What is EDI: Understanding the Main Document Exchange Technology

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Every decade has its own buzzwords. As we’re gradually leaving the 2010s behind, we’re saying goodbye to gluten-free, viral, and growth hacking screaming at us from headlines. The workforce of the 80s should remember one of the trendy phrases of that time — paperless office. When computers with video displays started popping up in the offices, people eagerly embraced digital documentation — to save time, money, and simply space. Lots of new ways of electronic communication sprung up.

Among them was EDI. Electronic Data Interchange passed the task of exchanging corporate documents from humans to machines. Strict, universal, and error-prone, EDI was introduced in the transportation sector to be later adopted in all industries dealing with hundreds of documents and receipts.

What is EDI and how it works

Now, let’s break the definition down and examine what it actually means.

Exchanging — using a private, agreed-on communication channel.

Strictly formatted — translating in-house documents into standard formats.

Between computers — without human intervention.

For example, you’re a trucking business. You need to provide you clients — shipment companies — a status of their shipment. This document typically includes the address of where the cargo is coming from, its destination, estimated delivery date and time, and the proof of delivery with the info where it was dropped and who signed for delivery. Other information, like the package’s weight, dimensions, and quantity, may also apply.

Conventionally, you would send them a document via email (or even snail mail) that will likely look different than the same document from another trucking company. Someone would have to check their mail, open and confirm that the data is correct, and then transfer all data manually to the back office system.

EDI does all of this automatically and in the background. In this article, we explain how exactly and what you will need to embrace EDI communication.

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A simplistic view of data traveling via EDI

EDI software

Typical EDI software consists of:

  • Translation software
  • Mapping software
  • Integration with communication software

Here are two main things you want to know when looking for EDI software:

Integration with your in-house software. Make sure that EDI data can be accessed directly from your ERP or logistics management software. Some ERP systems like SAP or Infor already have EDI functionality out-of-the-box, some (like Epicor) have it available on demand. But in most cases, you will have to integrate a separate translation and EDI software on your own and the provider should have such possibility. If there’s no seamless integration and you still have to access EDI manually — you lose a bit of that desired automation.

Support for different communications. There are many protocols for transferring EDI data that your trading partner may require. You should be able to access most of them without extra integrations. This includes VAN, AS2, FTP, SFTP, FTPS, OFTS, etc. We will explain the difference further.

Understanding file formats

There are two main file formats you will come around when working with EDI:

ANSI X12 — the main EDI format used in North America.

EDIFACT — the main EDI format outside of North America.

Your partner will let you know which format they accept, but for a transportation business operating in the US, you can be safe with assuming it’s ANSI.

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As you can see, both translations are readable but not human-friendly

EDI mapping software

EDI mapping is the process of configuring how each file will be translated and sent out. This means that you need to configure all details for each particular file once and the system will know how to perform the process in the future. For our Shipment Status message, you will want to locate the document in your ERP, link relationships between the data, and choose the destination. When you’re on the receiving end, the map should already have all the links back to your ERP. Data mapping is a complex process which requires a mapping expert to fulfill.

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Example of a map in EDI translation software

Communication methods: VAN vs AS2 vs FTP/SFTP/FTPS

Value Added Network (VAN)

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VAN is a middleman that manages connectivity with all partners on its side

Direct/Peer-to-Peer/Point-to-Point

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For direct communication, you need to support all protocols you partners require

Now, what protocols are out there and what’s the difference?

FTP was the first protocol to become accessible via VANs and remains the most well-known. The FTP server can be installed on any operating system, but it lacks security — you would need to incorporate your own encryption to transfer financial data. That’s why most organizations use a Virtual Private Network (VPN) on top of it.

FTPS was created to address FTP’s security problems, so it has SSL/TLS (Secure Sockets Layer or Transport Layer Security) encryption and digital certificates.

SFTP similarly uses an encryption method for FTP, this time — SSH (Secure Shell).

OFTP or Odette allows providing a digitally signed receipt on document delivery. It’s common in Europe, while AS2 — another protocol with similar functionality — is a standard for the US. It deserves a separate section.

AS2

To use AS2, you need to constantly be connected to the Internet and ready to receive messages, so trading partners use software that keeps this channel open at all types. When choosing your EDI software, make sure it supports AS2 communication. When Walmart announced AS2 as its primal EDI protocol, the adoption of AS2 skyrocketed and it can now be found at almost any organization.

How to implement EDI step-by-step

1. Assemble an EDI team

2. Analyze your current procedures

3. Create needs and requirements for your EDI solution

4. Choose your communication model

5. Choose EDI software according to your needs

b. If your provider doesn’t have available integrations, search for the suitable solution on software rating websites like Capterra, G2 Crowd, and others. Pick a provider based on whether it can be integrated on your back office, cloud or on-premise, number of supported protocols, third-party integrations. If none seem fit, consider developing custom software or invite an IT consultant to help with integration into an ERP.

6. Start EDI mapping

7. Test your EDI system

8. Introduce EDI to your trading partners

(9. Consider additional connectivity methods)

Originally published at AltexSoft tech blog What is EDI: Understanding the Main Document Exchange Technology

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Being a Technology & Solution Consulting company, AltexSoft co-builds technology products to help companies accelerate growth.

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