What is electronic

data interchange
(EDI)?

EDI is a standard format to exchange

business information between two
organizations electronically instead of
using paper documents

What's the future of EDI? (490

KB)


What is EDI?

What is EDI?
EDI, which stands for electronic data
interchange, is the intercompany
communication of business documents in a
standard format. The simple definition of EDI
is a standard electronic format that replaces
paper-based documents such as purchase
orders or invoices. By automating paper-
based transactions, organizations can save
time and eliminate costly errors caused by
manual processing.

In EDI transactions, information moves

directly from a computer application in one
organization to a computer application in
another. EDI standards define the location
and order of information in a document
format. With this automated capability, data
can be shared rapidly instead of over the
hours, days or weeks required when using
paper documents or other methods.

Today, industries use EDI integration to share

a range of document types — from purchase
orders to invoices to requests for quotations
to loan applications and more. In most
instances, these organizations are trading
partners that exchange goods and services
frequently as part of their supply chains and
business-to-business (B2B) networks.

Modern B2B integration for supply chain

resiliency [Explainer Video] (2:02)

How EDI works

All EDI transactions get defined by EDI
message standards. It is vital to have proper
governance processes for data quality. When
information is missing or in the wrong place,
the EDI document might not be processed
correctly.

Standards are the basis of EDI

conversations.¹ Several organizations define
the EDI message standards, including
ODETTE, TRADACOMS, GS1, Peppol and the
Accredited Standard Committee X12 (ASC
X12).

In general, there are two basic types of EDI

transmission:

– Point-to-point or direct connections: Two

computers or systems connect with no
intermediary over the internet, generally
with secure protocols.
– Value-added network (VAN): A third-party
network manages data transmission,
generally with a mail boxing paradigm.

EDI internet transmission protocols include

Secure File Transfer Protocol (SFTP),
Applicability Statement 2 or AS2, an HTTPS-
based protocol, Simple Object Access
Protocol (SOAP) and others. EDI data
elements include items such as sender ID
and receiver ID. Data segments combine two
or more related elements to give them
greater meaning. For example, FNAME and
LNAME can combine to form
CUSTOMERNAME. Envelopes structure
different types of data and carry the sender
and receiver address information. EDI
document flow or message flow describes
the movement of EDI messages to various
inbound and outbound addresses and
departments to execute a business process
or transaction.²

Metalanguages such as Extensible Markup

Language (XML) or JavaScript Object
Notation (JSON) complement rather than
replace EDI. Companies must be ready to
handle an ever-increasing number of
document formats and transmission options.
One global manufacturer routinely exchanges
about 55 different document types with
nearly 2,000 partners.

“As many as 20% of our B2B transactions

were producing an error before we began
using IBM Supply Chain Business Network.
We have fewer errors now — for example, we
used to have issues with transfer orders
because a client would submit a wrong code,
which was painful for our client service team.
It happens probably 80% less now because
all of that used to be done manually.” Read
what other EDI managers tell IDC about how
they drive strategic value with IBM Sterling
Supply Chain Business Network.

Related links

Read the IDC white paper

Benefits of EDI
EDI transactions are essential to B2B
processes and continue to be the preferred
means to exchange documents and
transactions between businesses both small
and large.

There are five key business benefits that EDI

technology delivers through automation and
B2B integration:

– EDI technology saves time and

money through automation of a process
previously manually executed with paper
documents.
– EDI solutions improve efficiency and
productivity because more business
documents are shared and processed in
less time with greater accuracy.
– EDI data transfer reduces errors (PDF,
669 KB) through rigid standardization,
which helps to ensure information and
data are correctly formatted before they
enter business processes or applications.
– EDI integration improves traceability and
reporting because electronic documents
can be integrated with a range of IT
systems to support data collection,
visibility and analysis.
– EDI automation supports positive
customer experiences by enabling
efficient transaction execution and
prompt, reliable product and service
delivery.
 

For large organizations, EDI enables

standards to be instituted across trading
partners to achieve benefits consistently. For
smaller organizations, adherence to EDI
offers greater integration with larger firms
that have big budgets and strong influence.

Related links

See the impact of automating paper-based

transactions to EDI (669 KB) 

EDI implementation
For some enterprises, EDI can be difficult to
implement. One reason is the need to keep
pace with shifting government regulations,
standards and updates. It is also inherently
complex, as it needs to accommodate the
complexities of global business needs. For
example, each trading partner in a B2B
network can present individual requirements.
Even though two partners may agree on
which EDI document to use, each can have
unique formatting requirements that need to
be supported. These factors, and others,
have led many organizations to outsource
their EDI solutions.

Whether in-house or outsourced, there are

some basic conditions, capabilities and
resources needed to implement EDI
effectively. In addition to factors such as
agreement on document types, secure
transmission methods, and requisite
hardware and software, an effective EDI
implementation should consider:

Translation or mapping software

This type of transformation software takes

fields such as names, addresses, currency
amounts, part numbers and quantities, and
maps them from business application
formats into standardized documents and
vice versa.

Batch enveloping or de-enveloping

capabilities

These capabilities support large EDI message

batches by enabling senders and receivers to
wrap and unwrap transactions. The
transactions can then be grouped from or
split into several divisions or areas of a
trading associate’s business.

Message routing mechanisms

After a message is de-enveloped, routing

mechanisms are required to sort the
messages for different groups and deliver
them to the appropriate targets. Message
transformation may also be required to get
the message into the correct format for its
destination.

Trading partner agreements (TPA)

TPA clarifies terms and conditions,

establishes standards for business
documents and defines communications and
business protocols between trading partners.

Related links

See what other essential elements make

up a modern B2B architecture

The future of EDI

Consider this scenario: a chargeback related
to a damaged shipment is triggered using an
EDI 214 document — a Transportation Carrier
Shipment Status Message. The material in
the shipment is unusable or unsaleable.
Disputes will most likely arise based on the
chargeback.

In future supply chains, EDI will be the core

document exchange capability to support
innovations such as the Internet of Things
(IoT), blockchain and artificial intelligence
(AI)³. Future EDI will use:

– IoT sensors incorporated into a

shipment’s packaging and tied to periodic
EDI 214 messages to improve package
condition visibility in near real time. 
– Blockchain technology underpinning EDI
information flows for shipments to offer a
shared version of the truth that can
quickly resolve and even avoid
chargeback disputes. 
– An AI agent that monitors all relevant
events and information connected to a
shipment and can identify a non-
compliant event. AI agents can also
determine if a reshipment is required,
analyze the most efficient source of
replacement, initiate a new shipment and
accept an authorized return.

Related links

Read the POV: What is the future of EDI?

EDI case studies

Coastal Pacific

Coastal Pacific seamlessly migrated 3.5

million EDI transactions to IBM B2B
Integrator, cutting manual administration
requirements and avoiding a four-fold
increase in EDI headcount.

Greenworks Tools

Greenworks saw 40% IT cost savings by

putting EDI into the hands of customer
service, giving business users and staff
fast insight into order status.

MISUMI USA

MISUMI accelerated order entries from

customers that don’t use EDI by
converting faxes, phone calls and email-
based files into EDI-formatted files.

Saint-Gobain

Saint-Gobain saved 92% per line order

and can now receive documents 24 hours
a day, every day of the week by using EDI
over manual processes.

EDI and APIs

With 50% of B2B interactions happening

through APIs by 2023, better support your
supply chain transactions with a blended
approach using EDI and APIs.

Related solutions

Digital supply chain network

Streamline supply chain execution through

seamless and secured any-to-any
frictionless connectivity, built to scale with
embedded AI to detect anomalies before
disruptions occur.

Explore IBM Sterling Supply Chain

Business Network 

B2B integration gateway

Consolidate all your complex B2B and EDI

integration and processing on a single,
security-rich gateway built on hybrid-cloud
technology.

Explore IBM Sterling B2B Integrator 

Onboarding and management of

trading partners

Reduce the time and resources required to

onboard new partners while managing and
maintaining existing partners.

Explore IBM Sterling Partner Engagement

Manager 

Any-to-any data transformation

Automate complex transformation and

validation of data between different
structured and unstructured formats and
industry standards at enterprise scale
without coding.

Explore IBM Sterling Transformation

Extender 

Automation of manual
transactions

Digitize and automate supply chain

transactions with non-EDI suppliers and
customers to reduce errors and save time
by converting paper, fax and phone-based
transactions into EDI format.

Explore IBM Sterling Transaction Manager



Receive EDI from all trading

partners

Transform non-structured documents such

as faxes, emails and PDFs into an efficient
EDI format with conversion services.

Explore IBM Sterling Document Conversion

Services 

EDI resources

The future of EDI: An IBM point of

view

The world as we know it runs and depends

on EDI, but that world is changing, and
with it the future of EDI. Discover how you
can modernize your B2B network.

Seven key drivers for modernizing

your B2B architecture

Across industries, B2B integration is vital

to the operation of companies. Find out
why B2B integration matters.

The simple way to automate

paper-based transactions

Many enterprises continue to receive

orders, tenders or invoices in the form of
faxes, emails or PDFs. See the impact of
doing business with smaller associates
who are not fully automated. (669 KB)

Five ways supply chains are

changing

Supply chains are changing. Find out five

innovations that leading organizations are
integrating to change how their supply
chains work.

B2B integration

Learn how automating and optimizing

critical business processes can help you
work and trade with your customers and
suppliers more effectively.

Connect and collaborate across

B2B networks

Discover how you can simplify B2B

connectivity, supply chain collaboration
and decision-making for your business —
on premises, hybrid-cloud or cloud-based.

Citation

1
"Electronic data interchanges, (link resides outside
ibm.com)" Wikipedia
2
"EDI and B2B basics, (link resides outside
ibm.com)" Sriniedibasics, 20 Aug 2011

3
"The future of EDI: An IBM point-of-view (PDF, 490
KB)" IBM Watson Supply Chain, Oct 2018

India — English

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