Electronic B2B communication – is EDI the right solution?

September 3, 2021

EDI (Electronic Data Interchange) is used to connect businesses and to facilitate electronic B2B communication. It is a computer-to-computer exchange of business documents in a standard electronic format between business partners, which replaces postal mail, fax and e-mail processed by people. What are the features of EDI, how does it work, and what are the benefits and disadvantages of EDI? And is it the ideal solution for efficiently connecting suppliers and other business partners? Or are there other, better-suited options?

What documents can be exchanged via EDI?

Businesses exchange purchase orders, invoices and advance shipping notices via EDI systems. But there are many others, such as bill of lading, customs documents, inventory documents, shipping status documents and payment documents.

What EDI standards are there?

There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS and ebXML. Furthermore, there are many different versions for each standard, such as ANSI 5010 or EDIFACT version D12, Release A.

Why are EDI standards needed?

Unlike humans, computers are not very good at reading between the lines. Therefore, business partners must adopt a standard format to allow the receiving computer to understand the documents. A typical standard format describes each piece of information and in what format (e.g. integer, decimal, mm-dd-yy).

How does EDI work?

Sending EDI documents involves three steps:

Step 1: Prepare the document

Collect and organise the data.
The system creates an electronic file with the necessary information to build an EDI document.

Step 2: Translate the document into EDI format

Feed electronic data through a translator software to convert your internal data format into the EDI standard format using the appropriate segments and data elements.
You can purchase an EDI translation software that you manage and maintain yourself.
Alternatively, you can use the translation services of an EDI service provider.

Step 3: Connect and transmit your EDI document to your business partner

To transmit your EDI document, you need to decide how you will connect to each of your partners.
Option 1: connect directly using AS2 or another secure internet protocol.
Option 2: connect to an EDI network provider using your preferred communications protocol and rely on the network provider to connect to your business partners using whatever communications protocol your partners prefer.
Option 3: use a combination of both, depending on the particular partner and the volume of transactions you expect to exchange.

What are the benefits of EDI?

Processing speed is increased
Errors are reduced
Efficiency is increased

What are the disadvantages of EDI?

When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version.
Another disadvantage of EDI is that these standards are highly rigorous.
You could end up maintaining several different EDI connections to various business partners using different standards and formats.
Using ED software is expensive for you and your business partners.
For many suppliers, EDI is too complex and too expensive.
You may also have to sponsor the cost of implementation for your trading partners, to lower their barriers to connecting.
100% supplier connection of EDI is almost unattainable.
For suppliers and other business partners, onboarding to EDI systems is typically painful, laborious and disruptive.
From a technical point of view, EDI is very complex.
For EDI projects, in-house IT needs to be involved.
EDI projects are time-consuming and costly to set up.
Initial capital investment is needed (e.g. for EDI software, communications software, mapping and translation software, and EDI and mapping specialists).

Conclusion

EDI is a powerful but also expensive solution. One main disadvantage of EDI is that it is mainly based on restrictions and narrowing specifications. Documents are processed according to different rules for different business partners, which causes EDI to lack flexibility. This type of solution is typically slow and expensive to connect with business partners, and many suppliers and business partners cannot be connected electronically.

While EDI certainly offers advantages and benefits to manual data processing and optimises the document and data exchange, it also comes with many disadvantages. For example, EDI often means accepting restrictive standards and formats, long project times, and barriers. In addition, many business partners will be excluded from a digital B2B connection because EDI is too complex and expensive.

However, seamless B2B workflows, automated exchange of data and documents and the electronic connection of all significant business partners along the supply chain are the pillars of modern procurement.