EDI shipping solutions have been around for decades, but the benefits have them are often unknown to business owners in ecommerce.
Countless ecommerce organizations use EDI shipping. Not taking the time to understand how it can enhance your shipping strategy means missing out on an invaluable competitive edge.
In this crash course on EDI freight and logistics processes, we’ll dive deep into these widely used workflows and technologies so you can leverage them to in your ecommerce shipping operations.
What is EDI shipping?
EDI shipping and EDI fulfillment allow for data transfer between partners to fast, efficient, and error-free.
EDI (electronic data interchange) refers to a technological system designed to exchange business documents in a standardized electronic format.
Here are just a few of the documents EDI can manage and share in the shipping and logistics industry:
- Invoices and advance ship notices
- Payment documents
- Shipping documents
- Inventory documents
- Customs documents
- Shipping details
- Warehouse details
- Bills of lading
- Purchase orders
When one entity sends an order or makes a request, the EDI technology instantly creates and uploads the necessary documents to the receiver’s system.
Understanding EDI in ecommerce shipping
The efficacy of EDI shipping comes from the standardized electronic formats that all users have adopted.
When all vendors, shippers, retailers, and logistics providers use the same operational system, information transfers seamlessly from one entity’s system to another’s database.
The EDI workflow can be broken down into three simple steps:
- Data preparation: Businesses use a standardized format to prepare electronic documents (e.g., purchase orders, invoices) for exchange.
- Sending: Next, the documents are sent from your EDI solution to the recipient across a secure electronic channel. This process occurs automatically and requires zero human input.
- Acknowledgment and integration: Messages are validated, and acknowledgments are sent to confirm receipt. Errors are automatically flagged for review. The data is then automatically integrated into the recipient’s back-end systems.
Manually performing this workflow would likely take hours and involve multiple personnel.
Important EDI documents
EDI freight and shipping solutions rely on a set of standardized EDI documents.
There are dozens of documents, each serving a specific function. Some of the most common EDI documents you’ll encounter include:
- Purchase Order (EDI 850): A purchase order is a foundational EDI document sent by a buyer to order a specific number and type of goods at an agreed price.
- Purchase Order Acknowledgement (EDI 855): A seller sends an EDI 855 to confirm that they’ve received and processed their buyer’s purchase order.
- Advanced Ship Notice (EDI 856): The seller sends an advanced shipping notice, or ASN, to allow the buyer to confirm all details before the cargo is shipped.
- Invoice (EDI 810): In addition to an EDI 855, the seller will also send the buyer an invoice. EDI 810 outlines the charges due and includes repayment terms, such as “payment due upon receipt.”
- Bill of Lading (EDI 211): An EDI 211 is equivalent to a paper Motor Carrier Bill of Lading. The shipper sends this to the carrier and provides a description of the delivery.
- Functional Acknowledgement (EDI 997): The payee or shipper sends a functional acknowledgment in response to each transaction request.
- Payment Order/Remittance Advice (EDI 820): Payers use EDI 820 to provide sellers with information about pending payments.
The EDI documents you need depend on your position within the supply chain, the trade partners you work with, and the vertical you operate in.
6 benefits of EDI in shipping and logistics
Integrating EDI transportation and shipping processes into your ecommerce strategy can yield a multitude of benefits, including:
Efficiency is the biggest benefit of EDI shipping solutions.
Exchanging paper documents requires a significant amount of manual input. Your team members must fax or scan and email paper documents, wasting valuable time.
On the other hand, EDI lets you automate data entry and optimize efficiency in your supply chain.
EDI solutions send and receive documents almost instantly while consolidating your order data in a secure and centralized location.
2. Cost savings
EDI shipping is also beneficial for your budget.
Manual ordering and invoicing strategies are tedious and labor-intensive, distracting your team from more dynamic tasks and leading to labor waste.
Once you implement EDI-based processes, you can drastically reduce labor costs related to invoice and purchase order processing.
You can also slash your document management expenses, as you’ll no longer have to process, manage, retain, and organize hundreds of physical documents.
3. Reduced errors
EDI shipping solutions remove the need for manual data entry, transforming your workflows and reducing the risk of data entry errors. EDI helps ensure you and your partners receive accurate, timely shipments.
In addition, minimizing errors facilitates an enhanced experience for your end-consumers. You can prevent stockouts, inventory shortages, or mispicked shipments.
Order accuracy is important, since it improves your brand image and helps you achieve your growth goals.
4. Improved inventory management
When you manually manage invoices, purchase orders, and other documents, you’re constantly working with information that’s days or even weeks old.
Inaccurate or outdated data causes delays, mis-managed inventory, and stockouts — all bad news for your business.
To maximize visibility across your entire organization, ensure your EDI system is integrated with your other software solutions.
When your applications are fully integrated, you can create a unified communication hub for all your shipping, ordering, and logistics operations. The result is a far more efficient and agile business.
5. Reduced waste
In recent years, the logistics industry has made a concerted effort to reduce its carbon footprint and produce less waste.
EDI shipping and logistics technology play a vital role in decreasing waste production. When you go digital, you can drastically reduce your paper consumption, as you’ll no longer have to create, distribute and store physical documents.
By taking the digital approach, you can also tap into auxiliary cost savings since you’ll no longer have to expend resources performing the following tasks:
- Buying paper
- Managing physical documents
- Recycling invoices and other paper documents
- Mailing invoices, receipts, and purchase orders
If your organization is committed to going green, EDI shipping is a valuable addition to your initiative.
6. Enhanced partner relations
If you want to nurture positive relationships with your partners, strive to make interactions with your company as frictionless as possible. EDI solutions help you do just that.
With EDI, you can convey messages instantly, improve business efficiency, and more effectively serve your partners.
They can also quickly relay information to your business, place orders, make purchases, and get the resources they need to thrive.
When you and your vendor partners use EDI, everyone wins.
Challenges and complexities of EDI shipping
EDI shipping is convenient and widely used, but that doesn’t mean it’s a flawless solution.
Despite being the most pragmatic way to manage your shipping and other logistical workflows, EDI presents its fair share of shortcomings, including the following:
Costs and complexity
The biggest drawback to EDI shipping is the associated costs and complexities.
To set up and maintain your system, you must purchase a software license, implement the EDI technology, and integrate it with your other solutions. This process can take several months and place significant demands on your IT team.
If you operate a smaller business with a less robust IT department, you may have to bring in outside resources to facilitate your integration. Doing so will compound the costs of implementing EDI.
Even when your system is up and running, you’ll need to continuously devote resources to it to keep it functioning as designed. These ongoing maintenance costs will yield a strong return, but you must be aware of them before jumping to EDI.
Although EDI documents are considered “standardized,” you may still encounter cross-compatibility issues. Each business may require different fields and accept different data within the same document formats, leading to integration roadblocks.
These differences often require organizations to build and maintain separate integrations with each of their partners. Additionally, each partner may require a different method of securely communicating, requiring additional infrastructure that will need to be built and maintained.
Additionally, EDI documents are continuously updated. Even if you and your partner use documents from the same platform, you may not have the same version of each file. Compatibility issues may arise if you’re using the newest document version and they’re using last year’s variant.
Amid rampant cyberattacks, businesses are rightfully concerned about data security.
To engage in EDI shipping and logistics, you need to create a connection between your network and your vendor partners’ networks. If not properly managed, these network connections can leave your IT infrastructure vulnerable to attack.
With that in mind, it’s crucial to implement clear protocols for maintaining your IT infrastructure and network. Adhere to the latest cybersecurity best practices and maintain modern protective software, such as firewalls and anti-virus solutions.
Furthermore, you must rigorously vet your trade partners. Before engaging in EDI shipping with a trading partner, it’s important to confirm that they take cybersecurity seriously.
How to ensure safe and secure EDI transactions
If you want to reap the benefits of EDI shipping transactions without exposing your organization to undue cybersecurity risks, be sure to check the following boxes:
Select a secure EDI protocol
A suitable EDI protocol lays the foundation for fast, efficient, and secure data-sharing between your business and trading partners. Although there are many different protocols available, three of the most common and secure are:
- HTTP/HTTPS: Hypertext Transfer Protocol and the extension Hypertext Transfer Protocol Secure are two of the most widely used security protocols for EDI because they can be encrypted using a variety of solutions, including TLS or SSL. That said, they aren’t as reliable or robust as the other security protocols outlined below.
- AS2 (Applicability Statement 2): AS2 operates over HTTP or HTTPS protocols but offers greater reliability and security. It uses encryption and digital certificates to safeguard your data during transfer.
- FTP/FTPS: File Transfer Protocol offers better reliability than HTTP and HTTPS at the cost of simplicity. File Transfer Protocol Secure and Secure File Transfer Protocol (SFTP) are secure versions with distinct strengths and ideal use cases.
Your chosen protocol profoundly impacts the security of your EDI shipping connections. As such, you should carefully assess each option before settling on a protocol.
Clarify and establish policies
When implementing new technologies and work processes, you must create policies to govern them.
The same rule applies to EDI shipping. Provide your staff with clear, easy-to-follow procedures for EDI so they understand expectations.
Your policy should outline which EDI transactions each trading partner requires. By providing clear guidance on who needs which documents, you can optimize your information-sharing strategy and increase the ROI of your EDI technology.
Implement access control infrastructure
Leading EDI technologies include built-in access control infrastructure, allowing you to restrict who can view or alter your data.
Use these solutions to limit access to your EDI system based on each user’s role and permissions within the organization.
For greater security and control, consider requiring two-factor or multi-factor authentication.
These require users to pass through multiple layers of verification before they can access your network. For instance, they may have to provide a password and scan their ID badge.
Watch out for suspicious and unauthorized activity
Conduct regular audits of your EDI technology to identify any unusual activity or suspicious orders early on.
During an audit, your team should look for any activities that deviate from expected trends, such as unusually large purchases or unrecognized transactions.
Maintaining the security of your EDI processes requires a proactive approach. You’ll therefore need to conduct regular security testing.
As part of these tests, your IT team should attempt to pinpoint vulnerabilities within your digital infrastructure and remedy them before bad actors access your network.
The future of EDI in shipping and logistics
EDI technology has been a staple of the shipping and logistics space for decades.
Although there have been significant advancements in other logistics technologies, such as transportation and warehouse management systems, EDI in shipping solutions has continued to be custom-built, cumbersome, and slow to implement.
To stay competitive, ecommerce businesses need to focus on maintaining supply chain agility by sourcing a shipping and logistics partner with a more modern approach to EDI that gets them to market with new customers and suppliers in days rather than weeks or months.
A modern approach reduces EDI’s complexities, allowing companies to integrate their backend systems using more modern development technologies, including APIs that use JSON.
It eliminates the need to build custom integrations for each partner and properly convert data to the required EDI format.
As ecommerce solutions evaluate new shipping and logistics solutions, they should ask upfront about EDI capabilities, resources needed, and the time it will take to go live with new trading partners.
Orderful offers EDI solutions for the ecommerce businesses to optimize logistical workflows.
When combined with ShipBob’s EDI fulfillment technology, online businesses are able to supercharge their multichannel retail strategy by integrating their storefront with different retailers and marketplaces to create a seamless fulfillment and shipping operation.
“Learning to tailor our sales strategy, marketing, and packaging to each retailer’s requirements has been a challenge, but that’s where ShipBob really comes in handy. ShipBob is EDI-compliant with dozens of popular retailers, and their API integrations make it possible for them to fulfill orders according to each retailer’s compliance guidelines.”Aaron Patterson, COO of The Adventure Challenge
EDI shipping FAQs
Below are answers to the most common questions about EDI shipping.
What types of businesses can benefit from using EDI in shipping and logistics?
Any retailer, carrier, or logistics entity can benefit from EDI shipping processes and technologies.
How is an EDI in shipping different from a paper invoice?
EDI serves as a replacement for paper-based invoices and purchase orders. Instead of managing physical documents, shippers, carriers, and retailers can conduct all transactions digitally.
What is the difference between EDI and EDIFACT?
EDI and EDIFACT are quite similar in terms of capabilities and function. However, EDIFACT is mainly used in Asia and Europe. Conversely, EDI is primarily used in the United States and other North American nations.
Is EDI shipping feasible for businesses of all sizes?
For the most part, yes. Most businesses, including small and medium-sized companies, can implement EDI shipping. However, there are exceptions, such as small companies that have an antiquated tech stack and no room in their budget to upgrade.
How long does it typically take to implement an EDI system in a shipping or logistics operation?
Implementing an EDI system can take 30–60 days or more, depending on various factors, including your organization’s size and the IT resources you have in place. Implementation may take longer if you encounter technology compatibility issues or other challenges.