What is EDI and How Does It Work?

EDI Integration Solutions – The best EDI Provider

Electronic Data Interchange, or EDI, is classified as an electronic communication method that provides standards for exchanging data via any electronic means. Data is transferred from one computer system to another by using a standardized format, without any human intervention involved.

EDI Elements

An EDI message contains a string of data elements, each representing a singular fact (price, product model number, etc.) and is separated by a delimiter. Each string in its entirety is called a data string. One or more data segments framed by a header and a trailer form a transaction set, which most likely will consist of what would be contained in a typical business document or form.

Sending an EDI document consists of (1) preparing the document to be sent, (2) translating the document into EDI format using a translating software, and (3) connecting and transmitting the document to the business partner. Translation software owned by the companies is able to process the information sent and received, to determine the buyer’s/seller’s company name, order numbers, purchase items and prices, etc. and performs a complete audit of each step to ensure information is sent or received in EDI format. This information can be sent to an order entry system without ever necessitating manual order entry.

Common EDI documents

  • Achieve a uniform processing system
  • Cost, speed, accuracy, and efficiency are all major benefits of EDI found in the field today
  • EDI eliminates both the need and cost associated with paper (lowering transaction costs by at least 35%) documents, and allows information to be processed quickly and read easily
  • EDI improves data quality and transactions can be exchanged in real-time within minutes rather than days
  • EDI can allow a business to grow tenfold without increasing workforces and creates more time for team members to work on more important tasks.
  • Eliminates manual data entry which reduces shipping costs and billing errors
  • Able to fully integrate your e-Commerce ecosystem
  • Using a third-party provider can eliminate costs by 30% compared to using an in-house EDI
  • Process more orders in less time (speed up the business cycle by 61%)


Essentially there are three types of EDI solutions: EDI software, either web-based or residing on a computer you own, EDI service bureaus or fully integrated EDI processing as part of your order processing and fulfillment system. 

EDI software allows you to possibly integrate with back office systems at more cost. EDI documents are exchanged directly between your EDI software and your business partner’s EDI software. This ‘point to point’ method of communication allows for minimal delays and reduced errors and a secure method of interacting with business partners.

The second of these EDI solutions is EDI service bureaus. These companies act as EDI contractors performing your EDI operations and will typically use some form of pay as you go method. An EDI service bureau provides the least control over your day to day operations and the smallest opportunity for data integration with your business systems.

The third of these EDI solutions is to employ an order processing and fulfillment solution that exchanges data directly with back office systems, shopping cart and retail partners, thus eliminating manual errors in the process. The time saved entering data and eliminating errors allows your company to spend more time improving order fulfillment, increasing sales, lowering costs, and more importantly improves customer satisfaction levels.

The first consideration is to understand the impact that EDI will have on your business processes. Select an option that avoids having a ‘manual’ element embedded in the process. This introduces errors into the business process. The important thing to remember is that whichever of the EDI solutions you choose will impact your company’s operation moving forwards.

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