What Is Electronic Data Interchange (EDI)?
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In a fast-paced world where speed is key, e-commerce businesses and retailers are constantly looking for ways to speed up fulfillment processes. If you can get orders from the manufacturer or distributor through your supply chain and out to customers in a fast and efficient manner, you can increase customer satisfaction and your profit margins.
Electronic data interchange (EDI) can help to speed up your processes using digital communications and completing transactions through a standard electronic format.
What Is EDI?
Short for electronic data interchange, EDI combines both systems and processes to allow for the transmission of communications and transactions through an electronic format. EDI can reduce or even eliminate the need for paper documents, manual processing, and data entry.
With data being exchanged electronically, there is less room for error or for things to get “stuck” or lost in the system. With EDI, retailers can send digital purchase orders to vendors electronically instead of faxing a paper copy, for example. EDI can help to protect against fraud, improper documentation, and potentially costly human errors.
EDI implementation can standardize and exchange a variety of business documents, including the following:
- Purchase orders (POs)
- Changes to purchase orders
- Purchase order acknowledgments
- Credit adjustments
- Inventory inquiries
- Advanced ship notices
- Quote requests
- Loan applications
EDI in the Retail Supply Chain
EDI can work to streamline many of the processes in the retail supply chain, automating systems and using electronic communications. This saves time and helps to elevate profit margins.
An EDI transaction moves information from a computer application within an organization to a computer application in a different organization, allowing for data to be shared quickly and eliminating the chance of paper documentation being lost in transit or manually entering into the system incorrectly.
EDI benefits both customers and e-commerce businesses. On the consumer side, EDI can help to move customer orders through to fulfillment. EDI can offer improved communications regarding inventory to reduce the rate of stockouts and backorders, which can delay shipments and lead to customer dissatisfaction. EDI can push orders through faster and with more accuracy for a positive customer experience.
On the business side, EDI can improve inventory management for suppliers, manufacturers, distributors, brands, and retailers, allowing for rapid communication and the electronic exchange of data. This can shorten lead time and increase connectivity between departments and systems within an organization and between different organizations, such as the retailer and the manufacturer. This can help increase efficiency and save time and money.
Advantages of Full EDI Integration
EDI is vital to B2B (business to business) processes. EDI solutions can range from more basic systems and processes that can require separate web portals to enter business documents to fully integrated EDI systems that are able to connect directly to other systems. EDI can allow cross-channel visibility, breaking down the silos between different departmental systems to enable easy communication between these departments.
Fully integrated EDI systems can be connected to your shipping programs, accounting software, CRM (customer relationship management) system, WMS (warehouse management system), ERP (enterprise resource planning) software, and e-commerce modules.
These are some of the key benefits of EDI technology through B2B integration and automation:
- Improved efficiency, productivity, and accuracy by sharing business documents electronically
- Saved time and money with automation of manual processes
- Improved reporting and traceability with integration into IT systems supporting data collection and analysis
- Reduced data transfer errors with rigid standardization
- Enhanced customer experience through efficient transaction execution and fast and reliable order delivery
EDI Implementation Solutions
Just as there is a range of EDI solutions, there are also different ways to implement them. There are three main EDI implementation solutions: traditional in-house EDI, online EDI solutions, and cloud-based EDI solutions.
Traditional In-House EDI
This EDI solution is housed on site at the business and is typically implemented yourself. This can require some hefty upfront costs related to staffing, hardware, software, and additional resources. Costs can drop after the initial implementation; however, it can also often need to be scaled up with business growth and regularly updated.
Online EDI Solutions
These systems are housed online and often accessed through an online portal like an app or a web browser. An online EDI solution can often be more cost-effective than a traditional in-house EDI department for smaller companies and startups. They are often not able to fully integrate with other systems, however, meaning that there will still be some manual data entry.
As your business grows, it can be easy to outgrow an online EDI solution. These solutions also require an investment in online resources to ensure that your existing network can support the data flow.
Cloud-Based EDI Solutions
With a cloud-based EDI solution, a cloud EDI provider will maintain the hardware, network, software, upgrades, and compliance requirements for you. They can maintain your EDI systems and processes for you as well.
This can have some upfront costs and typically a monthly subscription fee as well, but it can save costs related to infrastructure and staffing required for a traditional EDI solution. Cloud-based EDI solutions are also highly scalable and can evolve with your business needs.
Why EDI for E-Commerce Businesses?
EDI solutions can streamline your retail supply chain and directly impact your bottom line, increasing customer satisfaction and ensuring that data is entered correctly. EDI solutions ensure swift communication and data transfers while replacing the need for paper documents and manual data entry.
Some additional reasons to consider investing in an EDI solution include the following:
- Accurate and consistent data collection, entry, and transmission: EDI automation can help to eliminate system silos and manual processes. This can, in turn, remove the potential for keystroke errors, which can be compounded with multiple data transfers.
With EDI solutions, you can easily and quickly collect more data. More data means more insights into your business and business needs, which can provide enhanced forecasting. EDI can also connect all of your vital business systems and allow them to more easily communicate with each other.
- Provides an omnichannel approach: As the retail and retail supply chain evolves, new sales channels are often created to stay in front of customers. These new sales channels are often siloed from older sales channels, meaning that they often cannot “talk” to each other.
This can mean that you are unable to fulfill an order on one sales channel since you sold out of the product on a different channel. EDI solutions can integrate these sales channels. As your company grows, this becomes even more vital to lower the risk of overselling product and frustrating customers. - Better control and regulation over inventory: An EDI solution can help you keep better track of your inventory, which reduces the potential for inventory surpluses and stockouts. The EDI solution helps to accurately monitor inventory as well as enhance your business forecasting to ensure that you know exactly what your inventory needs are.
EDI can also add scalability to your business. It can better help with spikes in sales and keep a closer eye on assets and resources. - Enhances your value as a business partner: E-commerce businesses often collaborate with multiple other organizations — from manufacturers to distributors to vendors. EDI solutions can keep the retail supply chain moving efficiently and effectively through all of these partners.
An EDI solution can help to keep your systems current and working well with other organizations. Big brands and larger retailers often insist on their business partners using EDI.
Ultimately, an EDI solution can open the door for your business to more easily partner with other organizations.
