EDI, or Electronic Data Interchange, is a complex but necessary function to communicate important business data such as Purchase Orders, Invoices and Advance Ship Notices (ASNs) with your customers, suppliers, 3PLs, sourcing agents and more.
An overview of this important function and its key elements include responses to the following questions:
- What is EDI?
- What do all EDI solutions include?
- How does EDI outsourcing and EDI software differ?
What is EDI?
A form of B2B integration, Electronic Data Interchange (EDI) is the widely used method of communicating important business documents or information such as Purchase Orders, Invoices and Advance Ship Notices electronically between businesses or trading partners.
More and more companies have integrated this function with their ERP (e.g., Oracle, NetSuite, SAP) solutions to automatically extract the needed data for each business transaction, enabling hands-free processing.
Companies can elect to do EDI in one of two ways:
- EDI software (or managed services) where an EDI solution is exclusively designed, implemented, used, maintained, staffed (internal or an external company operating on your behalf) and paid for solely by your organization. All four components listed below will be implemented, staffed and managed by your organization.
- EDI outsourcing using a Software-as-a-Service (SaaS) or multi-tenant model where thousands of companies leverage the specialized expertise, infrastructure and existing maps of a service provider while sharing the costs. An EDI outsourcing provider, including SPS Commerce, will provide, staff and manage all of the four main components below.
What do all EDI solutions include?
Any EDI application – whether using EDI outsourcing or EDI software/managed services -- involves four main components including:
- EDI and Infrastructure Layer:
Software and hardware for converting data into and out of EDI - EDI Mapping Layer:
Software for reconciling data between you and your trading partners - EDI Connectivity Layer:
Software and network technology for transporting data between you and your trading partner. - EDI Application Integration Layer:
Software for exchanging data into and out of your accounting system.
Like any other application, the EDI software needs hardware to run on. The first piece of the EDI puzzle is the EDI software layer itself – the EDI translator itself. Like any other software application, the EDI software needs hardware to run on. These systems will need sophisticated antivirus, firewall, and possibly intrusion detection software. By definition, EDI is a system that communicates with companies on the other side of the firewall, which leaves it immensely vulnerable to attack. EDI is also an application that must operate on a 24/7 basis since orders are often sent by customers during off-peak hours. Thus, system monitoring software is required to ensure that the servers are performing optimally and send alerts the moment anything goes wrong.
The mapping layer is where the electronic trading parameters are set up for every EDI relationship that is implemented. These maps, which sit on top of the translation layer, are slightly different for each trading partner due to particular supply chain or business process requirements of the relationship. Also, since a map is needed for each transaction with every unique trading partner, the number of maps can add up quickly.
For example, if Company A has 10 trading partners that it conducts business with using EDI, and each trading partner requires Company A to conduct three transactions, 30 maps are needed. As companies add partners over time, those numbers keep going up; as do the requirements for keeping the maps and the data they’re transmitting synchronized.
The third EDI layer is connectivity. While the first two components have to do with data processing, the third is all about transporting that data between Company A and its trading partners. The upfront costs here have to do with providing the numerous communications methods that trading partners might require. These include a VAN mailbox, which provides access to a specialized proprietary network, often called a value-added network; AS2 software support, which is a secure Internet protocol that large trading partners such as Wal-Mart often use; and even secure FTP sites available via the Internet. Many companies today have to support all three to satisfy their full trading partner community. After setup, high costs are often associated with the ongoing transaction fees for using a VAN, software maintenance fees for FTP and AS2 software, and staffing associated with upkeep.
Application integration allows companies to move data between their own ERP and/or accounting systems and the EDI translator. The last of the EDI pieces is application integration. In short, application integration allows companies to move data between their own ERP or accounting systems and the EDI translator to eliminate manual keying of data – an extremely valuable feature. In some cases, prebuilt software modules, called adapters, can be used to reduce development time for certain ERP and accounting systems. Once implemented, the integration layer has to be maintained to keep it current with accounting system version upgrades and changes to trading partner EDI specifications.
How does EDI outsourcing and EDI software differ?
EDI is a necessity for today’s global supply chain. If your organization is like 99% of companies today, you need to do EDI but don’t want to spend a lot of internal resources on this non-core competency. The bottom line is whether or not you wish to perform the following tasks internally, or outsource them to a SaaS EDI service provider, like SPS Commerce, to do it on your behalf.
EDI Software Requires You to:
Infrastructure
- Your company owns & runs the Hardware
- Your company owns the Software
- Your company owns the Network & Communications
Implementation
- Your company performs the Design
- Your company performs the Installation
- Your company develops/implements EDI “Rule Books” or maps for each trading partner
Operations
- Your company performs Application & Systems Monitoring
- Your company performs Data Monitoring & Diagnostics
- Your company performs/manages “finger pointing”
- Your company performs Systems Upgrades
- Your company performs Backup & Recovery
Or, you can outsource it to SPS Commerce to perform each of these tasks on your behalf, enabling you to concentrate on your primary business.
For more information on outsourcing EDI, contact SPS Commerce or view our latest whitepaper - Trading Partner Integration Centers — The SaaS Model for EDI.
