The definition of EDI, and why it matters in modern trade communication:
EDI is an abbreviation for Electronic Data Interchange - a term for the electronic exchange of trade documents such as product catalogues, purchase orders, order confirmations, despatch advices and invoices.
The exchange of documents takes place directly between the parties' IT systems, and the communication is based on standardized formats and protocols. Today, EDI is used in most industries, including retail, healthcare, logistics, manufacturing, and financial services, to improve and automate the business processes of enterprises.
EDI is a vital component of modern trade communications that helps improve efficiency, reduce costs, and increase reliability and accuracy in the exchange of business documents.
Historical background
1960s
The origins of EDI can be traced back to the early 1960s when companies began exploring ways to improve the exchange of trade documents. At that time, manual handling and paper-based documents were the common method of communication between organizations. This process was time-consuming, error-prone, and inefficient.
During the 1960s, telecommunication networks such as telex were introduced, which allowed text-based messaging over distance. This paved the way for the early forms of EDI, where telex was used to send business documents electronically between organizations. Although the solution was limited to simple text-based communication, it represented an early incarnation of EDI.
1970s
In the 1970s, standards and protocols for data exchange between computers were developed, laying the foundation for further development and adoption of EDI technologies. The standardization of data formats was crucial to ensure that business documents could be interpreted correctly and be compatible with different systems. Two of the most well-known standards developed at this time were ANSI X12 in the United States and EDIFACT internationally.
1980s
In the 1980s, EDI became more widespread, especially in industries such as retail, logistics and automotive. Several organizations started using EDI to digitize the exchange of trade documents. This resulted in significant efficiency gains, reduced costs, and improved cooperation with trading partners.
1990s
In the 1990s, the internet and electronic commerce greatly impacted the development of EDI. Organizations began using internet-based solutions to implement EDI and enable electronic exchange of business documents on a more scalable and global scale. This also enabled an even broader adoption of EDI across industries and internationally.
2000s and today
Today, EDI continues to evolve in line with the emergence of modern technologies, including cloud-based solutions that have simplified the implementation of EDI and made it more accessible. Furthermore, EDI is continuously developing to support new and improved business processes between trading partners.
Over the years, EDI has been recognized as an effective method to automate and improve trading communications. Standardization of formats and protocols, as well as technological advances, have contributed to the wide adoption of EDI - which continues to be a key component of modern business practice.
What are the benefits of EDI?
Efficiency and automation:
EDI digitizes and automates the exchange of trade documents, leading to considerable time savings and increased efficiency. Manual processes, such as data punching and handling of paper-based documents, can be time-consuming and error-prone. By using EDI, documents can be transferred electronically quickly and seamlessly, helping to reduce processing time and increase productivity.
Cost savings:
Implementing EDI can provide significant cost savings for businesses. The size of these savings depends on the processes that are digitized and how capable and ready the company is for automation. A direct cost saving often associated with invoicing is eliminating the need for physical paper, printing, postage, and manual processing of documents. In a purchasing process, EDI will provide a better overview of orders and stock status, which can reduce the costs associated with inventory. Furthermore, manual processes related to communication, document management, and error handling can be minimized or eliminated, which in turn leads to significant savings.
Better trade flows and partnerships:
EDI enables a seamless integration of business processes between organizations. Integrating companies' systems with EDI simplifies cooperation between trading partners, regardless of which IT systems or platforms they use. This simplifies communication, reduces the need for manual input, and improves collaboration and relationships between organizations. Both parties get faster updates on the status of orders and can reap the efficiency gains. For suppliers, it is also vital to be able to support their customers' demands for electronic communication.
Faster transactions:
EDI enables faster processing and processing of business documents. The electronic transfer of data directly between systems makes it possible to reduce processing time to a minimum. This leads to increased efficiency throughout the supply chain and helps reduce delays in ordering processes, deliveries, invoicing, and payment.
Types of EDI
Direct EDI
Direct EDI, or "point-to-point EDI", has been used by companies for a long time. In this model, a direct line is established between the parties without an intermediary, and each organization must therefore establish separate lines with each trading partner. In many cases, this involves hundreds or thousands of individual connections.
For direct EDI, a common transport protocol and a common message format between the parties must be agreed upon. As a sender, you must ensure that you are sending in a format that the recipient can read and interpret. If your trading partners use different message formats and have different preferences for transport protocols, this can pose a complex challenge where one of the parties must carry the burden of additional technologies and translations.
Value-Added Network (VAN)
In a VAN model, a company uses a single link to an EDI supplier that ensures further communication with all trading partners. This simplifies the complexity inherent in handling larger volumes of direct connections (many trading partners), and the EDI provider often also offers value-added services that can increase the quality of communication.
The EDI provider ensures a robust infrastructure and interconnection with other EDI providers and trading networks. This is often difficult (or impossible) to achieve by implementing direct EDI. Furthermore, the EDI provider will have the expertise and technology to efficiently convert between message formats and communicate these with trading partners, so that your company can focus on streamlining your internal processes.
Technology and standards for EDI
Communication protocols and data formats for EDI:
Various communication protocols are used for EDI that ensure reliable and secure exchange of business documents between trading partners.
A communication protocol is a standardized method or set of rules that stipulates how data and information should be exchanged between different systems and partners in the EDI process. The communication protocols ensure that data is exchanged in a structured and reliable manner, and they enable seamless communication between different IT systems and organizations.
By following standardized protocols, the sender and receiver can interpret and process the data correctly, regardless of which systems or platforms they use. Further, it is not a necessity for sender and receiver to use the same protocol, as an EDI provider will be able to translate between protocols.
EDI protocols typically encompass several aspects of data exchange, including:
Transport protocol:
This specifies the method used to transfer the data between sender and receiver. This includes protocols like HTTPS, SFTP, AS2, or AS4, and other protocols suitable for the secure and reliable transmission of EDI messages.
Message format:
The message format defines the structure and format of the EDI message itself, and global, regional, and industry-specific standards exist. Prominent message formats include Peppol BIS, UN/EDIFACT, EHF, and ebXML, among others. The message format determines how the data is organized in the message, which elements are required and optional, and how these are to be interpreted.
Security protocol:
Security protocols are mechanisms to ensure that data is protected from unauthorized access, manipulation, or loss during transmission. It may include encryption, authentication, and digital signatures to ensure data integrity and confidentiality.
Using standardized communication protocols, EDI becomes reliable and efficient, and different organizations can interact seamlessly to exchange business documents electronically.
Did you know that Logiq has a service to validate files of different message formats? Visit Logiq Validator!
Success criteria for an EDI project
Ambitions
The size and scope of an EDI project will vary depending on what kind of solution is to be implemented and what processes are to be covered. A project to send electronic invoices will be far less resource-intensive than a project to digitize and automate the purchasing process.
Regardless of the scope, it is important to define the objective of the project – what does the company want to achieve? Clearly defined goals play a vital role in the project, both to delimit the project and to set clear guidelines for further project management. The objectives should preferably be measurable and unambiguous.
Project Management
Good project management and control will often be decisive for a good delivery. It is important that the project is staffed with the right expertise right from early on, and that internal resources are involved in testing and approving the solution. Fast decision-making processes, clear mandates, available expertise, and agile project management practices are essential to ensure progress.
Cooperation with EDI service provider
Most modern EDI projects are based on third-party EDI service provider, and most often using cloud-based platforms. A good and constructive cooperation with this service provider will therefore be the basis for a successful project. The EDI service probider possess specialist expertise and will be able to provide good advice throughout the project. Furthermore, the service provider will often provide project management and staffing that will cooperate with your internal project organization. When choosing a service provider, both chemistry and "gut feeling" will therefore be useful indicators of how a collaboration will appear.
Stakeholder commitment
An EDI project without the necessary stakeholder commitment in the organization could quickly fail. A clearly positive attitude and support from management is often the most important factor for a successful project. By ensuring mutual understanding of objectives and ambitions, and actively supporting involved departments during the process, management can influence both progress and results.
Implementation of EDI
The implementation of EDI involves several important steps and processes to ensure a successful and efficient transition to electronic exchange of business documents.
Evaluation of needs and objectives:
Before the implementation starts, it is important to evaluate the needs and possibilities of the organization when implementing EDI. This involves identifying which business processes should be covered, how deeply EDI should be integrated into internal processes, how much should be automated, which departments or locations should be covered, and more. A thorough evaluation will help to establish clear goals and expectations ahead of implementation.
Choice of EDI solution and service provider:
After the needs and objectives have been identified, the organization must select an EDI provider that can meet the expectations. This involves considering several factors such as functionality, scalability, reliability, ease of use, price, and customer support. The organization should also assess the EDI provider’s experience, reputation, and ability to adapt to specific industry needs.
Integration with internal and external systems:
Implementing EDI requires integration with the organization's internal systems, such as ERP, inventory management, and other business applications. This involves establishing the possibility of importing and exporting structured documents to and from the business applications, as well as communicating these files between the organization and the EDI provider.
The EDI provider will then ensure the conversion and transmission of these messages to and from your trading partners. A good provider will be able to convert between a variety of message formats and have access to the relevant trading networks to be able to communicate your messages.
Testing & Training:
Before the implementation is put into operation, it is crucial to carry out thorough testing of the EDI solution. This includes testing data exchanges, data integrity, error handling, and interaction with internal and external systems. The testing ensures that the EDI solution works as expected and meets the identified needs and objectives. At the same time, it is important to provide training and guidance to the employees who are given new work routines. The training helps ensure that everyone involved understand the new processes.
Trends in EDI
The future of EDI looks promising, with several exciting trends influencing the use and development of EDI.
Tax reporting
Even though invoices are the document type with the greatest prevalence within EDI, many companies are still not sending electronic invoices. CTC (Continuous Transaction Controls) is an electronic exchange model introduced by the tax authority in a country, and it is used to handle VAT (Value Added Tax) reporting and invoice clearance in real time or near real-time. Introducing CTC will usually mean that electronic invoicing will become mandatory in the country.
Environmental reporting
In several countries, EDI documents are now regarded as a possible carrier of environmental data for goods sold. The two types of documents that are most relevant for this information are invoices and despatch advices. By using EDI as a mean to harvest environmental data, companies can reuse established integrations, while the prevalence (and scope) of EDI will increase.
Standardization
Peppol has for a long time been pushing for a standardization of message formats and interconnection between trading partners. Norway is the country that has come furthest in adopting the Peppol network and formats, but more countries are following suit. Peppol, which has traditionally had a European focus, is now also expanding internationally – and countries such as Singapore and Australia have established Peppol authorities.
At the same time, national, regional, and industry-specific standards continue to retain (and in many cases increase) market share. This makes it important for companies to ensure support for a wide range of message formats and transport protocols, as well as to have access to all business networks that relevant to their business.
Success stories
It is not difficult to find success stories from EDI projects. Companies that invest in good solutions for electronic communication with their customers and suppliers experience both cost savings, automation opportunities and better relationships with their trading partners.
Byggmakker AS
Byggmakker is one of Norway's leading building materials chains, selling goods to both the consumer and professional markets. The company has ambitions to work electronically at all stages and in all processes. By implementing support for EDI in their processes, they currently receive all invoices electronically and send 95% of invoices electronically. Furthermore, the proportion of online orders and confirmations towards their suppliers ranges between 20-100% (depending on the quality of master data, the type of goods and the maturity of the supplier). The automation made possible by EDI has resulted in enormous operational effects for the company.
Fremtind Forsikring
Fremtind is one of Norway's largest insurance companies, and the largest provider of insurance sold in through banks in Norway. With help from Logiq, Fremtind Forsikring now has an EDI solution where almost all invoices they receive flow automatically through the system without manual intervention. The key to this success has been control of reference numbers in the invoices, which were previously often missing or misplaced. This has been solved by combining electronic invoices with a solution for document control that automatically corrects the invoices or notifies the supplier in case of errors. In this way, the company saves both time and money in their invoice processing.
Flexit
Flexit is one of the Nordic region's leading suppliers of energy-efficient products and services that contribute to a better indoor climate in homes and commercial buildings. Since the nineties, the company has worked with digitization of the order flow to ensure an efficient and optimized order process for its customers. The company has also implemented support for EDI in invoice distribution but highlights that it is in the digitization of the order processing process that they see the greatest savings.
Swedol
Swedol is a market-leading retail chain for professionals in the building-, construction-, transport- and industrial sectors. By focusing on as much automation as possible in the accounts payable and accounts receivable processes, the company has achieved cost savings, increased quality, and reduced manual handling. The key to the success is a combination of EDI and automation services such as Logiq Document Control and Multichannel.
These examples show how organizations that implement EDI achieve benefits such as increased efficiency, accuracy, and cost savings. Through automation, better collaboration, and more reliable trade communications, organizations can strengthen their competitiveness and deliver better services to their customers.
Embrace the benefits of EDI today
EDI is a technology that has revolutionized trade communication by enabling the electronic exchange of business documents between organizations. Through standardized data formats and communication protocols, EDI has made it possible to automate and streamline business processes, reduce manual errors, and increase reliability throughout the value chain.
EDI has several benefits that help improve the efficiency and productivity of organizations. By implementing EDI, you can achieve process automation, reduce the time and costs associated with manual handling of paper-based documents and email attachments, and improve the accuracy of data exchange. EDI also contributes to faster and more efficient transactions between trading partners and increased competitiveness.
It is important to evaluate your organization’s needs and objectives, choose the right EDI solution and EDI provider, and ensure good integration with existing systems. Testing and training are also important steps to ensure a successful implementation.
EDI is not only a technology for today's trade communication, but also an important foundation for the future. By embracing EDI, organizations can strengthen their competitiveness, improve their business processes, and achieve more effective and seamless trade communication.
