How EDI Works: From ERP to Trading Partner (Step-by-Step)

Electronic Data Interchange (EDI) connects two businesses by allowing their systems to exchange documents automatically—without emails, PDFs, or manual data entry. Let’s walk through the complete journey of an EDI document, from ERP to trading partner, in simple steps.

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Step 1: Business Transaction Created in ERP

• A business event occurs in the ERP system (SAP, Oracle, NetSuite, etc.)

• Example: A buyer creates a Purchase Order

• The ERP stores data like item, quantity, price, ship-to address

Note: This is raw business data, not yet EDI

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Step 2: Data Extracted from ERP

• Relevant data is picked from ERP tables or flat files

• Extraction happens via IDoc, XML, CSV, or database query

• Only required fields are selected based on trading partner rules

Note: ERP data is prepared for EDI translation

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Step 3: Data Translated into EDI Format

• EDI translator converts ERP data into standard EDI format

• Common formats: X12 (850, 856, 810) or EDIFACT (ORDERS, DESADV)

• Partner-specific mapping rules are applied

Note: Business data becomes an EDI document

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Step 4: Validation & Compliance Check

• EDI file is validated against standards and partner rules

• Checks include:

  • Mandatory segments

  • Correct codes and qualifiers

  • Control numbers

Note: Invalid files are rejected before transmission

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Step 5: Secure Transmission to Trading Partner

• The validated EDI file is sent using an agreed method:

  • AS2

  • SFTP

  • VAN

  • API

  • FTP

  • OFTP2

• Security features include encryption and authentication

Note: File is securely delivered

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Step 6: Functional Acknowledgment (997/CONTRL)

• Trading partner sends acknowledgment confirming receipt

• Confirms file structure, not business acceptance

• Helps ensure no data is lost

Note: Sender knows the file arrived successfully

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Step 7: Trading Partner Receives & Translates

• Partner’s EDI system receives the file

• EDI is translated back into their internal format

• Data is mapped into their ERP system

Note: EDI becomes usable business data again

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Step 8: Business Processing in Partner ERP

• Partner’s ERP processes the transaction automatically

• Example actions:

  • PO creation

  • Shipment planning

  • Invoice matching

Note: No human intervention required

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Step 9: Response EDI Document Sent Back

• Partner sends a response document:

  • 855 (PO Acknowledgment)

  • 856 (ASN)

  • 810 (Invoice)

• Same EDI flow repeats in reverse direction

Note: Two-way automated communication

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Simple Real-World Flow Example

1. Buyer sends EDI 850 → Purchase Order

2. Supplier sends EDI 855 → Order confirmation

3. Supplier sends EDI 856 → Shipment details

4. Supplier sends EDI 810 → Invoice

5. Buyer sends EDI 820 → Payment

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Why This Flow Matters

• Eliminates manual data entry

• Reduces errors and delays

• Enables real-time supply chain visibility

• Scales easily for high transaction volumes

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Summary

EDI works like a digital conveyor belt—moving business data smoothly from one ERP system to another. Once set up, it runs silently in the background, powering global trade every second.

Understanding this flow is the foundation for learning EDI mapping, testing, troubleshooting, and integration projects.