How Does EDI Work?

All EDI transactions are defined by EDI message standards. It is vital to have proper governance processes for data quality. When information is missing or in the wrong place, the EDI document might not be processed correctly.

Standards are the basis of EDI conversations.¹ Several organizations define the EDI message standards, including ODETTE, TRADACOMS, GS1, Peppol, and the Accredited Standard Committee X12 (ASC X12).

In general, there are two basic types of EDI transmission:

  • Point-to-point or direct connections: Two computers or systems connect with no intermediary over the internet, generally with secure protocols.
  • Value-added network (VAN): A third-party network manages data transmission, generally with a mail-boxing paradigm.

EDI internet transmission protocols include Secure File Transfer Protocol (SFTP), Applicability Statement 2 or AS2, an HTTPS-based protocol, Simple Object Access Protocol (SOAP) and others. EDI data elements include items such as sender ID and receiver ID. Data segments combine two or more related elements to give them greater meaning. For example, FNAME and LNAME can combine to form CUSTOMERNAME. Envelopes structure different types of data and carry the sender and receiver address information. EDI document flow or message flow describes the movement of EDI messages to various inbound and outbound addresses and departments to execute a business process or transaction.²

Metalanguages such as Extensible Markup Language (XML) or JavaScript Object Notation (JSON) complement rather than replace EDI. Companies must be ready to handle an ever-increasing number of document formats and transmission options. One global manufacturer routinely exchanges about 55 different document types with nearly 2,000 partners.

“As many as 20% of our B2B transactions were producing an error before we began using IBM Supply Chain Business Network. We have fewer errors now — for example, we used to have issues with transfer orders because a client would submit a wrong code, which was painful for our client service team. It happens probably 80% less now because all of that used to be done manually.” Read what other EDI managers tell IDC about how they drive strategic value with IBM Sterling Supply Chain Business Network