EDI integration is like setting up a direct line of communication between the computer systems of different organizations. It allows them to automatically exchange important messages, like purchase orders or invoices, without the need for manual steps.
Once the integration is in place, the business systems can talk to each other using a common language agreed upon for EDI. This is much faster and more efficient than traditional methods like sending messages via email or mail, as there is no waiting or manual processing involved.
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How EDI Integrations Work: A Step-by-Step Guide
Electronic Data Interchange (EDI) streamlines the way you handle paperwork, replacing paper documents with a seamless electronic exchange of business documents between companies, even if they use different internal systems.
Here’s how it can work for you:
Document Generation
- You generate electronic documents using information from your systems, spreadsheets, or other business transactions.
- These documents follow standardized EDI formats known as transaction codes.
Data Translation and Integration
- When you receive documents from partners (e.g., suppliers or retailers), the EDI solution translates or “maps” the data into a format your systems can understand.
- With integrated EDI, data flows directly into your ERP system, eliminating manual checking or retyping.
- Automation generates responses and triggers workflows across departments.
Regulatory Compliance
- EDI helps you comply with regulations set by retailers and distributors.
- It ensures that every document you send contains all necessary data in the correct format, saving significant time.
Provider and Solution Variety
- Different EDI service providers offer various EDI networks and systems for handling the exchange of electronic documents.
- Types of EDI solutions include web portals, direct EDI, and fully integrated EDI.
So, there are mainly five steps involved in the EDI integration process
Step 1: The process begins as a sender exports an electronic business document from an in-house system or application. An example could be a purchase order intended for buying goods or services.
Step 2: The exported business document undergoes a crucial transformation. It is converted from the in-house computer system into the required standard electronic format. This transformation is facilitated through data transformation mapping software or any of the various EDI translators.
Step 3: Subsequently, the EDI business document goes through another layer of processing. EDI conversion software is employed to ensure its structural accuracy based on the agreed-upon EDI standards currently in place.
Step 4: The data from the finalized EDI document is then transmitted to middleware via a secure communication protocol such as SFTP, HTTPS, or AS2.
This EDI transmission can be integrated into the same validation software, or another application, or directly sent to the client through a secure connection over similar protocols.
Step 5: In scenarios like Direct EDI over AS2, a secure connection is established between two different businesses. This allows enterprises to connect to trading partners without incurring document fees, providing real-time communication capabilities.
The receiving party undergoes a process where it receives the file, verifies credentials, authenticates the source, and decrypts the file for ingestion into its systems. Additionally, a message disposition notice (MDN) is sent back to acknowledge the successful delivery.
Also read: EDI Integration with ERP Explained [+ Types, Benefits & Challenges]
EDI Integration Approaches: In-House vs. Outsourced
Organizations can choose from the following approaches. Also, they could go for a blended approach, utilizing both together. Find out which one would be the best choice for your business.
In-House EDI
The organization manages its EDI processes internally, handling setup, maintenance, data translation, EDI mapping, and support.
Pros of In-House EDI
Greater Control and Agility: Complete control over the EDI system, allowing agility in managing updates, onboarding, etc.
Greater Visibility: Comprehensive view of all aspects of EDI technology, facilitating informed decision-making.
Cons of In-House EDI
Greater Responsibility: Increased responsibility for managing and ensuring the success of the EDI system.
Greater Workload: Potential need to hire additional staff, increasing workload and costs.
Reliance on Internal Expertise: Dependency on internal expertise may pose challenges in addressing new or unusual scenarios.
In-House EDI Costs Includes
- Ongoing software licensing
- Infrastructure/technology costs
- Internal staffing and hiring
Outsourced EDI
An external provider manages technical aspects like system setup, maintenance, data translation, communication, and mapping, along with providing support.
Pros of Outsourced EDI
Access to Experts: EDI service providers are specialists, ensuring up-to-date knowledge and efficient problem resolution.
Management & Support: Some providers offer 24/7 support, aiding in addressing issues promptly and maintaining system uptime.
Resource Allocation: All EDI tasks are managed externally, allowing the organization to focus on core business strategy.
Cons of Outsourced EDI
Lack of Control and Agility: Reliance on a third party can limit control, making the company dependent on the provider’s schedule.
Lack of Visibility: Reduced visibility as the organization relies on the provider for updates on EDI performance and issues.
Switching Providers: Changing EDI providers can be expensive and time-consuming.
Outsourced EDI Cost Includes
- Service and maintenance fees
- Usage metrics (e.g., number of documents sent)
- Onboarding new trading partners
- Switching providers (if unsatisfied)
Costs vary based on factors like system size, complexity, and the chosen management approach (in-house or outsourced).
Also read: Microsoft Dynamics 365 EDI Integration Explained
Types of EDI Integration
There are mainly three types of EDI integrations that offer businesses various options to streamline communication with partners, depending on their specific needs and partners’ capabilities. Here are the following:
Direct EDI Integration
Direct EDI integration, also called point-to-point EDI, involves a direct connection between your ERP system (enterprise resource planning)and your business partners using a specific protocol. This method is suitable for large corporations with many connections, but it can be complex to manage without standardized protocols.
Indirect EDI Integration
Indirect EDI integration works through a third party like an EDI broker or a value-added network (VAN). Your ERP system sends messages to the broker, who then forwards them in various formats to your partners. This method simplifies communication and is helpful when partners have different formatting preferences.
Hybrid EDI Integration
a. For Partners Already on EDI
Hybrid EDI integration combines both direct and indirect methods. It allows you to exchange messages directly with some partners while using intermediaries for others, offering flexibility in integration.
b. For Non-EDI Customers
This version of hybrid integration utilizes non-EDI communication methods, such as email with attached documents like PDFs or Excel sheets, to connect with partners who are not familiar with EDI. The intermediary translates these non-EDI messages into the appropriate format for your ERP system, facilitating digital communication even with non-EDI-capable partners.
Also read: B2B EDI Integration Explained [+Top Solution for Distributors]
EDI Protocols and Standards
EDI Protocols
EDI protocols are the methods used to send information from one computer system to another in a standardized way. These methods make sure that the exchange of business documents, like orders or invoices, is smooth and secure between companies.
Common EDI Protocols
FTP (File Transfer Protocol)
- Used for transferring files between computers over the internet.
AS2, AS3, AS4 (Applicability Statement 2/3/4)
- These protocols require messages to be transmitted through an AS server and received by another AS server.
- The destination server must accept receipt of documents from the specific source server.
- Both servers operate based on specific rules, including sending and acceptance messages before document transmission.
- They also require confirmation of receipt when the document arrives at the destination server.
OFTP2 (Odette File Transfer Protocol 2)
- Developed in 2010, OFDM2 offers greater flexibility and power of communication.
- Features include an increased capacity for data compression, SSL/TLS-based communication security management, and support for managing large files—those that are over 500 GB.
- OFTP2 communications require both sending and receiving servers to use the same protocol and need careful configuration and management.
HTTP/HTTPS (Hypertext Transfer Protocol/Secure)
- Often used for web-based transactions, HTTP constitutes a simple method for completing person-to-server and person-to-person file transfers.
- HTTP resources can be easily located on the network through URLs (Uniform Resource Identifiers), making it user-friendly and widely accessible.
SFTP (Secure File Transfer Protocol)
- A secure version of FTP that adds a layer of protection for data being transferred.
EDI Standards
EDI standards are rules that define how business documents, like orders or invoices, should be formatted and structured when exchanged between different computer systems. These standards ensure that the information is consistent and accurate, making it easy for different companies to understand and process the data, no matter what software they use.
Common EDI Standards
UN/EDIFACT (United Nations/Electronic Data Interchange for Administration, Commerce and Transport)
- Developed by the United Nations in the 1980s by the Working Party 4 group.
- It is a multi-country and multi-industry EDI language widely used in Europe, especially in the retail sector—the first industry to adopt it.
- Its use has spread to other areas such as healthcare, logistics and transportation, and construction.
ANSI ASC X12
- Created by the American National Standards Institute (ANSI) in the late 1970s.
- Developed by the Accredited Standards Committee (ASC) to provide a uniform messaging standard for North American companies.
- Although initially designed for North America, it is now used worldwide and implemented in nearly any EDI solution.
ODETTE (Organization for Data Exchange by Tele Transmission in Europe)
- Represents the interests of the automotive industry in Europe.
- Develops tools to improve the flow of products and supplies in the automotive value chain.
- Responsible for the ODETTE messaging standard and specific communication protocols such as OFTP.
EDI Software Requirements: Key Features for Evaluation
Here are the key factors to evaluate before choosing an EDI service provider:
1. Document Management
Requirement: Handle various document types, converting and securely transmitting them.
Considerations: File formats compatibility, handling multiple document uploads, data archival, recovery, version control, and predefined templates.
2. EDI Protocols and Standards
Requirement: Support industry-standard protocols (AS2, FTP/sFTP, HTTPS) and EDI standards (ASC X12, EDIFACT, Tradacoms, XML).
Considerations: Compatibility with partners’ protocols and standards, EDI compliance, and support for multiple EDI document types.
3. EDI Transaction and Community Management
Requirement: Identify trends, prevent duplicate entries, and notify of transfer failures.
Considerations: Document tracking, searching, transaction and community management features, message logs, partner onboarding, and web portal capabilities.
4. EDI Translation and Mapping
Requirement: Translate data into various formats, integrate with ERP and accounting solutions, and automate processes.
Considerations: Automated acknowledgment generation, data mapping, XML to EDI translation, validation rules, workflow automation, and support for EDI XML.
5. Integrations and Extensibility
Requirement: Integrate seamlessly with other software, enhance informational consistency, and reduce errors.
Considerations: APIs, LDAP for Active Directory access, integration with 3PL, WMS, OMS, IMS, CRM, databases, ecommerce platforms, ERP, finance, and accounting systems.
6. Platform Capabilities and Security
Requirement: Offer robust reporting, business intelligence, and secure data handling.
Considerations: Customizable reports, dashboards, data masking, encryption in transit and at-rest, compliance with FIPS 140-2, GDPR, ISO, and MIC algorithms (SHA1 and MD5).
Ensure that the selected EDI software aligns with your business functions, provides necessary features for smooth operations, and supports future scalability. Consider customer reviews and sentiments for insights into product reliability and support effectiveness.
Also read: 6 Best EDI Integration Tools [+Top Choice for Distributors]
Benefits of EDI Integration
- Faster Transactions: Integration enables real-time exchange of information between trading partners, leading to faster order fulfillment, payment processing, and overall transaction cycles.
- Streamlined Processes: EDI integrations automate manual tasks such as order processing, invoicing, and document handling, leading to increased efficiency and reduced processing times.
- Cost Savings: With streamlined processes and reduced manual intervention, EDI integration helps lower operational costs associated with paper-based transactions, such as printing, mailing, and data entry.
- Improved Accuracy: By eliminating manual data entry and the associated human errors, EDI integrations ensure that information is transferred accurately between systems, maintaining high data quality and reducing the risk of errors and discrepancies.
- Enhanced Visibility: By providing real-time access to transaction data, EDI integrations offer improved visibility into supply chain activities, inventory levels, and order statuses, enabling better decision-making and proactive management.
- Increased Customer Satisfaction: Faster order processing, accurate invoicing, and improved communication with trading partners result in enhanced customer service and loyalty.
- Scalability and Flexibility: Integrated EDI systems are scalable and adaptable to accommodate business growth and changing market demands, providing flexibility to meet evolving business needs.
- Competitive Advantage: By leveraging EDI integrations, businesses can differentiate themselves by offering faster, more efficient, and error-free transactions compared to competitors still relying on manual processes.
Best EDI Integration Tool for Distributors – DCKAP Integrator
DCKAP Integrator is a cloud-based integration platform that plays a crucial role in enhancing the seamless integration of Electronic Data Interchange (EDI) by offering several valuable advantages.
One notable feature of DCKAP Integrator is its ability to facilitate both EDI and API integration, making it highly versatile. Even for custom applications that lack APIs, DCKAP Integrator is proficient in executing EDI integration, showcasing its adaptability and usefulness.
Here are a few more benefits that you can get with DCKAP Integrator
Enhanced Data Accuracy
DCKAP Integrator automates the transmission of EDI data to your trading partners and seamlessly integrates it into your ERP system.
By eliminating the need for manual data entry, which is prone to errors, DCKAP Integrator ensures data accuracy. This automation helps maintain compliance with EDI standards and reduces costly mistakes.
Accelerated Business Cycles
DCKAP Integrator allows your enterprise to streamline processes and significantly reduce processing times. This integration can lead to a remarkable reduction in the order-to-shipment business cycle, potentially by as much as 50-60%.
The ability to exchange EDI transactions in minutes instead of days results in faster time-to-completion for critical business activities.
Improved Trading Partner Visibility
Effective implementation of DCKAP Integrator empowers your business to focus more on core operations. With accurate and automated data readily accessible within your ERP system, you gain valuable insights into how your EDI partners are impacting your overall business.
This enhanced visibility enables better decision-making and more informed strategies for managing your trading relationships.
Checkout the flexible pricing plans here. For further information, feel free to get in touch!
FAQS
What is EDI?
Electronic Data Interchange (EDI) is a method used by businesses to exchange business documents electronically in a standardized format, replacing traditional paper-based documents. EDI Integration facilitates electronic communication of business messages that enhance the efficiency of business operations.
What is an EDI Integration?
An EDI Integration Project involves incorporating Electronic Data Interchange (EDI) into your business processes. It aims to seamlessly connect EDI with your existing systems to automate data exchange and improve operational efficiency.
How do EDI Workflows benefit businesses?
EDI Workflows automate the handling of documents like purchase orders and invoices. This reduces processing time, minimizes errors, and provides a structured framework for managing the exchange of information with trading partners.
What file formats are used in EDI?
Common EDI file formats include X12, EDIFACT, and XML. X12 is prevalent in North America, while EDIFACT is widely used internationally. XML is versatile and used for various data exchange purposes.
What features should I look for in an ideal EDI Platform?
An ideal solution should offer robust data security, easy integration with existing systems, flexible customization options, and support for industry standard formats. Additionally, user-friendly interfaces and reliable customer support are essential considerations.
Can any business use EDI, or is it only for large organizations?
EDI is suitable for businesses of all sizes. While larger companies often use it extensively, smaller businesses can also benefit. There are EDI solutions tailored for different scales, making it adaptable to the needs of various companies.
What are some popular EDI integration software?
Some of the popular integration software are DCKAP Integrator, MuleSoft, Cleo Integration Cloud.
