What is EDI? Types, Applications, and Software Solutions

How often have you started a business call with “did you get my email”?

Probably more times than you can count. No matter what documents you send to a business partner, waiting for confirmation can feel like an unnecessary bottleneck. This bottleneck can be solved by implementing electronic data interchange (EDI) software.

When businesses use EDI software, they’ll benefit from a fast document transfer since it replaces the need for mail preparation and handling that comes with traditional business communication, like phone calls, faxes, or paper, for ordering or selling products.

Since all of this can be done using EDI, businesses can accomplish more by speeding up logistic timelines and eliminating manual errors that sometimes occur during B2B communications.

If this sounds like something your business could benefit from, it’s in your best interest to know everything that EDI could bring.

How does EDI work?

Your business data and information are stored with an enterprise resource planning (ERP) system. This could consist of details related to shipping, inventory, purchasing, invoicing, billing, and more. EDI software integrates with this ERP system and uses the information to create the documentation needed to do business with other companies.

EDI replaces manual B2B communications, like postal mail, email, and fax, because documents can flow directly from the sender’s computer application (like a logistics system) to the receiver's computer application (like an order management system).

Common examples of documents that can be sent using EDI are:

• Purchase orders
• Invoice management
• Shipping statuses
• Customs information
• Inventory documents
• Payment confirmations

To better grasp how EDI works, let’s compare how a traditional document exchange would occur versus using an electronic data interchange to exchange documents.

Using a traditional document exchange

First, the buyer would make a buying decision, create the purchase order, and print it out. The buyer would then mail the purchase order to the supplier. Once the supplier receives the purchase order, they record the information into their order entry system.

Finally, either the buyer would call the supplier to make sure they received the purchasing order, or the supplier would mail the buyer an acknowledgment of their order.

This entire process could take anywhere between five to seven days.

Using EDI for electronic document exchange

Similarly to traditional document exchange, the buyer would make a buying decision and make the purchasing order but would not print anything out. Instead, they’d utilize EDI software to create an electronic version of the purchase order, which would be sent automatically to the supplier.

The system will automatically update once the supplier’s order entry system receives the order. Finally, their system would transmit a confirmation receipt back to the buyer.

This entire process could take less than an hour.

Who uses EDI?

EDI is making its way into every industry, but some use it more commonly than others.

For instance, those in the aviation industry will use EDI for flight information exchanges, passenger name records, and international compliance. Healthcare workers will use EDI to exchange patient health information, process health insurance claims, and exchange prescription information.

Accountants and those on accounting teams use EDI to generate invoices and provide audit trails. There’s also a huge need for EDI in retail, manufacturing, and automotive supply chain sectors. Members within those industries will use EDI to purchase, fulfill orders, maintain international orders, ship confirmations, and order parts.

Types of EDI

Choosing the type of EDI to use will depend on what you need it for and how you’ll use it.

Direct EDI

Direct EDI, sometimes referred to as point-to-point, establishes a single connection between two business partners. This method is most common between larger customers and supplies that work with many daily transactions and a high volume of documents, such as retailers, equipment manufacturers, or hospitals.

VAN

Value-added networks (VAN) are private, third-party networks where electronic documents are exchanged between business partners. The VAN provider manages the network and acts as an intermediary between the two partners. They are responsible for storing, routing, and delivering EDI documents.

AS2

One of the most popular methods is applicability statement 2 (AS2), an internet communications protocol that allows data to be transmitted securely over the Internet. It essentially involves two computers—a client and a server—connecting point-to-point via the web. AS2 will then create an “envelope” for the EDI data, allowing it to be sent securely using digital certificates and encryption over the Internet.

Web EDI

Web EDI is conducted through an internet browser, replicating paper documents in web format. The form provides users with certain fields where information needs to be entered. Once all relevant details have been included, the form automatically converts into an EDI message.

Small and medium-sized businesses often go this route because EDI software isn’t needed, but they can still create, receive, and manage electronic documents through a browser.

Mobile EDI

The newest form of electronic data interchange is mobile EDI. Thanks to specific applications built to support EDI, mobile devices can potentially change how many organizations can accelerate their supply chains.

Having EDI applications on a mobile device can make it easier for a salesperson to see the status of delivery to a supplier when traveling or for a business manager to see supplier performance when in a meeting.

EDI outsourcing

As the name suggests, there’s also the method of outsourcing an EDI program to a third-party provider. If your organization is smaller or you simply don’t have the resources to launch an EDI initiative, this could be a welcome alternative.

Another reason a company may choose to outsource is the reduction in the cost of investing in its own infrastructure. However, it must also ensure that it has access to the right skills to deliver the required service that EDI has to offer.

EDI implementation

Implementing EDI can be a complex process involving multiple steps. It requires technical solutions, business process re-engineering, and organizational change management. 

Additionally, staying updated with changing government regulations and managing the complexities of global business operations, where each trading partner may have unique requirements, adds to the challenge.

Steps for EDI Implementation:

• Establish infrastructure and set up the hardware and software to manage EDI processes, like transmission, translation, and mapping of EDI documents. When managing EDI internally, ensure you have network equipment, storage, and servers.
• Establish connections with trading partners after the technological foundation is set. Implement EDI standards to ensure secure and efficient document exchange. Also, configure your EDI system to align with the standards used by your trading partners. 
• Ensure your EDI system meets standards and complies with industry-specific data protection regulations. Stay informed about any changes in standards used by your trading partners or otherwise, and update your system accordingly. 
• Integrate EDI with your current business software or ERP systems to simplify operations, reduce errors, and save time. 
• Data mapping and a trial run will be the next step in this process. Data mapping is important for converting traditional business documents into compatible EDI formats. Perform trial runs to identify and resolve any issues early on.
• Expand your network and work closely with your trading partners to implement EDI. 

Benefits of EDI

No matter the size of your company or the industry it operates in, implementing EDI software into your tech stack can have many benefits.

• Saves time: Utilizing EDI means that data transmission goes from taking days to hours or even minutes. This allows businesses on both ends of the transmission to get more done quicker. Plus, teams will spend less time creating orders since this is done automatically and without user input.
• Budget-friendly: Processing orders can be costly, especially when sending physical documentation. Since EDI makes this process digital, businesses can reduce spend on generating and distributing data.
• Increases efficiency: An EDI solution improves the reliability of the information exchanged between businesses. By eliminating manual and duplicate data entry, companies will see a decrease in errors. This efficiency will also improve business partners' relationships while decreasing late deliveries and incorrect product prices.
• Heightened security and simplicity: Thanks to the standardization of data within your systems, employees and IT team members always know where to find it, which will reduce the likelihood of data breaches. Since sales orders, invoices, and shipment records are automatically generated, the workday is simpler for sales and warehouse staff.
• Improves reporting: EDI allows electronic documents to be integrated with various IT systems to support data collection, analysis, and visibility for refined reporting.
• Better for the environment: Since EDI is completely paperless, it promotes sustainability and reduces CO2 emissions by replacing paper-based processes with a fully electronic system.

Challenges with EDI implementation

In addition to the many advantages of EDI, you may run into some drawbacks.

• Lengthy setup time: Depending on the EDI method you choose, EDI can require extensive staff training to run, making setup time-consuming. Your company’s IT department will likely need to balance the setup of the EDI tool with other projects on their to-do list.
• Complex technology: When implementing EDI technology, your business must also invest in an additional network for receiving and transmitting information. This could be a barrier if you have a small or medium-sized business.
• Cost: Setting up and training EDI can sometimes result in expensive upfront costs, so be sure it’s in your company’s budget beforehand.
• Limits paper invoicing: Not every supplier you work with will have EDI software within their system. Because of this, certain teams may encounter bottlenecks when dealing with paper and EDI invoices.

EDI standards

There are specific EDI standards and rules for creating common business documents. These standards help businesses avoid spending time, energy, and resources to define the layout of these documents. There are key certified agencies that govern these standards, which include:

• American national standards institute (ANSI): Certifies the standards used in the United States and North America.
• United nations centre for trade facilitation and electronic business (UN/CEFACT): Certifies international standards.
• Electronic data interchange for administration, commerce, and transport (EDIFACT) is an international standard developed by the United Nations that provides messages for multi-country and multi-industry document exchanges.
• Health insurance portability and accountability Act (HIPAA): Unifies all healthcare-specific requirements to establish secure and confidential exchanges of healthcare-related data.
• GS1: Certifies industry-specific international EDI standards.
• Drummond: Certified EDI software through testing to ensure that different EDI tools can successfully communicate with each other.

Top 5 EDI software

Electronic data interchange software works by creating a secure data exchange between two or more computers. This type of software is typically used for the fast transfer of business documents within companies and between business partners like suppliers or customers.

It’s common for businesses to implement EDI software to replace the need for email, fax, and postal mail.

*Below are the top five leading electronic data interchange software solutions from G2’s Summer 2024 Grid® Report. Some reviews may be edited for clarity.

1. TrueCommerce EDI

TrueCommerce EDI is a global provider of trading partner connectivity and integrated EDI solutions. This software revolutionizes trading partner connectivity by linking suppliers, retail hubs, and end consumers in one global commerce network. It offers a flexible, integrated, and fully managed service solution so that customers of any size can easily connect with any trading partner.

What users like best:

“I really like that TrueCommerce EDI has incorporated a self-guided learning center for new users. I have directed all new staff to go through these training modules to get familiar with the system. This helps me train my EDI staff more efficiently.”

- TrueCommerce EDI Review, Sheila L.

What users dislike:

“Not enough availability of setup staff or tech support causes delays in onboarding new trading partners or resolving issues. Also, some duplicate data charges. They don't have their own VAN. And they charge a la carte for every type of transaction beyond the basics.”

- TrueCommerce EDI Review, Dovid G.

2. SPS Commerce Fulfillment EDI

SPS Commerce Fulfillment is a full-service EDI solution that delivers proven technology and hundreds of EDI experts. Every day, these experts work hard to monitor and ensure that the EDI is flowing for tens of thousands of customers across the globe. They will monitor users' EDI so they can focus on other tasks on their plate.

What users like best:

“The fulfillment dashboard allows you to monitor new incoming orders, changes, or errors easily. You can also view all transactions in the portal and drill down to review the details and mistakes. It is relatively easy to track the status of an order from start to finish.”

- SPS Commerce Fulfillment EDI Review, Mark O.

What users dislike:

“The slow and cumbersome implementation process significantly diminishes the overall user experience. Delays in onboarding and setup result in frustration and hinder the efficient functioning of businesses, impacting the ability to conduct smooth B2B transactions.”

- SPS Commerce Fulfillment EDI Review, Andrew T.

3. Cleo Integration Cloud

Cleo Integration Cloud (CIC) is a cloud-based integration platform that designs, builds, operates, and optimizes critical ecosystem integration processes. The CIC platform brings end-to-end integration visibility across EDI, non-EDI, and API integrations, giving technical and business users the confidence to rapidly onboard trading partners, enable integration between applications, and accelerate revenue-generating business processes.

What users like best:

“I like how Cleo Integration Cloud provides a highly secure way to share files online. From data management and real-time synchronization to access control and encryption, it provides all the tools for efficient collaboration between teams or organizations. The drag-and-drop, workflow monitoring, and search filtering features are useful for organizing projects. I also appreciate the convenient mobile application, which makes the service even more accessible at an attractive price.”

- Cleo Integration Cloud Review, Shikha G.

What users dislike:

“The support is not the greatest. Usually, I end up figuring out the issue myself.”

- Cleo Integration Cloud Review, Tabatha B.

4. MuleSoft Anypoint Platform

MuleSoft’s Anypoint Platform is a solution for API-led connectivity that creates an application network of apps, data, and devices, both on-premises and in the cloud. Users can design and build APIs and integrations, take advantage of real-time visibility from one interface, and enjoy a secure connection to protect sensitive data.

What users like best:

“MuleSoft Anypoint Platform is an easy-to-learn integration platform where you can manage the whole API lifecycle from a single platform. You can design your APIs using RAML, which is very easy to understand. You can also develop APIs using Anypoint Studio and perform testing. Applying policies to multiple APIs is also very easy to learn.”

- MuleSoft AnyPoint Platform Review, Yash G.

What users dislike:

“If I were to critique the MuleSoft Anypoint Platform, I'd say that one of the downsides is its steep learning curve, especially for those new to the integration field. The interface can be a bit overwhelming, with various components and functionalities that might confuse new users. Additionally, the platform can be expensive for small to medium-sized businesses, making it less accessible for those with limited resources.”

- MuleSoft AnyPoint Platform Review, Abhinav M.

5. OpenText Business Network Cloud EDI

OpenText Business Network Cloud EDI is a comprehensive B2B integration solution designed to streamline EDI processes for businesses of all sizes. Leveraging the cloud ensures secure, real-time data exchange between trading partners, enhancing operational efficiency and reducing costs. Users have praised its reliability and scalability, making it an essential tool for organizations looking to optimize their supply chain management. 

What users like best:

“OpenText EDI became my secret weapon! No more manual EDI blues - pre-built connectors and automation had me saving countless hours and connecting with partners seamlessly. But that's just the tip of the iceberg! This platform transformed our visibility, giving us a real-time crystal ball into our entire trade flow. Order statuses, invoices, payments - all there, empowering us to fix issues and optimize like never before.”

- OpenText Business Network Cloud EDI Review, Ujwal S.

What users dislike:

“I think majorly the helpdesk is a little problematic. It takes too long for the team to solve the problem. Also, the process of solving one's issue is very lengthy, so you need to keep calm.”

- OpenText Business Network Cloud EDI Review, Mahima S.

Delivery received

When your company utilizes electronic data interchange, you can be sure that all of your important documents are sent to business partners quickly and with a secure connection. There’s no more waiting for delivery and wondering if orders were received.

Everything is displayed within EDI software, meaning you and your team can focus on more important tasks than checking on the delivery status of a paper order form.

If you are looking for more ways to transfer data without changing its inherent meaning, check out data exchange. 

This article was originally published in 2020. It has been updated with new information.