What is EDI? A Beginner’s Guide to Electronic Data Interchange

What is EDI?

Electronic Data Interchange (EDI) is the automated exchange of business documents between two companies in a standardized electronic format.

Instead of sending Purchase Orders, Invoices, or Shipping Notices through email or paper, EDI allows businesses to send them system-to-system, saving time, reducing errors, and speeding up operations.

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Why Do Companies Use EDI?

1. Faster Communication

A Purchase Order that might take hours or days via email or post can be transmitted in seconds using EDI.

2. Fewer Errors

Since the data flows directly between systems, there is no manual typing, reducing mistakes like wrong quantities or incorrect addresses.

3. Cost Savings

EDI eliminates paper, printing, postage, and manual labor. Companies save 30–70% in transaction processing costs.

4. Stronger Business Relationships

Retailers, distributors, manufacturers, and logistics companies prefer suppliers who support EDI.
Many big companies—like Amazon, Walmart, Costco—require EDI for doing business.

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How EDI Works (Simple Explanation)

EDI follows three main steps:

Step 1 — Data Extraction

Your system generates business data.
Example: A Purchase Order created in your ERP.

Step 2 — Data Transformation

The data is converted into a standard EDI format (such as X12 or EDIFACT).

Step 3 — Data Transmission

The EDI file is securely sent to your trading partner using communication methods like:

• AS2

• SFTP

• FTP

• OFTP2

• API

• VAN (Value Added Network)

The receiving system automatically reads and processes the document.

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Common EDI Documents

EDI 850 - Purchase Order
EDI 855 - PO Acknowledgment
EDI 856 - Advance Ship Notice (ASN)
EDI 810 - Invoice
EDI 820 - Payment Order
EDI 846 - Inventory Inquiry

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EDI Standards You Should Know

1. ANSI X12 (North America)

Used by U.S. retailers, logistics companies, and healthcare (HIPAA).

2. EDIFACT (Global)

Used in Europe, Asia, and international logistics.

3. TRADACOMS (UK Retail)

Older standard, still used by some UK supermarkets.

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EDI Communication Methods

AS2 - Secure, real-time communication. Very common for retail.

SFTP - Simple, secure file transfer.

FTP/FTPS - Older methods, still used by some partners.

VAN - A private network that routes EDI messages.

API - Modern alternative to EDI; sending JSON/XML instead of flat files.

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Who Uses EDI?

EDI is widely used in:

• Retail (Amazon, Walmart, Target)

• Healthcare (Hospitals, insurance companies)

• Logistics & Transportation

• Manufacturing

• Automotive (Honda, Ford)

• Food & Beverage

• Pharmaceuticals

• Government agencies

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Benefits of Learning EDI (For Professionals)

• High demand skill

• Great career opportunities (EDI Analyst, EDI Consultant, Integration Specialist)

• Used in SAP, Oracle, Cleo, OpenText, MuleSoft, Boomi

• Growing with API + EDI hybrid solutions

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Summary

EDI is the digital backbone of global trade, connecting businesses and making transactions faster, cheaper, and error-free. Even with modern APIs, EDI continues to be essential in supply chain, retail, logistics, and healthcare.

If you are a beginner, understanding the basics of EDI is the first step toward exploring integration, automation, and digital transformation in businesses.