Electronic Data Interchange (EDI) in the Supply Chain
Last Updated on September 9, 2021 by Tatyana Vandich
This post was updated to reflect current trends and information.
What is EDI?
EDI or Electronic data interchange is a technology for exchanging information in real-time between business partners, based on standard and structured electronic messages.
EDI has particularly gained popularity in logistics and retail. This is a recognized standard in business because this protocol helps accelerate the entire supply chain – from procurement to payment.
With a large volume of transactions, large stocks, and numerous suppliers, retailers have a high return on investment when adopting EDI for business documents exchange.
Why use EDI in the supply chain?
Disadvantages of paper workflow faxing or email:
- Considerable labor cos for working with orders and shipments.
- The slowness of the processes.
- Frequently occurring human errors.
- Difficulties in relations with large buyers-clients.
- Delays and disruptions of supplies.
- Discrepancies between order and delivery.
- Repeated manual entry of all data into various systems (accounting, CRM, ERP, etc.)
EDI avoids problems by providing complete control over supplies and accelerating the flow of funds.
Thanks to EDI, trading partners can send and receive messages instantly. Each party (retailer, supplier, logistics company) onboarded on EDI once, will immediately get the opportunity to exchange information with their business partners without thinking about the features and capabilities of partner accounting systems, their workflow, or the required document format.
How does EDI work?
EDI exchange protocol is based on standards (i.e. X12, EDIFACTโฆ) that govern the formats of messages transmitted between business partners electronically.
The necessary data from one company is extracted, formatted, checked, and sent to the necessary business partners, either directly or via EDI service providersโฆ
During the transfer, the EDI service provider translates and maps the information into the required EDI standard, preserving its content.
The receiving party immediately receives the message in a convenient and understandable format. It can be X12, EDIFACT, Json, XML, etc.
Without an EDI service provider, electronic data exchange is very difficult to manage internally with the companyโs workforce. It will take many IT professionals who have experience in EDI, the company will need to deploy a large-scale infrastructure to ensure the smooth operation of the EDI service. In addition, many business partners can have a huge variety of IT systems and formats, so you must be able to adapt to each of partner requirements individually. Such financial, labor, and time costs are irrational. That is why, more companies are outsourcing their Integration especially EDI mapping and integration, to outside service providers, to reduce the burden from their internal staff.
Do you need the right advice on how to choose the right EDI service provider or you are thinking about changing the current EDI provider?
Read this article: How to change your EDI Service Provider
Typical EDI workflow process
Purchase Order โ ORDERS (EDI 850 Document)
The buyer company sends the supplier a message with the list of goods that she plans to purchase. PO contains date and time of delivery, address, reference to the contract, prices, quantity of goods, and other necessary information.
Useful reading: All you need to know about EDI ANSI X12 Transaction Set 850 Purchase Order
Purchase Order Response โ ORDRSP (EDI 855 Purchase Order Acknowledgement)
The supplier sends the buyer a response to his order, noting his consent to the transaction and indicating how accurately the order can be executed. It may also indicate the change in prices for the product selected by the buyer. The buyer receives advance confirmation of prices and quantity of goods from the supplier, can plan the state of their inventory. The supplier at this time reserves goods in his warehouse for delivery.
Despatch advice – DESADV (EDI 856 Advanced Ship Notice in the X12 standard).
At the same time as shipment, the supplier sends a notice to the buyer. It helps simplify and speed up the process of goods acceptance, as EDI 856 (DESADV) contains detailed information about the cargo. For example, container numbers, the hierarchy of packages indicating their types, barcodes, and contents, as well as the physical characteristics of the goods, etc. The purchasing company can use RFID scanners and the Serial Shipping Container Code (SSCC) when receiving. This helps speed up the receipt and get rid of mistakes.
Receiving advice RECADV (EDI 861 – Receiving Advice/Acceptance Certificate)
When the buyer accepts the goods from the supplier, he sends him a RECADV message on the actually received and delivered goods. Thus, the Receiving advice is a report from the buyer to the shipper to indicate that the order arrived intact at its final destination. Moreover, rapid notification of the supplier allows him to generate invoices quickly.
Additional and specific types of EDI messages
UN/EDIFACT Price/sales catalog message (PRICAT)
PRICAT is also known as EDI 832 Price/Sales Catalog in ANSI X12 standard. Companies use the Price/sales catalog message to transmit commercial information to business partners about products, especially about current prices.
EDIFACT RETANN – Announcement for returns message | EDI 180 – Return Merchandise Authorization and Notification
RETANN or EDI 180 in X12 standard sent by the buyer when returning the goods to the supplier for any reason. The message contains the characteristics of the goods planned for return, as well as the terms and reasons – defective, non-standard, expiration, re-grading, etc.
EDIFACT COACSU Commercial Account Summary
Exchange EDI messages between the accounting departments of the supplier and the buyer, which contain the calculations of companies for a certain period.
EDIFACT INVRPT Inventory Report Message | EDI 846 Inventory Inquiry/Advice
INVRPT or EDI 846 transaction set reports the quantity of goods available. Often used to report on the availability and movement of goods.
Useful reading:
What is UN/EDIFACT INVRPT Inventory report message?
Benefits of EDI for Supply Chain Management
EDI has the following advantages:
– Reducing Cost: Automation of processes that were previously performed by employees manually using paper documents and / or email, will certainly reduce costs.
– Improving efficiency and productivity: Processing more business documents in less time.
– Reducing errors: The standardization of EDI ensures that the transmitted data is formed into a standard document before it is transmitted.
– Optimization of tracking and reporting: EDI can be integrated with a variety of business systems (ERP, CRM, Warehouse Management, accounting, etc.) This allows enterprises to improve business processes and provide data collection and analysis.
– Building loyalty with business partners: EDI provides the instant transfer of necessary documents, which makes the delivery of goods faster and more reliable.
Effective EDI Solution for Supply Chain
For over 21 years, EDI2XML has been helping companies solve complex integration issues and providing complete EDI communication between business partners.
Improve your business process and maximize your supply chain performance with our EDI solutions. Contact us for a free consultation.
You may also be interested in reading about:
- DELFOR, DELJIT, DESADV โ key EDI messages in supply chain management for manufacturing
- ORDERS and ORDRSP: The main EDIFACT messages in the supply chain management
- What Are the Differences Between ANSI X12 and UN/EDIFACT
