EDI Systems 101

The Definitive Guide

Commport Integrated EDI enables businesses to transmit documents such as purchase orders, invoices, shipping notices, and other transactions electronically, in a standardized format. This includes document mapping, translation, validation, and communication protocols. It integrates with all ERP systems.

Overview

In this complete guide to EDI systems in-depth guide, you’ll learn:

  • Definition of EDI system & EDI Integration
  • Types of EDI Integration
  • Benefits of implementing and integrating EDI system
  • and many more

So if you’re ready to go “all in” to Implement an EDI System for your business, this guide is for you.

Let’s dive right in.

Chapter 1

Introduction to EDI Systems

In this chapter, we will talk about following topics:

- What is an EDI System?
- What is EDI Integration?
- Benefits of an EDI System

Let’s dive right in!

What is an EDI System?

An EDI system translates business documents into a universal standard and transmits them to other partners. It also helps map the data to and from internal business applications or systems for those partners.

What is EDI Integration?

EDI integration means setting up a full EDI workflow between trading partners to exchange business documents. This includes establishing endpoints, protocols, and EDI document transactions that you exchange with your trading partner and also translating those documents into a format that can be used by your internal order management, ERP, or accounting systems.

Benefits of Implementing an EDI System Into Your Business Process

Chapter 2

Types of EDI Integration

In this chapter, we will discuss about different types of EDI Integrations

- Direct EDI Integration
- Indirect EDI Integration
- Hybrid EDI Integration

Let's get started!

Types of EDI Integration

There are 3 types of EDI integrations:

– Direct EDI Integration
– Indirect EDI Integration
– Hybrid EDI Integration

1) Direct EDI integration

A direct EDI integration uses a specific protocol such as FTP, sFTP, or AS2 to create a point-to-point connection between your trading partners and Internal ERP or accounting system. In this type of setup, the businesses manage thousands of individual partners’ connections to bring in the data from its trading partners to internal ERP systems. This system becomes too complex to manage as we add more connections and could become difficult to scale or manage over time as your business grows. This type of setup is more suitable for small businesses that only deal with a limited number of trading partners.

2) Indirect EDI integration

In an indirect EDI integration set up the exchange of communication between your trading partners and ERP is achieved using a 3rd party EDI VAN. First, the message from your ERP system for your trading partner goes out to the VAN and then the VAN splits the message into the format that is preferred by your trading partners and sends it to them. This type of integration is more suitable for medium to large enterprises as they would deal with hundreds of trading partners and they don’t have to set up a separate connection for each one or worry about different protocols to be used, as the VAN can connect to any protocol and transmit the message to the correct trading partner irrespective of the trading partner protocol requirements.

3) Hybrid EDI integration

Just like how you have hybrid cars which switch between gasoline and electric to enhance the overall experience and help you save some dollars on gasoline. In a hybrid EDI integration sometimes companies may need both direct and indirect integration to accommodate various trading partner needs. Like for example if you deal with a specific trading partner with large volumes of data on a daily basis it makes sense to connect with them using a direct point-to-point integration to avoid processing delays or connection errors. However, to deal with other small to medium trading partners you can use indirect EDI integration. So, you basically need a combination of managed EDI service and a point-to-point setup to exchange EDI data.

Chapter 3

EDI System Implementation

In this chapter, we will take a look at the steps to implement and integrate EDI system within your business.

- Understand EDI Requirements
- Determine EDI Document Types and EDI Standards Required
- Establish EDI Communication Protocols
- Choosing an EDI Solution
- EDI system integration and implementation process

Let’s begin!

Steps to Take Care During Implementation of an EDI System into Your Business Operations

– Understand EDI Requirements
– Determine EDI Document Types and EDI Standards Required
– Establish EDI Communication Protocols
– Choosing an EDI Solution
– EDI system integration and implementation process

1) Understanding EDI Requirements

1.1 Make a List of Trading Partners

The first step is to make a list of all the trading partners with whom you want to exchange business documents using EDI.

1.2 Evaluate EDI Requirements of Each Trading Partner

Each trading partner will have a specific set of requirements on how they want to receive the data. It is important to evaluate and make note of all those requirements which makes the implementation and exchange of documents easier.

2) Determine EDI Document Types and EDI Standards Required

There are hundreds of transactions designed to send different types of information. Get started to identify the important documents/transactions you’ll use EDI to send, receive, authenticate and automate. Also, to exchange the data you need to use one or more EDI standards which structure your data in a universal standard accepted by all trading partners.

Here is the list of Common EDI Documents and Transactions Exchanged:

– Purchase Orders (PO)
– Invoices
– Advance Ship Notices
– Price/Catalog Information
– Inventory updates
– Shipment and Billing Notice

And More – Here is the full list of EDI Transaction Codes

Here is the list of Common EDI standards used to exchange EDI data:

– EDI ANSI ASC X12 Standard – Supports Global trade, finance, healthcare, retail, automotive, etc.
– UN/EDIFACT – Global trade.
– EANCOM – Supports the retail industry.
– RosettaNet – Support high-tech companies.
– TRADACOMS – Support UK retail industry
– ODETTE – Used by the automotive industry in Europe.

3) Establish EDI Communication Protocols

Think of protocols as a medium to transmit data from one trading partner to another. There are many EDI communication protocols, some of the common ones are FTP, sFTP, and AS2.

FTP is an old technology and has been in use since the 1960s. It’s one of the simple ways to exchange data from one system to another, however, with FTP the data is not encrypted during the transmission.

However today we see sFTP or AS2 as the 2 common protocols used to transmit EDI data. One of the big advantages of using these protocols is the data is encrypted and highly secure during the end-to-end transmission.

4) Choosing an EDI Solution

The next step is to choose the right EDI solution that meets your business requirements.

4.1 In-house vs Third-Party EDI Solution

Choose whether you want to build your own in-house EDI system or go with a third-party EDI vendor. Here are the pros and cons. Here is the full blog on In-House vs third-party EDI vendors.

In House EDI Third-Party EDI Vendor
Needs to build a hardware infrastructure
Existing reliable state-of-the-art infrastructure
Require Translation and mapping software
Managed translation via the cloud / SAAS platform
Ongoing costs for licensing, certifications, resources, security, and more
Pay only for what you use and scale up or down based on business demands
High setup and operational costs
Low startup costs
Need to develop each data format from scratch
Unlimited data formats readily available
Needs experienced staff and consultants
You will have 24/7 expert support
Suitable for small to medium-size business
Suitable for large multinational companies
4.2 Evaluate EDI Solution Features and Functionality

It’s important to evaluate some of the key features and functionality before integrating an EDI solution into your business operations. Always remember to evaluate an EDI system based on your business requirements and check for future scalability options.

–  Like how easy it is to scale the system, does the EDI system grows as your business grows?
– Check whether you want to have an On-premise or a cloud-based EDI system.
– Check for pricing do you want to pay an annual /monthly subscription or pay-as-you-go plan or pay-per-transaction?
– Does the EDI system easily integrate with your internal business systems like CRM, ERP, accounting, or order management systems?
– In the case of system downtime does the company provide 24/7 support?

4.3 Assess EDI Solution Provider’s Reputation and Experience

Company reputation and experience play a key role in choosing the right EDI system for your business. The best way to assess this information is to check for product reviews by other users/businesses on G2, Capterra, or Software reviews. Simultaneously you can ask your other business partners for referrals if they use a similar system and ask the EDI vendor to share some case studies.

5) EDI System Implementation and Integration Process

5.1 Ensure EDI System Compliance with Trading Partner Requirements

Each trading partner may have specific EDI standards (ANSI X12 or UNEDIFACT), protocols (sFTP, FTP, or AS2), and message formats that they require for exchanging electronic data. It is important to understand and document these requirements to ensure that your EDI system can effectively communicate with your trading partners.

5.2 Map EDI Document Types to Business Processes

Before starting with the mapping process, the business needs to identify all the different processes which can be automated via EDI. This could include order processing, shipping information processing, procurement, payment processing (both accountable and receivable), logistics delivery and tracking, etc.

Now once you identified the different processes you need to automate via EDI. The next step is to determine what EDI document types you need to support those data processes. For example, if you need to automate the procurement process you need to use a purchase order (PO) EDI document type.

Next, you need to identify the EDI document type specific to your industry. Because the document type varies based on the industry and you need to identify the EDI standard your trading partner supports. As listed above there are over 10 common EDI standards used across the world and each one supports different industries and purposes. For example – In the retail industry the most common EDI document type used is Advance ship notice (ASN) to manage the shipping and receiving process.

Once you identified the list of EDI document types and the standard you need to start mapping them to those specific processes you can either use an in-house EDI solution or use an EDI vendor like Commport Communications to help you with mapping the EDI documents to your business process. For example, mapping purchase orders to procurement processes.

5.3 Test EDI System and Processes with Trading Partners

This is the most important step in the EDI system integration and implementation process. Before you start exchanging huge volumes of EDI data with your trading partners it’s important to test each mapping process by sending the test data to make sure it accurately reflects your business process and meets the needs of your trading/business partner.

Based on the results of the testing you can further adjust the requirements to exchange specific EDI documents. Failing to do the testing can result in costly chargebacks from your trading partners and could cost you thousands of dollars in the future and delay your processing and can affect your trading partner relationships. Here is the blog which explains what the EDI costs are associated with chargebacks

5.4 Establish EDI Monitoring and Reporting Processes

It’s important to have the right tools to monitor your EDI system performance. Here are some of the key items to monitor transaction volumes, data accuracy, system performance, transmission times, and more. It’s important that the EDI system comes with real-time notifications and reporting capabilities to generate reports on transaction volumes, data accuracy reports, and more. Reports not only help departments to get insights on the transactions data but also helps keep track of overall EDI system performance and identify any problems that occur which can further be escalated to the correct team to fix the reporting errors.

5.5 Provide EDI System Training for New Employees

If you use a 3rd party EDI provider like Commport Communications then you don’t need to train your team on how to use the system as all the implementation, integration, and document exchange processes will be handled by our team.

However, if you use an in-house EDI system. It’s important to identify the employees who will be using the system from each department like finance, procurement, order processing, shipping, and more.

The next step is the design of training materials which includes designing training manuals, PPT slides, videos, and hands-on exercises.

After designing the training material, the next step will be to deliver the material to employees, make sure the content is engaging and easy to understand, and provide an easy way of training my hosting materials on a cloud platform and easy access. Provide ongoing support including regular check-ins, follow-up training sessions, and creating a knowledge base.

Also, it’s important to regularly evaluate the training material if there are any changes to the EDI system usage or if you introduce any new modules.

Common EDI Document Types Used by Each Department within Business

Procurement
Department
  • Purchase orders
  • Advance ship notice
  • Invoice
  • Remittance advice
  • Credit note
  • Debit note
  • Request for Quotation
Order
Processing
  • Purchase orders
  • Order confirmation
  • Invoice
  • Advance ship notice
  • Invoice
  • Remittance advice
  • Credit note
  • Debit note
Inventory
Management
  • Stock transfer order
  • Inventory status inquiry
  • Inventory adjustment
Accounting
and Finance
  • Accounts payable and receivable
  • Electronic fund transfer (EFT)
  • Payment order
  • Bank statement
  • Invoice
  • Remittance advice
Logistics
Department
  • Delivery order
  • Bill of Lading
  • Freight invoice
  • Delivery status report
  • Carrier status report

Conclusion

Integrating the EDI system into your business can help you automate your document exchange process. Saves you thousands of dollars by avoiding costly errors caused by manual data entry and improving overall B2B communication, trading partner relationships, and operational efficiency.

Whether you want to use an in-house system or a 3rd party EDI vendor it’s important to evaluate the requirements effectively. There are many different types of EDI integrations available, and it is important to choose the one which helps your business needs. Choose a vendor who has a good reputation, provides world-class customer support, and is easy to scale in the future.

The EDI technology is continuously changing and there are more and more features are getting added every day. So, if you have your own in-house EDI system it’s important to keep yourself updated with all these new technologies to keep the system updated regularly. If you go with a 3rd party EDI vendor like Commport our team will update the system with all the new features regularly as and when they are launched and may provide training to your staff if required.

Frequently Asked Questions

What is an EDI System?

An EDI system translates business documents into a universal standard and transmits them to other partners. It also helps map the data to and from internal business applications or systems for those partners.

What is EDI Integration?

EDI integration means setting up a full EDI workflow between trading partners to exchange business documents.

Types of EDI Integration
  • Direct EDI Integration
  • Indirect EDI Integration
  • Hybrid EDI Integration
Common EDI Document Types
  • Purchase Orders (PO)
  • Invoices
  • Advance Ship Notices
  • Price/Catalog Information
  • Inventory updates
  • Shipment and Billing Notice
Common EDI Standards
  • EDI ANSI ASC X12 Standard – Supports Global trade, finance, healthcare, retail, automotive, etc.
  • UN/EDIFACT – Global trade.
  • EANCOM – Supports the retail industry.
  • RosettaNet – Support high-tech companies.
  • TRADACOMS – Support UK retail industry
  • ODETTE – Used by the automotive industry in Europe

CONTACT

Get Started with Commport Today