systems, space allocation, and more change. Businesses often run into obstacles that can hamper the speed of development needed to address those demands.

For example, surprise spikes in sales can cause inventory depletion, retail fulfillment delays, and late shipments, which has a ripple effect of disappointed consumers and potentially strained trading partner relationships. More sales can also put pressure on manual data entry processes, warehousing logistics, and hiring.

EDI can add scalability and agility to existing resources and assets. It enables tighter control of inventory to better designate space in stores, warehouses, and distribution centers, as with just-in-time inventory practices. 

When manual data entry tasks are reduced or eliminated, employees that performed these duties can shift their attention to other priorities that grow the business and drive innovation.

5. EDI helps you be a more valuable business partner

As mentioned earlier, consumers are driving the speed of retail’s evolution. Retailers are trying to keep up, but they can’t do it alone. They need to collaborate with the suppliers, vendors, distributors, 3PLs, and other organizations in their network.

Legacy systems and outdated processes at any point within the supply chain can slow everyone down. That’s part of why many larger retailers and big brands won’t work with a vendor or supplier that doesn’t have EDI.

Improved accuracy, efficiency, and automation is beneficial for your business internally, but also for the trading partners in your network. EDI automation and compliance can help your company retain current trading partners and open the door to new opportunities.

As an extra bonus, EDI can streamline the onboarding process, accelerating time to value with new business partners.

Looking ahead

The benefits listed here are just a few of the advantages provided by EDI. The more documents and processes you can integrate and automate with EDI, the higher the potential for better sales forecasting, inventory visibility, speedy ecommerce fulfillment, and more. As consumer shopping habits evolve, more retailers and suppliers will invest in EDI to keep up with the pace of change, including your competition.

Attaining an EDI solution could help you preserve and strengthen your market share by empowering your business with the agility and speed it needs to satisfy consumers and retail needs.

Use ShipBob’s EDI fulfillment

ShipBob’s B2B Fulfillment Suite and API capabilities enable merchants to sell throughout the entire United States B2B ecosystem, powering retail dropshipping and wholesale shipping, which will connect with hundreds of major retailers.

ShipBob’s first EDI integration built on this API is with market-leading EDI provider, SPS Commerce. This gives ShipBob the ability to fulfill orders according to each retailer’s compliance guidelines, including third-party shipping and retailer-compliant packing slips.

The engineering of this new solution, paired with ShipBob’s infrastructure, will open up unprecedented speed to add and onboard new retail partners in a matter of days instead of months or longer with similar providers. 

To learn more, request a quote from ShipBob below.

Learn more

If you’re in need of a 3PL that can help fulfill your B2C and B2B ecommerce orders, check out ShipBob’s 3PL services and fulfillment software.

ShipBob’s B2B Fulfillment Suite and API capabilities enable merchants to sell throughout the entire B2B ecosystem, powering retail dropshipping and wholesale shipping, which will connect with hundreds of major retailers.

ShipBob’s first EDI integration built on this API is with market-leading EDI provider, SPS Commerce. This gives ShipBob the ability to fulfill orders according to each retailer’s compliance guidelines, including third-party shipping and retailer-compliant packing slips.

The engineering of this new solution, paired with ShipBob’s infrastructure, will open up unprecedented speed to add and onboard new retail partners in a matter of days instead of months or longer with similar providers. 

Written By:

Mitch, the Logistics Account Executive at SPS Commerce, has worked in logistics and supply chain for 7 years. Mitch and the logistics team partner with warehouse and fulfillment companies within the retail supply chain in support of mutual customers and to help align resources through network partnership.

Read all posts written by Mitch Schneider