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What is EDI?

Electronic data interchange (EDI) is commonly defined as the computer-to-computer exchange of routine business documents between trading partners in standard data formats. Many businesses choose EDI as a fast, inexpensive and safe method of sending purchase orders, invoices, shipping notices, and other frequently used business documents.


EDI is quite different from sending electronic mail messages or sharing files through a network, a modem, or a bulletin board. The straight transfer of files requires both the sender and receiver referred to as (trading partners) agree on the format of the document. When you use EDI, it is not necessary for you and your trading partner to have identical document processing systems.


When your trading partner sends a document, the EDI translation software converts the proprietary format into an agreed upon standard. When you receive the document, your EDI translation software automatically changes the standard format into the proprietary format of your document processing software.

Why move to EDI?

Here are a few reasons why businesses adopt EDI:

  • Increases efficiency and cost savings.
  • Allows computers to process business transactions while people develop and enhance business relationships.
  • Improves business processes and streamlines transaction processing.
  • Improves the supply chain by making accurate information available quickly and inexpensively.
  • Reduces operating and labor costs by re-designing business processes and automating routine tasks.
  • EDI systems can be integrated seamlessly with business systems.
  • Reduces manual entry of data thereby eliminating human keying errors.
  • Facilitates faster and accurate document processing and transfer of information.
  • Shortens transaction processing cycles.
  • Enhances data accuracy.
  • Increases productivity without increasing staff.
  • Creates a competitive advantage for your business.
  • Allows companies to take advantage of the benefits of storing and manipulating data electronically without the cost of manual entry.
  • Allows new ways to do business and expand your customer base.
  • It is a preferred way of doing business among Fortune 500 companies.

How does EDI work?

EDI starts with a trading partner agreement between two companies, (buyer and supplier) known as trading partners. Most buyers will have an EDI implementation guide that explains specific EDI requirements such as the document types to be exchanged, mandatory and optional sections, communications method and timelines for documents to be sent or received. All EDI transactions with any trading partner must comply with the format the buyer specifies.


EDI transmission typically involves the following process:


The sender generates a document such as a purchase order (PO) with their business system and transfers it to the EDI system. The EDI system will do compliance checking and automatically format the document into the agreed-upon EDI standard that will allow the receivers EDI system the ability to read the document upon receipt. The file is then wrapped in an electronic envelope which will have the receiver EDI ID.


The communications portion of the senders EDI system connects to their VAN and transmits the envelope containing the document to their mailbox. The VAN provider reads the receiver ID on the envelope and transmits it to the correct receiver mailbox. A Value-Added Network (VAN) is like an electronic post office, they provide connectivity between trading partners ensuring EDI transactions are sent and received.           


Alternatively data can be transferred directly via AS2 to and from AS2 capable trading partners, direct transmission occurs when a company connects directly to the computer of its trading partner securely by using digital certificates and encryption.


After the file is transmitted to the receiver’s mailbox, the communications portion of their EDI system connects to their VAN and retrieves all files from their mailbox and automatically translates them from the EDI standard format to a file that is usable by their business system for processing.


The EDI system will generate a 997 to be sent back to the sender acknowledging receipt of purchase order.

What do I need to do EDI?

To do EDI, a small to medium sized business should purchase a turnkey solution with all necessary components. It is not economically feasible for a company to purchase a generic translator, a communications program and another program to allow importing and exporting to accounting system. Because the components are most often written by unrelated parties, the components might not fit properly and maintenance costs are often very high.

You will need a PC with the ability to connect to the Internet. You may also need a mailbox with a Value Added Network (VAN) provider.

What is the most common EDI cycle?

  • Trading Partner transmits EDI 850 (purchase order) to Supplier.
  • Supplier transmits EDI 997(functional acknowledgement) to Trading Partner acknowledging 850.
  • Supplier transmits EDI 856 (advance ship notice) to Trading Partner.
  • Trading Partner transmits EDI 997 (functional acknowledgement) to Supplier acknowledging 856.
  • Supplier transmits EDI 810 (electronic invoice) to Trading Partner.
  • Trading Partner transmits EDI 997 (functional acknowledgement) to Supplier acknowledging 810.

Do I need to integrate with my business application?

It is very important that your business application integrates seamlessly with your EDI system. Without integration there is no economic benefit. In fact, the inputting of data will dramatically increase if the two systems are not integrated. Conventional EDI systems used generic mapping programs to describe the relationship between the data fields in the business application and the EDI standards. The mapping process was very involved and usually required a substantial investment. Edisoft products provide maps as an integral part of the application.

How much will EDI cost?

The cost of setting up an integrated EDI system varies from company to company. Contact sales@edisoft.com or call toll-free at 877-334-0030 to discuss a solution that fits your needs.

What about other costs?

Fees vary, you can expect the following ongoing charges:


Maintenance fees:  Most companies charge an annual maintenance fee usually a percentage of the EDI systems list price. This fee should include software and standards updates. Some EDI companies will wave these fees if they also offer VAN services. In this case they will make it mandatory to use their VAN services and they will often increase the amount charged for transmitting data to recover the annual maintenance fees in this way.


VAN charges:  The VANs bill you for transmitting data, similar to making a long distance phone call.


Mailbox costs:  Most VANs charge a monthly fee for maintaining a mailbox on their network. Some base billing on the documents transmitted while others charge based upon the number of characters in each document.

What is my EDI ID? (Qualifier and ID)

Your EDI qualifier and ID are two sets of numbers that together uniquely identify your company. The commonly used are qualifier of 01 and your DUNS number to make up your EDI ID, if you do not have a DUNS number, you can use qualifier of 12 and your phone number. You can also use mutually defined EDI ID’s. EDI ID is also sometimes referred to as your ISA ID.

What is EDI compliance?

EDI compliance is the ability to send and receive EDI documents in the way that your partner requires it. Every trading partner has unique EDI requirements and each EDI compliant document must be exchanged with each partner in exactly the format they specify. Most partners will have an EDI implementation guide that explains their specific EDI requirements. EDI compliance must be tested and approved by each trading partner to ensure their requirements are met. 

Do I need a VAN (Value Added Network)?

A VAN (Value Added Network) is needed for EDI with many business partners. A VAN is responsible for the secure and reliable communication of EDI documents. Some trading partners do not use a VAN; they transmit EDI documents via AS/2. Edisoft’s Business Exchange VAN Service will accommodate of all your VAN and AS/2 connectivity requirements.

Do I have to use the same VAN service provider as my trading partner?

No, you can choose any Value Added Network service provider. VANs connect to each other through interconnects. Data that is transmitted on one VAN can be delivered to someone on another VAN.

What is the process for creating an ASN (Advance Ship Notice)?

Advance Shipping Notice (ASN) also known as the 856 document is a process for suppliers to notify buyers that an order has shipped or is in the process of shipping. It is an electronic version of a printed packing slip that tells a buyer how a supplier has packed their items for shipment.


The 856 document can be used to list the contents as well as additional information relating to the shipment such as order information, product description, physical characteristics, type of packaging, carrier information and configuration of goods within the transportation equipment. This allows the sender to describe the contents of a shipment in various levels of detail.


Most ASNs will follow either standard pack or pick and pack guidelines and usually the buyer will specify how they want the goods packed. A single ASN can represent multiple boxes, packages, containers and purchase orders if all line items within an ASN use the same ship to address information.


If containers (i.e. cartons or pallets) are specified on the ASN, they will be assigned a unique serial number. A GS1-128 label will be printed for each container which includes a barcode for this serial number. Once the container is received by the buyer, the barcode is scanned, the serial number will then be used to lookup the details from the ASN that had previously been sent. This allows the buyer to verify that they have received the entire shipment as well as to know what is in the box without opening it as this detail is sent on the ASN.


The Advance Shipping Notice (ASN) creation is very simple; the following is a general overview of the ASN process:


Purchase Order is received: Every time a supplier receives a purchase order (PO)from a buyer it is processed and a sales order (SO) is generated based on information transmitted on the PO such as quantities, agreed prices for products, payment terms, delivery dates, shipping terms and all other obligations and conditions. The sales order then processed into a pick list or pick order and sent to the supplier’s warehouse.  


Items are picked and packed: Warehouse employees pick and pack items from inventory, prepare them for shipping and enter information into your business system to create the shipment.


Labels are printed: Once you are satisfied with the shipment created, you can generate and print your UCC-128 labels which have to be compliant with your trading partner’s specifications and attach to the shipment. Always verify that all required information is printed on the labels. The labels allow the buyers receiving dock to know what is in the supplier's cartons without having to open the cartons when they scan them. For customers that do not require labels you would skip this step.


Goods are shipped: When the order has been shipped, the order status will be updated in your business and EDI systems to create the ASN to be sent to the buyer notifying them that the goods have been shipped so they can be expecting the shipment. The ASN along with the barcode labels contain the supplier's vendor number, ASN number and carton numbers. The ship notice gives the buyer advance warning so that they can schedule the receipt of the shipment at their warehouse and also alerts them of any shortages in the shipment. Once the shipment arrives, the ship notice acts as a tool for automatically checking in the cartons by scanning the attached UCC-128 labels. This verifies the receipt of the cartons and provides information of any cartons lost in shipping.


ASN is sent to Trading Partner: The last step in this process is sending the ASN to your trading partner. Your EDI system will reformat the 856 document into the agreed-upon EDI standard, it will create and wrap the document in an electronic envelope that has an EDI ID for your trading partner and send it. Most suppliers will also want to receive a 997 (Functional Acknowledgment) back after the buyer receives the 856 document to indicate that they successfully received the Advance Shipping Notice. If for any reason the ASN is rejected by your trading partner, you can go back, edit the document and resend with the new changes.

Common EDI Terms

ANSI:  American National Standards Institute is the organization that oversees the development of national standards including EDI.


ANSI ASC X12:  Also referred to as ANSI X12 or the X12 format, it is the official EDI standard used in North America.    


AS2:  Applicability Statement 2 is a specification for transporting data securely over the Internet using Hypertext Transfer Protocol (HTTP) as the communications protocol. Security is achieved by using digital certificates and encryption.     


ASN:  An Advanced Ship Notice or ASN, documents the shipping process for orders, it indicates when a shipment was sent, the carrier information and how it was packed. It is also known as the 856 transaction.


Barcode:  A barcode is a machine-readable representation of information. Initially barcodes stored data in the widths and spacing of printed parallel lines, today barcodes also come in patterns of dots, circles, and text codes hidden within images. Barcodes can be read by optical scanners called barcode readers.


Connectivity:  The ability to establish and maintain a connection between two or more points in a telecommunications system. A typical mechanism for establishing connectivity in an EDI system is a Value Added Network.  


DUNS Number:  A unique nine-digit number assigned by Dun & Bradstreet and it’s recognized as the universal standard for identifying business establishments worldwide.


FTP:  File Transfer Protocol (FTP) is a network protocol to move files between computers over the internet.


Functional Acknowledgement:  A Functional Acknowledgement confirms that an EDI transaction has been received by a trading partner and it indicates the time and date of receipt. It is also known as a 997 transaction.


Integration:  Integration is the process of exchanging data between two different applications in an automated fashion with little or no manual intervention.


SCAC:  Standard Carrier Alpha Codes are unique four-letter codes that identify transportation carriers.


Trading partner:  A trading partner is one of the many companies with whom you conduct business, such as a vendor or customer via EDI.


Transaction:  A transaction is the exchange of a business document that facilitates a business process such as a purchase order, invoice or advance ship notice.


Translation:  The process of converting a business document to and from the EDI standard.


UPC:  Universal Product Code is a unique 12-digit number assigned to retail merchandise and it is the most common barcode format used in North America.


VAN:  A Value Added Network is private network provider used to facilitate EDI connectivity or provide other network services between trading partners. 

Useful Links

GS1 Organization (GS1) http://www.gs1.org/


Voluntary Interindustry Commerce Solutions Association (VICS) http://www.vics.org/guidelines/bol/


Data Interchange Standards Association (DISA) http://www.disa.org/

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  • Rory K Gallagher
    EDI and Compliance
    Leisure Merchandising