What is EDI (Electronic Data Interchange)?
EDI (Electronic Data Interchange) technology automates the transactional exchange of data between trading partners.
How can EDI help you?
EDI (Electronic Data Interchange) is a process between two computer systems that enables two companies to exchange commercial information (purchase orders, invoices, shipping notices, etc.) using standard messages and specific communication systems, eliminating any human involvement.
The features of EDI make it a fundamental tool for companies to automate the secure and immediate exchange of critical information that affects their business, logistics, or fiscal processes.
EDICOM offers EDI solutions that are ready to be integrated into the leading market ERPs.
What do I need to communicate by EDI?
1. Standard language
Electronic data interchange requires standardization of the language used by the sender and recipient in order to structure the messages. There are different EDI standards, some of the most commonly used are EDIFACT, XML, X12, UBL...
2. EDI Software
Both sender and recipient must have an EDI solution with functionalities for constructing and issuing messages, according to the EDI standard in which the exchanges are to be carried out.
3. Communication network
EDI exchanges require the use of secure communication systems adapted to the particularities of this type of transaction. There are different options, but one of the most common is the Value Added Network (VAN). These environments operate as private networks with excellent security, control, and monitoring to ensure that all EDI transactions are sent and received.
How does EDI work?
1. Data preparation
The sender's ERP must generate a data structure with all the information to be integrated in the outgoing messages.
2. Data conversion
Once the data structure arrives at the sender's EDI software, it is transformed into the agreed on EDI format of the receiver.
3. Sending EDI messages
The transformed EDI document is sent to the recipient via the agreed communication system. The EDI software recognizes the recipient and automatically forwards the message.
4. Data reception
Once the message is sent, the process is replicated in reverse. In this way, the recipient validates the message and, if there are no errors, proceeds with the EDI message transformation.
Benefits of Electronic Data Interchange
When applied to different company operating systems, EDI technology provides significant benefits in terms of faster and more efficient operations. These benefits translate into a significant cost reduction that, depending on the level of implementation, can reach 90% compared to the same process using paper documents.
Operation automation: Printing commercial documents, handling, sorting, folding into envelopes, postage, mailing, ERP registration, etc. All these tasks are drastically reduced or even disappear.
Faster response times: EDI documents are sent and received in seconds. The total or partial automation of the processes associated with this delivery also allows their registration in the ERP, the validation of quantities or prices, or the matching of the amounts due, to be carried out almost instantly.
Fewer information errors: The information exchanged is based on standards known to both sender and recipient, which guarantees its correct interpretation regardless of nationality or activity sector. Typical data entry errors, barely legible fax interpretations, lost documents, errors in taking telephone orders, etc. are also eliminated.
Integrates of business partners and stakeholders: The adaptability of EDI facilitates the flow of communications and, in general, improves business relations with any partner or stakeholder.
Cost reduction: This is one of the most notable advantages of EDI. By implementing an electronic solution, the costs of managing commercial documents are minimized by at least 35%, although that number is much more striking for electronic invoices, where the savings can reach 90%. On the one hand, this drastic cost cut is due to the automation of operations and, on the other, to the elimination of the use of paper.
Equipment optimization: With EDI technology, it is possible to handle a much larger number of business operations with fewer human resources. Eliminating tasks associated with paper document management allows those teams to dedicate their time to higher value-added tasks.
Process status visibility: Replacing paper with electronic documents facilitates tracking. It is possible to integrate transactions such as confirmation of receipt of orders, invoices, modifications of purchase orders, status of pending payments, etc. In addition, sending documents through private networks such as EDICOMNet (EDICOM Value Added Network) offers permanent control over the status of messages regarding their reception, processing, reading, etc.
Improves customer service for the end client: The implementation of EDI results in the application of optimal workflows and response times. All of this is something that benefits customers, as production and delivery schedules are much more accurate.
Improved financial ratios: EDI allows for electronic invoices to be sent and received immediately. Automating the validation and matching processes also facilitates rapid processing at destination, thus making it possible to anticipate cash requirements. Thanks to this forecast, the buyer can benefit from early payment discounts and the supplier can improve its liquidity.
How to start an EDI project with guarantees of success?
What must be taken into account for a technology project to move forward successfully? Here are the steps to follow:
Appoint a team involving all departments
Analyze and evaluate current management and business procedures
Choose the most suitable solution for your needs
Choose a technology supplier
Define a work methodology and execute it initially in a pilot project
Start working with EDI and open the door to other electronic projects
Common EDI applications
EDI is applicable to virtually any business-to-business document exchange that is currently done in the traditional paper, email, or portal form. Some typical use cases includes:
Purchase orders (ORDERS)
A purchasing company sends its purchase orders to suppliers via EDI, automating their generation from the ERP. The supplier receives them directly into their system, eliminating manual entry. This speeds up the procurement process and reduces errors in order taking. Since orders are often critical documents for the supply chain, their EDI integration significantly improves efficiency for both the customer's purchasing department and the supplier's commercial area.
Dispatch Notices/Electronic Delivery Notes (DESADV)
These are notifications sent by the supplier when goods are shipped, indicating what is being shipped, in what quantity, and when it will arrive. Through EDI, the shipping notification is automatically integrated into the receiving customer's system, which can prepare for reception and verify that the goods received match what was ordered. This allows real-time reconciliation of deliveries with purchase orders, detecting discrepancies prior to invoicing. EDI integration of delivery notes streamlines logistics and prevents errors in the receipt of goods.
Electronic invoices (INVOIC)
EDI invoicing is one of the most widespread uses. It consists of sending and receiving invoices in a structured and legally valid format, integrated directly into the accounting systems. Both the sender and the recipient of the invoice benefit: the sender saves on printing, mailing, and receives confirmation of receipt; the recipient drastically reduces accounting time and can automate validations (check prices, quantities, taxes). Implementing EDI invoices can result in cost savings of up to 90% compared to managing paper invoices, as well as facilitating tax compliance through integration with accounting systems and tax returns.
In addition, virtually any commercial or logistical document can be handled by EDI: price catalogs (PRICAT), payment confirmations (REMADV), inventory statements, transport orders, goods receipt notices (RECADV), and more. EDI standardization covers a wide range of messages for different business processes.
EDI Protocols
One of the keys to be able to exchange EDI documents or messages is communications. The procedure, or the techniques used to get the information from an EDI solution sender to a EDI solution recipient, constitute the EDI messaging protocols, which, in the case of Electronic Data Interchange, have specific particularities and characteristics.
There are several EDI communication protocols, some of which are tailored to the particular needs of an industry, that meet the security, non-repudiation, traceability, and integration requirements for the exchange of structured EDI transactions between two trading partners. These are some of the most commonly used communication protocols in EDI:
VAN - Value Added Network
These are private networks for the specific exchange of EDI documents. Value-added networks configure a closed environment to which partners connect their EDI solutions for the exchange of documents within the network.
These types of networks offer high levels of security and evidence of delivery and processing of EDI messages at the destination, although they may be limited because, as they are private environments, they could leave out a certain number of strategic partners that are not connected to a specific network. To overcome this inefficiency, the most important networks in the world establish interconnection agreements, allowing the exchange of EDI documents between partners that may be in different VANs.
EDICOMNet, the VAN developed by EDICOM is a specific private communications service that guarantees connectivity between connected users, as well as with partners outside the network, thanks to its interconnection agreements and multi-protocol capabilities.
AS2 – AS3 – AS4
AS stands for Applicability Statement, being the number that accompanies these letters the version of the communications protocol developed by the IETF (Internet Engineering Task Force).
This protocol, created in 2002, is designed to securely exchange messages over the Internet through https, with encryption and digital signature, to guarantee the privacy and authenticity of the data sent and received.
AS2, AS3 or AS4 communications require messages to be transmitted through an AS server, and received by another AS server, which will have previously accepted receipt of the documents from that particular source. Both servers operate on the basis of specific rules that include the issuance of send request and acceptance messages as a prior step to the transmission of a document, as well as the confirmation of final receipt when the EDI document has been finally received by the destination server.
EDICOM has its AS communications solution, which exempts you from the implementation, configuration, and maintenance of this type of service.
OFTP - Odette File Transfer Protocol
This communications protocol, developed in the 1980s by the automotive industry association ODETTE, is one of the most widely used in the industry today for exchanging EDI documents as well as other sensitive and large files such as engineering specifications in CAD/CAM format.
In 2010, the OFTP2 protocol was put into production, providing more versatility and robustness to the communication system, with notable advantages such as:
- Higher data compression capacity.
- Management of communications security through SSL/TLS, identification, signature, encryption, etc.
- Management of large files (more than 500 Gb).
OFTP communications require documents to be sent and received by servers that use the same protocol, requiring their configuration and maintenance, and ongoing management to administer the multiple parameters involved in the transfer of this type of documents and messages.
EDI Frequently Asked Questions
After more than 30 years developing EDI solutions and implementing projects in over 80 countries aroud the world, we have accumulated a wealth of experience. As a result, we have compiled our customers' most frequently asked questions.
What documents can I exchange through EDI?
Virtually all transactions that you would normally carry out with any partner by conventional means can be done via EDI. The most common are orders, shipping notices, invoices, inventories, etc.
With whom can I exchange EDI business documents?
EDI is used in countless industries. This, together with the wide variety of existing structured messages, makes it possible to use this technology with multiple partners. This is the reason why today it is common to exchange information electronically with distributors, suppliers, logistics operators, customs, ports and airports, public administrations...
In which activity sectors are EDI document exchanged?
The Electronic Data Interchange (EDI) has a strong presence in the retail sector, as it is a widely used commercial transaction exchange system among distributors and suppliers. Many sectors have progressively adopted these technologies, and today they are present in the healthcare, automotive, tourism, transportation, etc. sectors.
Can I exchange documents by EDI with my foreign suppliers or customers?
EDI is based on the exchange of messages with data structures shared by sender and recipient. These structures are generated from standards such as EDIFACT, X12, XML or UBL, which are maintained and developed by supranational organizations that guarantee their validity and universality. The EDI system guarantees the smooth exchange of any commercial document with your partners, regardless of their nationality or sector of activity.
Are there ways to integrate with my partners in an agile and simple way?
EDICOM's Advanced Management Services allow you to outsource the tasks required to manage the customer's solution and the steps required to obtain rapid integration of the largest possible number of partners.
EDICOM's Outsourcing service allows you to access the best hardware and software resources to implement your EDI and e-Invoicing project. In addition, this service provides you with a platform administrator, who will be in charge of the parameterization, maintenance, and management of the software, so you will not have to allocate human resources to these tasks or modify your management processes to integrate advanced B2B communication models.
EDICOM's Onboarding service for partner onboarding extends the concept of outsourcing and involves the implementation of an integration project for your suppliers or customers. EDICOM is taking an active role in this regard, developing a set of actions to connect them to its communications platform and increase in a very short time the number of transactions carried out electronically with all its business partners.
EDICOM's IPM (Integral Partner Management) is configured as a service that provides you with a management team that will interact with all your customers and suppliers, managing their maintenance tasks in areas such as incident resolution, errors, configuration of new communication protocols, integration tests of new messages, etc.
As if it were your own EDI administrator group, and so that you can completely forget about the management of your communications platform.
Does the implementation of an EDI system entail modifications to my internal IT system or ERP?
There are solutions accessible from a web environment that allow EDI messages to be sent and received. This type of solution generates the messages to be sent by manually typing the data that compose them through web forms.
For situations with elevated document volume, the integration of EDI transactions with ERP is desirable. In these cases, the construction, sending, and registration of incoming documents is automated to integrate with the management information system. In these cases, certain system adaptations are required to enable the extraction and import of the data that will form the processed documents.
Once I have implemented an EDI solution, can I expand its use to different projects?
Yes. Factors such as efficiency and cost savings have favored the expansion of EDI applications from B2G to B2B and B2C environments. Beyond legal compliance, EDI has proven to be a key tool in many industries, such as healthcare, retail, automotive, and logistics, which communicate with their partners and have seen their management processes optimized.
One of the great advantages of EDI technology is its scalability. An EDI project can be implemented progressively, according to the needs of the company. Therefore, it is important to establish objectives and priorities so that EDI fits into your business plan. While EDI builds on what is most important, companies must still meet other objectives that drive competitiveness.
Do I need to allocate company resources to manage and maintain EDI?
Depending on the volume of transactions and partners to be managed, it may be necessary to allocate a certain amount of resources to administer and maintain your EDI applications. There are, however, services for outsourcing these tasks that exempt you from the management associated with the maintenance of your EDI platform.
With our Outsourcing, Onboarding or IPM (Integral Partner Management) services, you can delegate the administration and management of your EDI solution to EDICOM, without having to allocate any resources from your own company.
Should I invest in new servers and databases to host my EDI system?
This is not necessary. The applications and systems required for an EDI solution can perfectly operate in service mode. The hardware, software, and database resources are offered by EDICOM, which assumes the installation, monitoring, and administration of these from EDICOMB2B Cloud Platform. A technological environment accessible through web interfaces transparent to the user and fully operational as if they were in their own company.
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