Electronic Data Interchange (EDI) enables businesses to exchange critical information seamlessly, enhancing efficiency and reducing manual processes. It is used in commerce to transfer business documents such as invoices and purchase orders and despatch notes between companies.
EDI has been around for a long time and there are many accepted standards of document and means for transferring data. Often different businesses will use the same format but will utilise the fields differently meaning that it is rarely a plug and play process to get set up. This can often be to do with system constraints, the company’s internal processes or even geographic conventions.
Why Use EDI
The word EDI often is met with confusion and questions but the advantages to a business, especially operating at scale can be tremendous. By linking systems to allow automatic data transfer between them you grease the wheels of commerce and save considerable time in placing and receiving orders. At scale the savings are compounded over time and any efficiency increase can have real impact on the bottom line. Allowing automated sales ordering means that a customer can enter their order into their own system and have it automatically transferred into yours, this means less time spent on the phone and less risk of human error. Another advantage of EDI is that provides a definitive audit trail, there’s nothing lost in translation and the order the customer placed it what they will get.
Allowing invoices to be automatically issued helps ensure that they don’t get lost. It also improves transaction time and reduces the risk of errors which helps improve the efficiency of your organisation.
Integrating EDI with a trading partner is also advantageous as it can speed up business cycles and make it easy to scale the number of orders you can place and receive. It also helps to build rust and credibility with trading partners, automated order integration brings the trading partners much closer together and can help the partnership to grow without friction.
An EDI Use Case
One of the most effective uses of EDI is in the situation where a retailer has a large number of stores and a number of different suppliers. They may often request an EDI integration to streamline the process of replenishing stock. If we imagine a scenario where a retailer has 30+ stores and a supplier’s product lines in each of those, the stock replenishment orders may come from head office only or direct from the stores. Either way has an overhead in that those orders would need to be placed via the phone or email if no EDI is in place. That could be one or multiple people in head office placing orders to the same supplier. It could also be each individual store placing orders for the same supplier. This then allows human error to creep in and is a real inefficiency as that time could be spent on other customer interaction or tasks. If the retailer and supplier relationship is already strong then it’s unlikely you’d want your staff placing orders with them multiple times a week when it could all be automated. EDI is really effective in this situation as it could allow each store to place their orders onto the system, this can then be sense checked or approved by head office and it then goes straight to the supplier with no additional human input. The goods can then be shipped straight out to the stores (or warehouse) depending on how the transport is set up. There may be a cost benefit to batching orders for the same supplier, this could be achieved through the system having an approval system where all orders to a supplier could be released at once, an EDI integration would then save someone having to read out or send 30 stores orders and have them reentered at the other end. This would give a considerable cost saving over time from the human effort.
Further benefits then come at invoicing time as the invoices could then be sent to one or multiple accounts within the retailers system automatically. This means there’s less chance of mixing things up and improves turnaround for getting paid. It also makes reconciliation easier as the order data is already present and should match exactly. If the invoices were sent as PDFs (for example) reconciliation would be manual and more time consuming.
How to Set Up EDI?
The first step is to work out how the data will be transferred between systems. Will an API be used or file transfer? Then there should usually be a document outlining the file formats for both partners. There may be some work required in one or both of the systems to set up a SKU map and as per the last example there would need to be an address or location code map to allow the delivery location to be appropriately allocated. A SKU map is a table or system to match the product code of a product in one system to the corresponding product code in another system as often companies implement their own SKU conventions for their inventor. The next step is to build a mapping program that ingests the files or data, converts it between the two formats and either sends or inputs the data into the system depending on which way it’s travelling. This is the point where an EDI specialist may become involved to help translate the data and may require system development in one or both of the systems. Sometimes however it is easier and more sensible to build or implement a middleware that performs these actions to save having to modify the core systems. The middleware is a small program that sits in between other programs and performs actions on or with the other systems and can be particularly effective when dealing with older, legacy systems that are difficult or expensive to modify.
Barriers to EDI
Whilst all this is great there can be barriers to EDI adoption, in particular a lack of understanding and expertise around it tends to put people off or have them kick the project down the road. Another barrier can be the complexities involve in transforming data between the systems. There’s a huge quantity of ERP systems out there and they all have their own complexities and formats for data ingress and egress. Often there is additional work required to get the data out, connect the systems and convert the data to the correct format which of course all costs money. Fundamentally though if you can get data out of a software system reliably and consistently then with the right help you should be able to map it to another format for EDI. If two software systems can’t communicate with each other directly there’s usually a solution in the form of a piece of middleware that can talk to each and convert data between the two. I’ve personally followed and implemented this approach with SAP business One, DX, DPD, Comet CRM, Mailchimp and much much more. With EDI, businesses can unlock new efficiencies and scale their operations. Consider consulting with an EDI specialist to explore how it can benefit your organisation.