What is Electronic Data Interchange (EDI)?

Originally published June 7, 2022

According to Fortune Business Insights, the Electronic Data Interchange (EDI) market is growing steadily around the world, with its global value projected to hit $4B by 2029. This isn’t surprising—EDI plays a critical role in facilitating the seamless omnichannel experience that today’s customers expect.

For those in the infancy stages of looking into an EDI solution, we’ve compiled answers to some of the most commonly asked questions about leveraging EDI systems for your business operations to minimize manual data entry, streamline business processes, and enhance efficiency.

What is EDI?

Electronic data interchange (EDI) is a common protocol for information sharing between a supplier and a retailer selling that supplier’s products. In the context of business, EDI systems automate the translation of the data into a standardized format during data exchange between the two parties.

An EDI system facilitates the computer-to-computer exchange of electronic documents, ensuring quicker and more efficient business transactions and enhancing overall data exchange.

How does EDI work?

Exchanging data via EDI involves three main components: document standardization, data mapping, and data transmission.

EDI Documents

EDI documents are the standardized digital versions of common business documents. These standardized document types ensure that the data transferred between businesses is accurate, even if they structure their internal data differently. For example, EDI 850 is the standard format for Purchase Orders—if one company labels a field as “Item ID” and another calls it “Product Code,” the standardized EDI format maps both to the correct place so that it’s easily understood by both sides of the transaction.

The most frequently exchanged EDI documents include purchase orders and acknowledgments, invoices, product activity data, advance ship notices, and other business transactions.

See a complete list of EDI document types

Data Mapping & Transformation

The process of converting a business’ internal data into a standardized EDI document is called data mapping. Information from internal systems, like ERPs and accounting tools, is matched to the corresponding field in the appropriate EDI format, based on predefined rules. Depending on the EDI software being used, these rules can be configured through visual mapping tools, scripts, or prebuilt templates.

Data mapping doesn’t just involve moving data around—EDI systems also transform the data, changing how things like dates and product codes are formatted to match EDI standards.

Data Transmission

Once the data is reformatted, the last step is sending the EDI document to its destination. Because EDI documents can contain sensitive business and customer information, they’re transmitted using secure communication protocols like AS2, SFTP, or VAN.

The recipient’s EDI system automatically processes the document, checks for errors, and responds to acknowledge that it was delivered successfully.

Example EDI System Workflow

A common EDI system workflow may look like this:

1. A retailer sends your company an EDI purchase order (PO) which goes into your ERP/accounting computer systems.
2. You respond with an EDI acknowledgment, letting the retailer know that the purchase order will be fulfilled.
3. You send an EDI advance shipping notice (ASN) containing information about what will be sent, when, by whom, and more.
4. Your shipping department packs the product in containers or palettes depending on how the vendor/retailer wants you to ship the product and to where.
5. You send an EDI invoice to the retailer, further reducing the necessity for manual data entry and replacing traditional paper documents.
6. The retailer’s accounting team will generate and send you an EDI remittance advice document.

What Are the Benefits of EDI?

With EDI, back-and-forth transactions between retailers and suppliers happen electronically. That means Costco can track purchase orders, ASNs, invoices, and inventory—all without calling your warehouse. The ability to exchange documents via EDI comes with a wide range of benefits, including:

• Eliminating the need for paper documents and manual data entry
• Boosting efficiency through transaction automation and the exchange of business documents
• Lowering the cost per document by 90% compared to manual processing
• Decreasing overall business transaction costs by up to 35%
• Reducing transactional error by up to 40%
• Speeding order-to-cash cycle time by more than 20%

Ebook: The Complete Guide to EDI

Want to learn more about how modern businesses use EDI? Download our free Ebook, The Complete Guide to EDI, to learn:

• Why EDI is still the foundation of commerce, even after 40 years
• What a typical EDI transaction looks like, step by step
• The most common challenges faced in deploying EDI
• How Jitterbit delivers an industry-leading EDI experience
• And more

Get the Complete Guide to EDI

Getting Started with EDI

Jitterbit EDI provides a single platform for setting up and managing trading partners and transactions. With nearly two decades of retail experience, we’ve worked with vendors and suppliers of all sizes across a variety of industries. Our value-added network (VAN) houses thousands of trading partners, including Amazon, Target, Walmart, and more. Other benefits of Jitterbit EDI integration solutions include:

Automated bi-directional data flow.

Our enterprise-grade integration platform sends data bi-directionally between your trading partners and your back-office ERP or accounting system, saving you time while helping you comply with strict retail EDI standards and requirements.

Worry-free connections across platforms.

Our cloud-based EDI solution can easily connect e-commerce, CRM, and other business-critical systems to your existing integration stack.

Flexible, future-proofed integration.

Whether it’s e-commerce orders, electronic data interchange, EDI documents, or CRM updates, our platform processes data elements with ease, eliminating the need for manual data entry. When you need to add a new business system or EDI retailer, your integrated EDI solution is ready to scale.