Electronic Data Interchange is a data exchange protocol that enables the computer-to-computer sharing of documents and data between businesses. EDI allows companies to share and receive information electronically, in formats that can be readily understood and processed by the enterprise management systems of all parties involved.
Today, businesses across numerous industries use EDI to share various documents, from purchase orders and invoices to quotation requests and loan applications. In most cases, these organizations are business partners who frequently trade goods and services as participants of a supply chain network.
EDI for Supply Chain Automation
EDI has been integral to supply chain operations for decades. Since the late 1960s, EDI solutions have become the most preferred option for automating the exchange of critical enterprise documents and data between trading partners.
Moreover, while EDI started as a tool primarily used by large organizations, many small and medium-sized businesses now utilize EDI software to automate their supply chain communications. One of the primary reasons for this shift is the increasing popularity of cloud-based EDI solutions, which are significantly more affordable and easier to implement than their on-premise counterparts.
EDI systems allow companies to connect with their business partners and share information electronically in real-time. As a result, they can do away with inefficient, error-prone manual methods that slow down their business.
Modernized EDI platforms are deployed to automate numerous supply chain processes. Some of these include:
- Order management: Exchanging purchase orders, sales orders, and order confirmation documents between customers and suppliers
- Inventory management: Sharing information related to inventory levels, stock availability, and product movements.
- Transportation management: Exchanging shipping documents, including shipment manifests, bills of lading, and delivery receipts.
- Sourcing: Conveying procurement documents like requests for quotation (RFQs), purchase orders, and invoices.
- Financial management: Sharing financial documents and data, including invoices, credit memos, and payment information, in real-time.
This comprehensive automation allows supply chain companies to offer their partners and customers a higher level of service while reducing costs, increasing efficiencies, and improving visibility into their operations.
How Do Trading Partners Use EDI for Supply Chain Management?
Any supply-chain-centric enterprise will encounter EDI in some way, shape, or form. This is especially true for trading partners that frequently exchange documents and data, such as those in manufacturing, logistics, and retail.
EDI in Manufacturing
Manufacturing companies rely on well-oiled supply chains to source and acquire raw materials, produce their products, and fulfill customer orders on time and in full. Therefore, it is not surprising that EDI is the de-facto standard for many manufacturers for sharing day-to-day supply chain documents like purchase orders, invoices, and shipment notices.
Manufacturers use EDI integration to automate trading partner communications, monitor supplier performance, track shipments in transit, and manage logistics operations.
Furthermore, many manufacturers use EDI solutions to connect their enterprise resource planning (ERP) systems with their partners' order management systems (OMS), warehouse management systems (WMS), and transportation management systems (TMS).
This integration allows them to automatically share data related to product movements, inventory levels, and shipping schedules in real-time and benefit from end-to-end supply chain visibility.
Everyday EDI transactions for manufacturers
The typical trading cycle for manufacturers includes five EDI documents:
- EDI 810 (Invoice): Sent by a vendor to the manufacturer to request payment for goods or services.
- EDI 850 (Purchase Order): Sent by the manufacturer to a vendor to initiate an order.
- EDI 855 (Purchase Order Acknowledgment): Sent by the vendor to the manufacturer to confirm receipt of a purchase order.
- EDI 856 (Shipment Notice or Advance Ship Notice): Sent by the vendor to the manufacturer to notify them that a shipment is on its way.
- EDI 830 (Planning Schedule with Release Capability): Sent by the manufacturer to the vendor to provide production plans and schedules.
EDI in Retail
Over several decades the retail industry has been at the forefront of EDI implementation. Primarily pioneered by Walmart in the 1980s, EDI has become the standard for communication between retailers and trading partners.
Many large and mid-size retailers use EDI integration to streamline interactions with suppliers, distributors, logistics providers, and other business partners. Exchanging EDI documents and data throughout their supply chain enables them to automate day-to-day operations like order management, warehouse management, transportation management, and accounting.
Everyday EDI transactions for retailers
Like manufacturers, retailers utilize EDI 810, 850, 855, and 856 to send invoices, purchase orders, purchase order acknowledgments, and advance ship notice, respectively. Other transactions commonly used by retailers include:
- EDI 820 (Remittance Advice): Sent by the retailer to a vendor to provide information about payments made
- EDI 845 (Price File): Sent by a vendor to the retailer to provide updated pricing information
- EDI 860 (Purchase Order Change Request): Sent by the retailer to a vendor to make changes to an existing purchase order
- EDI 875 (Trade Promotion Planning Schedule): Sent by the retailer to a vendor to provide information about upcoming promotions
- EDI 880 (Retail Event Notification): Sent by the retailer or vendor to notify all trading partners about an upcoming event, such as a sale
- EDI 881 (Retail Activity Information): Sent by the retailer or vendor to provide information about store activities, such as a new product launch.
EDI in Logistics
Electronic Data Interchange is often called the lifeblood of the logistics sector because the information exchanged through EDI platforms is what keeps logistics operations moving.
EDI streamlines and simplifies logistics workflows by standardizing, automating, and integrating the critical data and document exchanges involved in getting goods from suppliers to customers.
Everyday EDI transactions for logistics service providers
The logistics sector comprises various service providers, including third-party logistics (3PLs), fourth-party logistics (4PLs), airfreight forwarders, ocean freight forwarders, trucking companies, and railroads.
Each service provider uses a unique set of EDI documents and data to exchange information with their business partners. However, some EDI transactions are used across the logistics industry.
- EDI 204 (Motor Carrier Load Tender): Sent by a shipper to a trucking company to request transportation services
- EDI 210 (Motor Carrier Freight Details and Invoice): Sent by the trucking company to the shipper to provide invoice and shipment details
- EDI 211 (Motor Carrier Bill of Lading): Sent by the trucking company to the shipper to provide bill-of-lading information
- EDI 214 (Transportation Carrier Shipment Status Message): Sent by the trucking company to the shipper to provide updates on the status of a shipment in transit
- EDI 990 (Response to a Load Tender): Sent by the trucking company to the shipper to accept or decline a load tender
Benefits of using EDI in Supply Chain Management
Although EDI is typically associated with exchanging documents electronically, its impact goes much further. The efficiency, accuracy, and transparency it offers result in higher productivity, less waste, and improved trading partner integrity.
Furthermore, because EDI automates tasks that do not directly generate revenue, such as order processing, inventory management, and accounts payable/receivable functions, businesses can focus more on core competencies like building valuable partnerships and unlocking customer value.
EDI provides unquestionable benefits for all supply chain businesses, from manufacturers to retailers and logistics service providers.
Benefits for manufacturers
EDI enables manufacturers to exchange critical documents and information in real-time, upholding efficiency, accuracy, and collaboration with trading partners.
Specific EDI benefits for manufacturers include:
- Reduced data entry costs: Automating the creation of procurement and logistics documents saves time and resources.
- Improved order accuracy and completeness: EDI automation eliminates transcription errors, resulting in fewer customer service issues and returns.
- Enhanced customer service: EDI provides manufacturers with real-time visibility into their customers' inventory levels, allowing them to manage stock and avoid stock-outs proactively. Additionally, manufacturers can use EDI to send automated ship notifications that keep customers continuously updated on the status of their orders.
- Increased efficiency and productivity: EDI automates manual, time-consuming tasks, such as rekeying data into separate business systems, freeing employees to focus on strategic, value-adding initiatives.
- Greater visibility and traceability: EDI integration gives manufacturers the end-to-end visibility needed to identify and resolve supply chain issues efficiently.
- Improved partner collaboration: EDI provides a common trading language and fosters better communication among partners, resulting in more efficient and effective supply chains.
Benefits for Retailers
EDI benefits for retailers are largely similar to those for manufacturers. However, because retailers typically operate on thinner margins than manufacturers, the pressure to optimize operations and reduce costs is even greater.
- The ability to quickly and efficiently respond to stock-outs: By integrating EDI with their back-end systems, retailers can automatically reorder products when inventory levels fall below a certain threshold.
- Improved forecasting accuracy: Real-time EDI supply chain data can be used to create more accurate demand and supply forecasts, which can help retailers better manage inventory levels and avoid stock-outs.
- Enhanced customer service and loyalty: Leveraging EDI to provide real-time status updates enables retailers to keep their customers informed and satisfied throughout the shopping process.
- Streamlined e-commerce operations: For online retailers, EDI can streamline processes by automatically updating online catalogs with product information and pricing and processing and tracking online orders.
Benefits for Logistics Service Providers
EDI integration is significantly beneficial for LSPs, as it helps streamline all operations, from order management to billing and invoicing.
Specific benefits of EDI for logistics include:
- Cost savings: EDI helps LSPs eliminate the need for paper-based documentation, resulting in significant cost savings.
- Speed and accuracy: EDI automation results in faster and more accurate data entry, which leads to fewer errors and improved efficiencies.
- Streamlined partner communications: By integrating EDI with their back-end systems, LSPs can automate information sharing with clients, partners, and suppliers.
- Peak inventory management: EDI can help LSPs manage their inventory more effectively by providing real-time visibility into stock levels.
- Strategic planning: EDI data can generate reports that provide insights into trends and patterns, which can help LSPs make more informed decisions about their business.
The Future of EDI for Supply Chains
Electronic Data Interchange has come a long way since its inception six decades ago. What started as a simple way to electronically exchange purchase orders has evolved into a powerful, multi-faceted tool that automates and optimizes virtually every aspect of the supply chain.
As demand for supply chain agility and resilience grows, EDI will continue playing a critical role in supply chain operations and evolving to meet the market's changing needs.
The most impactful EDI outcome for the near future will likely come from using modernized B2B integration capabilities alongside disruptive technologies and solutions like application programming interfaces (APIs), the Internet of Things (IoT), blockchain, and artificial intelligence (AI) to deliver innovative levels of multi-partner supply chain collaboration.
As integration technologies mature, you can expect more widespread adoption and innovation across industries and geographies.
Let Remedi Help You Streamline Your Supply Chain Operations with EDI
Companies' most common hurdle when implementing EDI is inadequate IT resources. Many organizations, especially small and mid-size businesses, lack the staff, experience, or expertise to integrate EDI successfully.
Thankfully, EDI service providers exist to bridge the gap. As the market leader in EDI integration services, Remedi works with some of the top EDI developers, including Cleo, IBM, and Microsoft, to provide businesses of all sizes with the EDI platform they need to optimize their supply chain operations.
If you are looking to leverage EDI to streamline your supply chain, Remedi's in-house experts can point you in the right direction and guide you through the entire EDI integration process.
Contact Remedi today to get started on your EDI journey and transform your supply chain.
