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EDI Defined – What is EDI?
The Electronic Data Interchange (EDI) protocol allows businesses to exchange data and documents digitally. It is one of the many B2B automation protocols developed over the last 50 years to streamline and automate communication between businesses. EDI is widely used across industries including finance, retail, automotive, and technology to add more automation and scalability into modern B2B processes.
Although EDI is used to exchange many different types of documents, it’s most commonly used for procurement and supply chain communication. Businesses that use EDI-integrated software can exchange documents that include purchase orders, sales catalogs, invoices, and advanced shipping notices.
Sending these documents through EDI creates fewer delays, less paperwork, and less manual data entry, allowing both buyers and suppliers to achieve their eProcurement goals.
Whether you’re a buyer or supplier looking to improve your processes, it’s worth taking a deep dive into EDI to explore why it was developed, how it works, and how EDI compares to and can be integrated with modern PunchOut catalog systems.
Why Was EDI Developed?
EDI was first developed in the late 1960s in the U.S. transportation industry, before seeing wide adoption in the automotive and retail industry throughout the 1970s.
Traditional ad-hoc document exchange methods incur substantial time, complexity, and financial costs. Quotes, orders, invoices, and other documents were once communicated on paper or, more recently, as PDF documents in email attachments. Both methods are slow and error-prone. They provide little visibility into procurement data and make procurement accountability a huge challenge.
As businesses began to adopt software procurement, enterprise resource planning, and order management systems, they sought a method to integrate them to exchange documents electronically. For example, buyers wanted to integrate sellers’ catalog data with their procurement software. Absorbing lessons learned in military procurement, which was ahead of the curve with procurement integration, EDI was created to provide an open standard that any business could use to exchange documents internally and with other companies.
How Does EDI Work?
As an older protocol, EDI was not designed to work over the internet. Instead, it uses point-to-point network connections; businesses implemented direct connections between their networks, which then used the standardized EDI protocol to exchange documents. So although it’s possible to adapt EDI, the setup is more complex and more complicated to map so that buyer and supplier systems “talk” to each other.
A benefit of EDI is it mandated the protocol and contents of each document, which is referred to as a transaction set. For example, purchase orders use the EDI 850 transaction set, which includes a purchase order number, vendor number, billing information, item details, and other information. There are dozens of transaction sets to communicate a wide variety of documents.
In this example, we’ve discussed a single EDI standard, but in actuality, there are several hundred standards and sub-standards in use today across the world, including the ANSI ASC X12, UN/EDIFACT, RosettaNet, and EANCOM standards, as well as specialist standards for the financial (SWIFT) and healthcare (HIPAA EDI) industries
Is EDI Still Used?
EDI was first released half a century ago, and in 2021 there are many more modern alternatives. But for many years, EDI was the best integration solution available. It was widely adopted and led to the growth of the Value Added Network (VAN) market, which provided secure B2B communications for EDI. To this day, EDI remains the bedrock of integration and automation for thousands of businesses.
What are the Advantages of EDI?
When EDI was first introduced, it was a huge improvement on earlier manual document exchange systems. It allowed businesses to integrate their software platforms and automate systems that were traditionally labor-intensive and expensive.
The advantages of EDI include:
- Accelerating business processes through automation.
- Reducing errors caused by manual data entry and rekeying.
- Improving the quality of data available to businesses on both sides of the transaction.
- Ensuring that businesses immediately have the information they need to make decisions, instead of the multiple day or week delays inherent in manual systems.
- Empowering businesses and other organizations to streamline operations, reduce processing costs, and access information that enabled further optimizations.
These benefits are still widely recognized, which is why EDI is still used by thousands of businesses even though it’s been five decades since it was first introduced.
What are the Disadvantages of EDI?
As we’ve already mentioned, EDI was introduced before the internet became widespread and decades before the web was invented. Over the years, it has been updated with more modern capabilities, such as web EDI, but EDI systems are still not as flexible, timely, or easy to implement as modern systems such as cXML-based PunchOut catalogs.
EDI disadvantages include:
- Cost: EDI systems are prohibitively expensive compared to alternative document exchange technologies, which is the primary reason that EDI is not often used by small and medium businesses. It is used almost exclusively by large businesses and corporations.
- Multiple EDI Standards: There are many different versions of the EDI standard created by various standards bodies. Organizations that want to integrate with vendors or customers with an EDI system often encounter compatibility issues, which further increase the complexity and expense of integration projects.
- Evolving Standards: EDI is an evolving set of standards; it changes over time, compounding compatibility problems and the expense of supporting integrations.
EDI vs. PunchOut Catalogs
PunchOut catalogs, sales order automation, and electronic invoicing (eInvoicing) provide a subset of EDI’s features tailored for B2B procurement. PunchOut catalogs allow buyers to access supplier catalogs from their eProcurement platform and facilitates the exchange of procurement documents. However, that’s where the similarity ends.
PunchOut and related B2B automation systems are designed for the modern business environment. They do not rely on point-to-point connections between seller and buyer but implement secure communications over the internet. PunchOut catalogs rely on eCommerce integration, which provides a dynamic and user-friendly procurement experience in contrast to EDI’s static catalogs and limited functionality.
Like EDI, there are several different PunchOut catalog protocols and document formats. They include cXML, OBI, OCI, REST APIs, and more. Because there are so many incompatible formats in use, PunchOut suffers from some of the same integration frustrations as EDI. B2B buyers and suppliers are often challenged to integrate with an organization that uses an incompatible platform. Of course, PunchOut catalogs are not compatible with EDI systems either, creating similar challenges for PunchOut-EDI integration projects.
Integrating EDI and PunchOut Catalogs
To ease the process of system mapping and integration for both buyers and suppliers, TradeCentric is a universal integration solution for PunchOut catalogs, sales order automation, eInvoicing, and advanced shipping notifications (ASNs). The TradeCentric Integration Platform as a Service offers two-way translation for EDI, cXML, OBI, OCI, REST APIs, and more. Via TradeCentric, any eCommerce store can integrate with any eProcurement or enterprise resource planning platform.
If you are interested in discovering the value that TradeCentric can drive for your business, contact us below.