What is EDI and When to Use It

Electronic Data Interchange (EDI) is a technology enabling businesses to exchange documents and data in a standardized electronic format. This tool is crucial in key industries such as healthcare, banking and finance, and retail and consumer packaged goods (CPG). This article provides an overview of the benefits of adopting EDI, reasons it may not be suitable for every business, a brief history of EDI, and guidance on selecting the right EDI partner.

The Benefits of EDI:

Improved Operational Efficiency 

Without EDI, routine tasks like invoicing, processing purchase orders, and data entry can be quite time-consuming. EDI automates  these processes and eliminates the delays of paper-based communication by allowing instant delivery and exchange of business documents. This means businesses can save time and money.

Increased Accuracy

EDI reduces the risk of manual data-entry errors, especially when handling large data sets. It also helps detect errors and inconsistencies, leading to higher accuracy rates and more efficient data processing.

Enhanced Security

EDI provides better control over user access and authentication, using a combination of authentication and encryption to ensure that only authorized users can access certain files. This makes it more secure than traditional paper-based methods, which can be easily viewed by anyone.

When to Adopt EDI:

EDI isn’t the right solution for every business. The expensive upfront costs of implementing and configuring EDI mean that most SMBS don’t use it. That’s why it should only be adopted for businesses processing a high-volume of orders and/or if significant trading partners require it like a Target or Walmart.

History of EDI: 

EDI's roots go back to the 1960s, with the first messages sent in 1965, aiming to streamline and standardize electronic transactions between customers and vendors.

Before EDI, exchanging business information like purchase orders, invoices, and advanced shipping notices was a manual, labor-intensive process. Companies relied on paper-based documents or email attachments, which representatives had to manually process and enter into their enterprise systems—a method prone to delays and errors.

EDI revolutionized this process by automating document exchange, enabling digital systems to communicate directly across organizational boundaries without any need for humans. 

While EDI is a significant operational breakthrough, it still requires human expertise to set up. Most businesses hire external experts or rely on their IT teams to configure EDI systems to each trading partner's requirements. Every large trading partner and retailer has a unique EDI setup, and most mandate its use, making EDI essential for any growing business.

Choosing the Right EDI Provider:

Just like you can choose between Gmail, Outlook, or Yahoo for your email, there’s no single EDI provider that fits all. Major providers include SPS Commerce and True Commerce, along with modern options like Crstl and Orderful, which require less time to configure per vendor (Pantry AI is working closely with Orderful to bring a bespoke EDI product to market.)

To find the best EDI provider for your business, experts recommend conducting an internal audit to assess your current infrastructure and future needs. It's crucial to work with an EDI provider that acts as a true partner, supporting you every step of the way since implementing EDI can be complex.

Want to learn more about how Pantry AI can help with EDI? Reach out to ian@pantry.ai