EDI, or Electronic Data Interchange, is a general term used to describe a framework for communicating a set of information between two business entities. The goal of EDI is to simplify and streamline the communication of this information by standardizing the required information into a common format between both businesses involved, to remove the need for the conversion of data from one format to another. Instead of having information and data in different data types, syntaxes, and terminologies, the promise of EDI is to provide highly structured, standardized data which is consistent everywhere.
In this blog post, we’ll discuss why EDI is so challenging to get right, some of the common terms you’ll need to know, and when it makes sense to consider pursuing EDI-based channels.
EDI - a Necessary Evil for Wholesale at Scale
For multichannel ecommerce merchants who are looking to scale, EDI becomes an essential piece of the puzzle as many large brick and mortar businesses require communication via EDI as a prerequisite for becoming a partner. This is common for businesses like Target, Nordstrom, Neiman Marcus, Saks Fifth Ave, Bass Pro Shops, and many more.
However, implementing EDI can be a challenging process. To start, the setup and configuration of an EDI based integration can be expensive and complex, requiring extensive testing. It typically requires a 3rd party intermediary to connect the Trading Partner to the Merchant, and an ongoing maintenance cost to provide support and any necessary updates to the integration. Additionally, it can require operational changes to certain workflows to satisfy Trading Partner requirements, such as a specific packaging configuration.
EDI was developed in the 1960s, during a pre-internet era. Whereas modern API based infrastructure is a flexible and scalable way of connecting two different systems in real time, EDI typically communicates information in batches and is very unforgiving when it comes to error handling. While there are companies in the industry that can help make the process of onboarding with EDI easier, the level of effort associated with this undertaking should not be underestimated.
A trading partner is the wholesale customer placing the order from the merchant, and the one accepting the orders from the end consumer.
EDI numbers, also known as EDI identifiers, are unique numbers that are assigned to EDI documents to identify them within an EDI network. The specific EDI number for a given document will depend on the EDI standard being used, as different standards may use different numbering schemes.
For example, in the ANSI X12 standard, EDI numbers are called "Transaction Set Identifiers" (TSIs) and are made up of a three-digit code that identifies the type of document. For example, the EDI number for a purchase order in the ANSI X12 standard would be 850, while the EDI number for an invoice would be 810.
850 - Purchase Order
- A document that is sent by a buyer to a seller, requesting the purchase of a specific product or service. The purchase order typically includes details about the item or service being purchased, the quantity, the price, and the delivery date.
855 - Purchase Order Acknowledgement
- Electronic purchase order response that is sent from a supplier to a buyer to confirm the receipt of an order. It can also be used to provide information regarding the status of an order, such as order acceptance or rejection.
856 - Advance Ship Notice (ASN)
- Used to communicate details about a shipment of goods, including the type and quantity of goods being shipped, the shipping method, and the tracking number.
810 - Invoice
- A document that is sent by a seller to a buyer, outlining the goods or services that have been provided and requesting payment. The invoice typically includes details about the items or services being billed, the quantity, the price, and the total amount due.
846 - Inventory Levels
- Sent by the supplier to the customer and provides details of the products and materials held in stock, along with their associated quantities.
Note that there are many other EDI documents, but these are the primary documents used in ecommerce wholesale relationships. Also, each Trading Partner can potentially have different requirements on which documents are needed.
When does EDI make sense?
To start, it’s important to understand that it’s possible to sell to big box retailers without an EDI integration by manually communicating the information in the required EDI format. Some technology partners will offer an EDI Web Portal to enable you to manually complete a form with the required information, which will then be sent via EDI to the trading partner. However, this will need to be done multiple times for each and every order, depending on the documents required. This is in contrast to an EDI integration, which automatically will create and transmit the appropriate EDI documents from your existing software without the need for manual intervention.
Depending on the volume you are expecting from this particular channel, it typically makes sense to start by manually communicating the information, until the channel has been proven to be a viable opportunity and one that the business would like to scale. At that time, it would make sense to invest in an EDI integration, which will automate the previously manual workflows. In the next article, we’ll be covering the different technology options in more detail.
However, this strategy becomes much harder to execute if you are operating a dropshipping model with the Trading Partner. This means that the Trading Partner would be accepting the order through their website, but would not be holding any inventory, and the responsibility of fulfilling the order falls to you. Note that Trading Partners will often have requirements around packaging, fulfillment times, carriers, etc that you will need to adhere to in order to be a dropshipping partner. That said, dropshipping is often a great way to start dipping your toes into the EDI and big box retailer world, as it is often easier to be accepted as a brand into a retailer via dropshipping, instead of them having to hold inventory on your behalf.
Regardless of the methodology you choose to communicate with the Trading Partner (manual or automated integration), it will require dedicated time and resources from your team in order to be able to successfully maintain this relationship. Because Trading Partners often have strict requirements around document communication, it’s critical to ensure that you have the appropriate resources available to maintain these EDI relationships before committing.
In summary, make sure you have the answers to these 3 critical questions before undertaking any EDI-based orders.
1. How are you fulfilling these orders? (Dropshipping or Wholesale?)
2. Do you have the team in place to manage these relationships and orders?
3. Do you have the technology and strategy in place to transmit the information necessary to the Trading Partner? (Integration or Manual)
Working with large retailers via an EDI-based relationship can be an incredible opportunity for any brand to expand their footprint, and get access to significantly more customers than would otherwise have been possible. That said, it’s important to understand the level of complexity and rigidity associated with using EDI, and the timeline and resources involved to implement and maintain an EDI integration. Because of that, it makes sense to consider starting with manually accepting and submitting EDI documents when testing a new wholesale channel, before diving into a full integration. To learn more about how Fulfil helps our merchants go live with EDI integrations in the fastest and easiest way possible, book a demo with our team!