EDI Explained: Benefits, Compliance, and Getting Started with EDI Solutions

EDI (electronic data interchange) is the hidden force driving efficient business communication. It's everywhere, enhancing transactions across industries. While the term might seem complex, EDI is actually simpler than it sounds. Whether you're exploring its benefits or need to meet a new partner’s EDI requirements, you're in the right place.

What Is EDI?

At its core, EDI is a digital method for exchanging business documents between computers. Imagine it as a high-tech upgrade to traditional mail or faxes. Instead of waiting days for a document to arrive, EDI allows businesses to exchange documents instantly and securely.

Different industries use various standards to format these documents. Whether it's purchase orders or invoices, EDI ensures everything is encrypted during transmission and decoded by EDI software upon arrival. It’s a 24/7 digital mailroom that keeps your business running smoothly.

How Does EDI Work?

Let’s compare the traditional and modern ways of handling a purchase order.

The Old Way

1. A buyer prepares a purchase order, prints it, and mails or faxes it to the supplier.
2. After several days, the supplier receives the order and manually enters it into their system.
3. The supplier might then send an acknowledgment back by mail or phone.

This method is slow, prone to human error, and labor-intensive.

The EDI Way

1. The buyer creates an electronic purchase order, which their EDI software converts into an EDI document.
2. This document is sent via the internet or a VAN (value-added network).
3. The supplier’s EDI software receives and processes the document, updating their system automatically.
4. An acknowledgment is sent back almost instantly.

What used to take days now happens in minutes, with fewer chances for mistakes.

The Benefits of EDI

EDI is more than just a speed booster; it’s a game-changer for cost savings and efficiency. By eliminating paper-based processes, businesses can save about 35% on transaction costs. EDI speeds up business cycles by up to 61% and reduces cash-to-order cycle times by 20%. Additionally, it cuts down human errors by up to 40%.

Beyond savings, EDI helps maintain smooth inventory levels, optimize warehouse space, and streamline supply chain management. Many companies require EDI for business transactions, underscoring its value.

How to Get Started with EDI

You have two main options for implementing EDI: setting up an in-house system or outsourcing to an EDI service provider.

How to Become EDI Capable with an In-House Solution

Being “EDI capable” means effectively sending and receiving EDI documents. If you choose an in-house setup, here’s what you need to do.

1. Acquire and Set Up Hardware: Invest in servers, computers, and communication devices.
2. Install EDI Software: Implement software for sending, receiving, storing, mapping, and translating EDI documents.
3. Ensure Data Security: Create a secure environment with monitored security to protect EDI data.
4. Configure Data Backups: Set up automatic backups and redundant power for reliability.
5. Integrate with Existing Systems (Optional): Install software to integrate EDI data with current systems.
6. Contract a VAN: Engage a VAN for ongoing EDI transactions.
7. Build a Skilled Team: Hire and train staff to manage and maintain your EDI infrastructure.
8. Develop Document Maps: Create mappings for each EDI document type.

Setting up an in-house EDI system is resource-intensive and complex, but it offers complete control over your EDI processes.

How to Become EDI Compliant

Now that you’re EDI capable, the next step is compliance. To exchange EDI data with your trading partners, you must meet specific requirements. These requirements vary by industry, and major companies like Amazon, Costco, and Walmart have stringent standards.

While many companies prefer VANs for their security and accessibility, some trading partners might require alternative methods such as FTP or AS2, which need additional hardware and software.

You’ll likely need extra EDI mapping to align with your trading partner’s protocols. Many companies provide guidelines for compliance, but setting everything up and running tests can be daunting at first. With time and experience, it becomes easier to manage.

Outsourcing EDI

If managing all the technical details isn’t appealing, consider outsourcing your EDI needs. An EDI service provider handles setup, compliance, and ongoing management, letting you focus on your business.

Why Outsource EDI?

Outsourcing to a provider like Nexus VAN means you skip the technical complexities. With over three decades of experience, our team manages everything for you, from compliance to document exchange. No specialized knowledge or equipment is needed — just an internet connection. Plus, outsourcing is often more cost-effective than maintaining an in-house system.

Ready to streamline your EDI processes and save time and money? Reach out to us and let’s get started!

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