Electronic Data Interchange (EDI) Transaction Overview
The basics of EDI and how to use it for your business
If you work with purchasing or sales, you will inevitably come across EDI transactions. Electronic Data Interchange, commonly shortened to EDI, is a standard format for exchanging business data.
EDI transactions are a type of electronic commerce that companies use for transactions such as when one company wants to electronically send a purchase order to another. EDI transactions were designed to be independent of the communications used by companies or the software technology that generates the EDI data.
EDI works based on standards which determine how each message should be formatted.
Four EDI standards exist: UN/EDIFACT, which is the only internationally-recognized standard, used mostly outside of North America; ANSI ASC X12, used within North America, TRADACOM, used by British retail companies, and ODETTE, which is used by European automakers.
The implementation of EDI is important for companies as it can significantly reduce the cost of sending documents.
EDI Costs Versus Benefits
A paper purchase order requires resources to print the document, fax it, or post it to the vendor. EDI automatically sends the electronic document to the vendor thus reducing the cost of sending the PO. Studies of the cost savings of implementing EDI have been performed, including a report from the Aberdeen group in 2008, which highlighted that in the US it cost $37.45 to produce and send a paper PO, while it only cost $23.83 to send it using EDI.
Not all companies use EDI. There is a cost to implement and maintain the technology required to perform EDI. Each trading partner that a company wants to use EDI with may require resources to set up and this can be cost-prohibitive for smaller companies or companies without technical resources.
Some companies who profess to use EDI may receive orders electronically but are unable to automatically load those orders into their sales systems. The EDI orders are printed out and manually entered into their computer systems.
This situation is common where companies have aging order systems that do not have the capability to accept or generate EDI orders.
EDI How It Works
There are a number of ways EDI messages are transmitted between trading partners. The most common method was to use a value-added network or VAN. This allowed companies to send a transmission which was then reviewed by the VAN and then sent to the correct recipient.
More recently a new method for EDI transmission is being used. This is called AS2, which stands for Applicability Statement 2, and was championed by Wal-Mart, who requires all of their vendors to use this method. Using AS2, the EDI documents are transmitted across the internet and the security of the document is achieved by encryption and the use of digital certificates.
There are dozens of EDI documents that can be implemented by a company and their trading partners. Under the ANSI ASC X12 standard, EDI documents are part of a series, for example, such as an order series, a warehousing series, or a financial series.
In addition, a number of series that relate to specific industries such as government, insurance, mortgage and automotive.
Many companies will only implement a small number of EDI documents with their trading partners, commonly in the ordering series, material handling series and the delivery series.
For example a company who is implementing EDI between themselves and a third party logistics company may only implement five EDI documents such as an EDI 940 for a warehouse shipping order, EDI 943 for a warehouse stock transfer shipment advice, EDI 944 for a warehouse stock transfer receipt advice, EDI 945 for a warehouse shipping advice, and EDI 947 for a warehouse inventory adjustment advice.
Frequently Used EDI Transactions In Supply Chain
753 Request for Routing Instructions
754 Routing Instructions
816 Organizational Relationships
818 Commission Sales Report
830 Planning Schedule w/ Release Capability
832 Price/Sales Catalog
840 Request for Quotation
841 Specifications/Technical Information
842 Nonconformance Report
843 Response to Request for Quotation
845 Price Authorization Acknowledgment/Status
846 Inventory Inquiry/Advice
847 Material Claim
848 Material Safety Data Sheet
850 Purchase Order
851 Asset Schedule
852 Product Activity Data
853 Routing and Carrier Instruction
855 Purchase Order Acknowledgment
856 Ship Notice/Manifest
857 Shipment and Billing Notice
860 Purchase Order Change Request – Buyer Initiated
861 Receiving Advice/Acceptance Certificate
862 Shipping Schedule
863 Report of Test Results
865 Purchase Order Change Acknowledgment/Request – Seller Initiated
866 Production Sequence
869 Order Status Inquiry
870 Order Status Report
873 Commodity Movement Services
874 Commodity Movement Services Response
878 Product Authorization/De-authorization
879 Price Information
882 Direct Store Delivery Summary Information
885 Retail Account Characteristics
888 Item Maintenance
889 Promotion Announcement
890 Contract & Rebate Management
893 Item Information Request
895 Delivery/Return Acknowledgment or Adjustment
940 Warehouse Shipping Order
943 Warehouse Stock Transfer Shipment Advice
944 Warehouse Stock Transfer Receipt Advice
945 Warehouse Shipping Advice
947 Warehouse Inventory Adjustment Advice