What is EDI?

Electronic Data Interchange – or EDI – is an important piece of day-to-day business-to-business communication. It has accelerated the exchange of data between businesses, improved information flow, and reduced errors. But what is EDI, really? Where did it come from? What is it used for? And what are the challenges businesses face with EDI?

What is EDI?

EDI is a concept. That concept defines the transfer of data between businesses using electronic means. The data exchange can go either way. The businesses participating in the exchange are known as trading partners.

However, it’s important to understand that not every exchange of data between two businesses, even two trading partners, is EDI. For instance, an email with data in it isn’t EDI, but it could be.

That’s because EDI is specifically for businesses to trade data using defined standards and agreed upon formatting for the messages. So, emailing a purchase order to a vendor isn’t EDI. But sending a purchase order via EDI in a specified format and using EDI tools is.

That may seem a bit confusing. Just remember that EDI itself encompasses not only the process, but the messages, a group of standards, and the software and tools used for the transfer of that structured data.

One more important point about EDI – these communications are defined as the transfer of data in structured files from computer to computer, without a human interceding. Or, said another way, EDI as it was intended doesn’t require a human to take the information from one partner and enter it into a system for another partner.

Unfortunately, as we’ll see, EDI requires a lot more human intervention than the definition implies.

The History of EDI

EDI came out of a need from logistics to transfer large amounts of data relatively quickly. Unsurprisingly, it was events like the Berlin Airlift during World War II that inspired the creation of a standard for communicating data electronically.

By the late 1960s, companies had the same need for digital communication in logistics that the military had discovered a few decades before. The idea for EDI was developed and put into practice in 1968 and was quickly adopted by groceries and the automobile industry.

Over time, EDI has evolved from its initial uses to become the backbone of B2B commerce. Multiple standard formats have been developed to address the data exchange needs of various industries and localities, such as HL7 for healthcare and X12 for U.S. data exchange versus EDIFACT for primarily European communications.

What is EDI Used For?

The short answer to that question is “nearly everything”. While primarily used as a means of exchanging purchase orders and invoices, EDI’s usefulness for data exchange doesn’t stop there.

For logistics, EDI messages can include shipment notifications, bills of lading, booking requests, and so on.

For finance, in addition to invoicing, these messages can include notifications of payments made and received and credit and debit memos.

Retailers, including grocers, use EDI communications to report receipt of shipments, return acknowledgements, while suppliers can provide quotes, price sheets, catalogs, and current and projected inventory levels.

These are just a few examples of EDI’s usage today. Anywhere where two companies need to exchange data, EDI can provide the means to do so.

Today’s EDI Challenges

The idea of EDI – accelerated data exchange with improved accuracy – solved any number of issues for organizations working together. But, as you’d expect, new challenges have formed around this fifty-year-old standard. As EDI communications continue to grow – Forrester Research estimates the volume EDI transactions, globally, to be in excess of 20 billion a year. And growing.

The message formats that fall under EDI are standards. However, those standard messages can be modified to meet the needs of the trading partners involved. That means that the EDI message format may change from trading partner to trading partner.

Complicating that, IT teams usually only have a few analysts familiar with configuring and testing these messages. Requests for adding new partners or updating existing message formats can be delayed by in the request queue.

Plus, trading partners must also take part in configuring and testing messages to make sure there are no errors in data transfer and receiving. This puts both onboarding testing and troubleshooting a coordination effort between a company’s internal IT teams and those managing the EDI messages on the partner’s end.

This can lead to frustration and friction between the business and IT. As the business tries to move faster to keep up with the demands of customers and the pressures of competitors, they are held back by the capacity of the team doing the implementation.

Because of the ubiquitous nature of EDI communications, companies must learn to address and remedy these issues to stay current. Many companies are already undertaking digital transformation initiatives, moving to architectures that are more flexible and re-usable.

Trading partner messaging with EDI is the perfect candidate for digital transformation. Combining new technology, like self-service interfaces and reusable API connections, with the tried-and-true standards of EDI, leads to faster onboarding and smoother business operations with partners.

PortX address today’s challenges using EDI with user-friendly, self-service interfaces, rapid onboarding and testing, and partner tools. Let’s start a conversation on how PortX can help you transform your B2B communications.