What is Electronic Data Interchange (EDI)?

Electronic Data Interchange, or EDI as it is most commonly referred to, is a protocol that allows two systems to connect with one another for the purpose of exchanging data electronically. This EDI protocol has been around since the early 1960s when it was first used to send cargo information between the chemical company Du Pont and Chemical Leahman Tank Lines.

In 1982, companies like Ford and General Motors began requiring their suppliers to transfer information via EDI. By 1991, EDI was being used by around 12,000 businesses.  Since then, that number has just continued to grow as businesses realized the efficiency they could gain through exchanging information through this secure channel.  

How Does EDI Work?

To understand why EDI has become so popular among business users you must understand the basics terms of EDI.  According to EDI Basics, the following definitions apply to EDI:

• Computer-to-computer– EDI replaces postal mail, fax, and email. While email is also an electronic approach, the documents exchanged via email must still be handled by people rather than computers. Having people involved slows down the processing of the documents and also introduces the potential for a host of errors. Instead, EDI documents flow straight through to the appropriate application on the receiver’s computer (e.g., the Order Management System) and processing can begin immediately. A typical manual process involves lots of paper and people, the EDI process does not.
• Business documents– These are any of the documents that are typically exchanged between businesses. The most common documents exchanged via EDI are purchase orders, invoices, and advance ship notices. But there are many, many others such as the bill of lading, customs documents, inventory documents, shipping status documents, and payment documents.
• Standard format– Because EDI documents must be processed by computers rather than humans, a standard format must be used so that the computer will be able to read and understand the documents. A standard format describes what each piece of information is and in what format (e.g., integer, decimal, mm/dd/yy). Without a standard format, each company would send documents using its company-specific format and, much as an English-speaking person probably doesn’t understand Japanese, the receiver’s computer system doesn’t understand the company-specific format of the sender’s format.
  • There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS, and ebXML. And, for each standard, there are many different versions, e.g., ANSI 5010 or EDIFACT version D12, Release A. When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version.
  • Businesses typically use an EDI translator – either as in-house software or via an EDI service provider – to translate the EDI format so the data can be used by their internal applications and thus enable straight-through processing of documents.
• Business partners– The exchange of EDI documents is typically between two different companies, referred to as business partners or trading partners. For example, Company A may buy goods from Company B. Company A sends orders to Company B. Company A and Company B are business partners.

EDI as it Applies to Transportation

EDI has become a requirement in the transportation industry as shippers, carriers, and brokers all aim to integrate and exchange information as fast as possible.  With millions of transactions, EDI affords the ability to exchange the bill of lading’s, shipping manifests, shipping statuses, invoices, and remittances.  The major advantage of EDI is it reduces manual tasks, decreases costs, and eliminates human error.  

Examples of EDI Transaction Codes in Transportation

Disadvantages of EDI

While EDI has helped streamline information exchange between companies for decades, there are a few disadvantages to consider.  The first is that EDI communication is always one-way, meaning information is sent from system A to system B without confirmation in the transaction set. 

To receive a confirmation of receipt, system B would have to send a confirmation transaction back to system A. The second major disadvantage of EDI is that it does not provide a timeframe guarantee for transmissions.  Transmissions can take anywhere from fifteen to two-hundred and forty minutes.  In an age where information needs to be exchanged immediately, this can be a major deterrent to EDI use.  

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