ThreeB IT Developer
Electronic data interchange (EDI) is a communications technology used to exchange business documents between organizations via computers. EDI systems translate business documents from one organization into universal standards, transmit them to other partners and map them into usable business documents for those partners, in their technology systems and tools.
Handling everything from automated purchase orders and invoices to health insurance codes and shipments, EDI is a crucial business-to-business (B2B) communications tool. To learn more about EDI, see:
In this article, we define EDI integration and walk you through the key steps and decisions you'll need to navigate in an EDI integration project.
EDI integration is the process of setting up a complete EDI workflow between trading partners. It covers several key elements, including:
- Trading partners - it seems basic, but it's key: who are you exchanging business documents with using EDI?
- Endpoints - which IT systems need to send, receive and process EDI data, e.g. your ERP, sales system, logistics systems, etc.
- EDI documents and transactions - which messages, or documents, do you specifically need to exchange with your trading partners?
- EDI standards - which EDI formats do your messages need to follow?
- EDI protocols - which technologies are you going to use to transmit your messages?
To set up an EDI workflow, you'll need to define all of these elements, then set up a system, using the best EDI software or technology for your specific workflow. This setup can look a few different ways
- EDI software directly translates, sends and maps EDI data to and from the IT systems you and your partners use
- You use an intermediary service that handles the actual EDI transactions for you
You can take on this project one of two ways:
- With an in-house EDI team
- With a systems integration partner with expertise in EDI software and integration
And you can sometimes mix and match the various methods, depending on the specifics of each trading relationship. In this guide, we demystify the EDI integration process and break down these key steps to make it easy for you to get started and make informed decisions.
EDI is ultimately all about communicating with your trading partners in a smart, structured way. The first step is to talk to your partners and fully define the key aspects of your EDI communications, including
- EDI Standards
- EDI Documents and Transactions
- EDI Protocols
Let's break down these pieces.
For your technology setup especially, it's important know at least the endpoints you'll be using in conjunction with EDI data. For example, if you use EDI to exchange purchase orders and invoices with your trading partners, you'd need to either initiate a shipment of goods to fulfill an order or a financial transaction to pay an invoice. That means interfacing EDI with a logistics setup, accounting software, a project management tool or an enterprise resource planning (ERP) system.
For proper EDI integration, you'll need to plan out the transactions and workflows around EDI. In addition, one natural extension of EDI integration is larger data integration throughout your organizations - making sure all
To exchange with your trading partners, you'll use one or more EDI standards, which provide a set of defined EDI transactions in a standard format. Various industries, from healthcare and pharmaceuticals to manufacturing, retail, aviation and automotive use their own standards. Depending on your industry, the transactions you need and your partners, you may need to set up an EDI system that works with several EDI standards. Some of the most common include:
- EANCOM - retail
- EDIFACT - global trade
- HIPAA - U.S. healthcare
- HL7 - international healthcare
- IATA-CARGO XML - aviation
- ROSETTANET - high-tech companies
- X12 - global trade, finance, automotive and more
EDI Documents and Transactions
This gets to the heart of exactly what you want to achieve with EDI. There are thousands of different transactions, each designed to specifically send different types of information in a structured way. Start by defining which kinds of documents, or transactions, you'll use EDI to send, receive, authenticate and automate. If you're a vendor to a large company (or several large companies), you may simply receive a list of required EDI transactions; begin with that list.
Just some examples of EDI documents and transactions include:
- Purchase orders
- Shipping notices
- Patient information
- Product information
- Stock adjustments
- Flight itineraries
And there are thousands of different EDI transactions. For a complete breakdown of each EDI transaction:
When you want to get from home to work, you can drive, take the train, ride the bus, bike, maybe even fly if you're on a business trip. It's the same with EDI information moving from one point to another.
EDI protocols are the types of technology used to physically *transmit *messages from trading partner to trading partner. EDI is a both a legacy and modern technology first invented in the 1960s. Back then, EDI started with file transfer protocol (FTP), but new methods of transmitting information have emerged as EDI has evolved.
Today, there are more than a dozen different ways to send and receive EDI messages, including EDI-specific technologies, such as AS2, web EDI technologies (HTTPS and web forms) and EDI application programming interfaces (APIs) like AS4.
To properly integrate EDI, you'll need to make sure your software and your partner's can use the same means of transportation.
There's a crucial decision when designing any EDI setup with any protocol: using direct EDI with each trading partner or going through a Value Added Network, or VAN.
In direct EDI, also known as point-to-point EDI, you establish a specific connection with each business partner using an agreed upon protocol, such as AS2.
Value Added Networks (VANs)
VANs act as middlemen, translating EDI messages between protocols and partners, while enabling you to use your own, single protocol no matter which protocol your partners use.
VANs were traditionally the only option for securely transmitting EDI messages, but as web EDI technology evolved and EDI software has emerged, more and more organizations began using direct EDI. Why? The biggest reason is cost.
VANs generally reduce initial setup costs, but they charge a fee for* every single document, or even line item*, they process. Depending on how much you trade with a given partner or use a certain protocol, you can save money over time with direct EDI.
But in addition to the initial setup of an EDI operation comes ongoing management and maintenance. For some organizations, this maintenance can prove expensive, and it requires a certain level of EDI expertise, either in-house or through a partner. There are other considerations as well, such as control over your setup, requirements from your specific EDI partners, customizations you may need for broader integration with your IT tools and more.
Managed File Transfer (MFT)
B2B managed file transfer (MFT) software helps organizations set up, use, maintain and process ongoing EDI transactions. MFT software can be sophisticated enough to handle translation and multiple protocols.
EDI outsourcing (also called B2B managed services or B2B outsourcing) is a fast-growing option in which you use external specialists to manage your EDI environment on a day-to-day basis.
It makes sense especially for companies that:
- Don't have an in-house EDI specialist staff
- Already have a staff but are swamped
- Don't want to manage and maintain software internally
- Require specialist integrations that demand unique EDI expertise, beyond the norm
- Need to build broader integrations across their other back-office systems, such as ERPs, sales tools, logistics systems and more
Implementing and managing an EDI platform can be daunting for any organization. It requires access to a broad range of skills and capital investment in hardware and software. Many companies simply don't have or want to use internal resources for ongoing EDI integration and maintenance.
Managed services, provided by a B2B systems integrator, is the outsourcing of an EDI program to a third-party provider. The biggest reasons for outsourcing are to save on EDI infrastructure costs and to access to the right, specialized skills. But there are other benefits:
- Constant access to the latest technology, as managed services providers businesses must stay up to date
- As you connect with external systems, the provider can help you do it in an efficient way that makes it easier to add new partners worldwide
- Increased business agility by enabling you to quickly enter new markets and territories
- Higher productivity by delivering a new level of information about the performance of your systems, supply chain and business partners
Managed services host, operate and manage EDI software in their own data centers, ensuring you get the most from EDI without the time spent setting it all up and maintaining it.
Managed services providers map data from native enterprise application formats, such as SAP and Oracle, to EDI and XML, onboard new business partners, including customers, suppliers, banks, logistics firms, insurers and others. They monitor transactions flowing back and forth between business partners to identify exception scenarios and provide technical support. They also stay up-to-date on the latest versions of AS2, FTP, EDI and XML to help you stay up to date as well.
Even many of the world's biggest companies now use a managed services model and shift run integration projects through outsourced B2B integration experts.
Since 2007, the B2B Managed Services sector has been growing 15-20% per year and exceeds $2 billion per year.
There are a range of EDI software solutions. Find the one that solves the problems you need to solve and fits your infrastructure.
EDI software solutions help with the following core functions:
- EDI translation
- EDI transmission (managed file transfer)
- EDI mapping
- Broader data integration with your processes
EDI Translation Software
EDI translation involves transforming non-EDI documents into EDI documents - e.g. translating a purchase order built by a purchasing system into a standard EDI 850 purchase order document.
EDI Transmission Software (Managed File Transfer - MFT)
This software is what you use to send and receive EDI documents to and from your trading partners. This is where protocols, such as AS2 and SFTP, solutions like direct, point-to-point EDI and services like VANs come into play. Those will impact your decision of EDI software.
EDI Mapping Software
EDI mapping is the process of translating EDI data into other formats, such as flat-file, XML, CSV and others. It's used to turn received EDI messages into digital documents you can use in your other IT systems, such as an ERP, logistics system, etc.
Data Integration Software
Data integration is the plumbing in your IT systems that allows you to move key data from one tool to another and kick off key processes. One way to look at this: what do you need to do with your data once it arrives in the form of an EDI message and is translated? Do you need your systems to automatically jump-start order fulfillments or accounting processes? You'll need proper data connectivity to make that happen and the software to provide that connectivity. A great solution can plug right into your existing processes, help you automate tasks and save you time and money - while unlocking the power of digital transformation.
Once you know the key types of EDI software you need, you can select the right deployment setup. You have several options, including:
- On-premise: you install, manage and maintain software yourself, directly in your system
- Hosted or cloud Software-as-a-Service (SaaS) tools - often subscription-based
For on-premise software, you're Implementing EDI software behind a company firewall. This requires you to have extensive internal resources to implement and maintain the software on an ongoing basis. Once your EDI software is installed, you'll need IT resources to maintain it and upgrade the software environment as necessary.
Many companies, particularly smaller businesses, don't have the in-house IT team to manage a complex EDI environment and choose a hosted or cloud SaaS solution.
For plenty of companies, implementing EDI is about meeting the requirements of a business partner - e.g. complying with Walmart's AS2 requirements. But there are far greater benefits to data integration than simply complying with third-party EDI standards.
Today, data integration is being used by organizations worldwide to save countless hours, unlock massive money savings, gain better data insights and overall run business more smoothly. If you're interested in capturing the benefits of data integration across your organization, make sure your EDI system is strategically positioned for data integration. You'll want to find a solution or set of solutions that natively enables data integration and help you capture broader strategic business benefits.
Any EDI software solution that you use must be certified to ensure its security. Otherwise, you'll not only have potential security risks, it may not meet your partner's trading requirements for verification and security. The Drummond Group maintains a comprehensive list of certified secure, high-quality EDI software tools.