Introduction: What is EDI?
The Electronic Data Interchange (EDI) standard was developed by the American National Standards Institute (ANSI). It allows companies to exchange information about products, services, orders, and payments electronically in a standardized format.
Therefore, EDI is a technology that replaces the exchange of paper/file information between business partners with an automated exchange between their computer systems.
EDI is used by many different types of organizations, including banks, insurance companies, healthcare providers, manufacturers, and retailers.
Benefits of EDI for B2B Communication
EDI (Electronic Data Interchange) implementation is a great way for automating business-to-business (B2B) processes. EDI allows companies to exchange business documents such as purchase orders, invoices, etc. in a standardized electronic format, eliminating the need for manual data entry and reducing the risk of errors.
By automating these processes, EDI can help companies to improve efficiency, reduce costs, and increase accuracy in their B2B operations. Furthermore, implementing EDI can help companies to streamline their supply chain, improve communication with business partners.
Overall, EDI implementation can be a valuable investment for any company looking to automate and optimize its B2B operations.
B2B Automation Via EDI Implementation
If your company decides to implement EDI in order to exchange EDI files with your business partners, there are several important parameters to help in this decision:
1. What EDI standard will you use?
The EDI standard prescribes mandatory and optional information that must be contained in each document, as well as established rules for the structure of the document.
In most cases, an EDI standard is selected based on the location of the company or its industry. It is more common in North America to use the X12 standard. European Union companies mostly use EDIFACT. HL7 is a standard used for processing medical data. RosettaNet is used in the electronics and semiconductor industry.
These articles can help you learn more about standards:
- ANSI ASC X12 Standards Overview
- What is EDIFACT? | UN / EDIFACT standard overview
- Introduction to HL7 Standards (Health Level 7)
- RosettaNet and B2B EDI Integration: All you need to know
2. What kind of EDI documents will you exchange with your business partner?
Typically, large companies dictate which EDI documents they require. Thus, if your business partner requires the exchange of documents in electronic format, most likely he already has a specific list of documents. An EDI document typically contains the same information as a paper document.
The following are some of the main documents that are exchanged electronically:
- Invoice (EDI810)
- Purchase Order (EDI 850)
- Purchase Order Acknowledgment (EDI855)
- Advanced Ship Notice (ASN) /Manifest (EDI 856)
However, EDI is not limited to business data related to trade but covers all areas such as medicine (for example, laboratory test results), transportation (container information), insurance, etc.
Take a look at the full list of EDI documents that you can exchange with your business partners. List of EDI documents in X12 standard and EDIFACT.
3. Which communication protocol will you use?
Unlike an EDI standard or a list of EDI documents that your trading partner may require you to comply with, you will most likely be able to choose which EDI communication protocol you will use.
One of the most critical aspects of exchanging EDI documents is the way information is transferred. Thus, you need to decide how you will send and receive EDI files.
There are several different methods for sending EDI files. Here we will take a closer look at the most frequently used EDI protocols: FTP and SFTP, AS2 and VAN.
What is EDI Communication Protocol?
EDI communication protocols are the methods and technologies used to send and receive electronic data interchange messages. They are used to transfer data between businesses.
EDI Direct Connection (Point-to-Point Connection)
Direct connection allows you to transfer your EDI data directly from your computer to the computer of your business partner. A direct EDI connection can be made via VPN (Virtual Private Network), FTP (File Transfer Protocol), SFTP (Secure File Transfer Protocol), and AS2, which encrypts data before it is sent over the Internet.
FTP and SFTP to Exchange EDI files
FTP/SFTP – File Transfer Protocol/Secure File Transfer Protocol. In order to exchange EDI documents, businesses use these file transfer protocols to connect with their partners over the Internet.
There are a lot of benefits to using SFTP for transferring encrypted files since it is an easy-to-use protocol. Encryption calculations and public/private keys protect data transferred between the SFTP server and the client. The combination of these two elements provides robust protection known as public-key authentication. It is also possible for users to authenticate transmissions using an SSH key or a password.
AS2 (Applicability Statement 2) for EDI Communication
By encrypting EDI data and using digital certificates, AS2 provides a secure method of exchanging documents over the Internet.
The AS2 protocol has become widely adopted and implemented because of the internet’s popularity and HTTP’s leveraging.
AS2 uses a secure HTTPS connection and encrypts messages. The AS2 protocol allows enterprises to exchange EDI data in real-time and directly between their systems.
Walmart was one of the first companies to adopt AS2 for EDI communications. All of its suppliers were required to use the same protocol.
VAN (Value Added Network)
VANs (value-added networks) are private, hosted services that are designed to provide companies with a secure way to exchange EDI information with their business partners.
VAN can be compared to a “post office” where business partners can collect and sort incoming EDI documents.
It is estimated that only a small number of businesses currently use VANs. It is because of the low cost of the Internet and the level of security that can be achieved using Internet communication protocols. Point-to-point communications have become the norm for most of the “big players” in retail.
Conclusion: How Do Companies Send EDI Files?
Does your partner require an EDI document exchange?
If you do not know where to start, don’t hesitate to get in touch with us. Our EDI experts will be happy to help you make the right decision and answer all your questions.