Electronic Data Interchange (EDI) is a structured way for businesses to send and receive documents electronically. It was created in the 70’s as a replacement for paper documents. EDI is like a schema to cover all possible business transactions across most industries, but it existed before the Internet was invented. Today, most every large company uses it including Amazon, Walmart, and FedEx.
Prior to EDI, businesses used to exchange paper transactions and record those transactions into a hand-written book called a ledger, but modern businesses use one or many software applications, called business systems, to facilitate operations. There are many types of business systems, ranging from generic software suites like Oracle, SAP, and NetSuite to vertical-specific products that serve some particular industry, like purpose-built systems for healthcare, agriculture, or education.
When broken down to its simplest definition, EDI can be thought of as “getting data from one business system into another”.
Common Uses of EDI
There are more than 300 different EDI transaction types. The following table contains examples of common EDI transactions.
A few technical standards have been created since the introduction of EDI including X12 in North America and EDIFACT which is prevalent throughout Europe. Standards bodies make changes over time and version releases with names like “Release 004010”. These standards do not exist to solve all of the problems of B2B transactions. Instead they exist to allow a trading partner to understand each of its trading partner’s internal syntax and vocabulary.
Standards such as X12 and EDIFACT provide highly structured, opinionated alternatives intended to reduce the surface area of knowledge required to successfully integrate with trading partners. All documents conforming to a given standard follow that standard’s syntax, allowing an adoptee of the standard to work with just one syntax for all trading partners who have also adopted that syntax.
How is EDI transmitted?
EDI can be transmitted using various protocols, but these are the most common ways to exchange files with your trading partners.
SFTP (SSH File Transfer Protocol) and FTPS (File Transfer Protocol Secure) are both secure file transfer protocols used to transmit files between computers over a network.
- SFTP is a secure version of the FTP protocol, providing encryption and authentication using the Secure Shell (SSH) protocol. It encrypts both the data being transmitted and the commands used to perform file operations.
- FTPS is an extension of the FTP protocol that adds support for Transport Layer Security (TLS) or Secure Sockets Layer (SSL) encryption. It can use either implicit SSL, where the entire session is encrypted from the start, or explicit SSL, where the client requests a secure connection after connecting to the server.
You can set up your own SFTP/FTPS server for your trading partner to connect to, or (common with large trading partners) you will need to connect to your trading partner’s remote SFTP/FTPS server to exchange files.
AS2, or Applicability Statement 2, supports encryption of the data being exchanged and uses digital signatures to verify the authenticity and integrity of the data. AS2 also supports MDN (message disposition notification), a way for your partner to acknowledge that they have received your message. Some partners may require that you request and accept an MDN response, send MDN responses, or both.
Value Added Network (VAN)
A VAN acts as an intermediary between trading partners. Instead of establishing a direct connection with your trading partners, you and your partners would connect to a VAN, and the VAN would broker the connection for you. It is not a requirement for you and your partners to use the same VAN — this is called a “VAN to VAN interconnect.”
VANs often provide additional services on top of basic message routing. These may include data translation between different EDI standards, data encryption for security, data archiving, auditing, and tracking of transactions.