Everything you need to know about EDI transactions

Electronic data interchange, or EDI (and EDI transactions), enables companies to frictionlessly process and share business-critical documentation such as orders, invoices and shipping notes.

Moving to an EDI transactions platform enables you to avoid having to transfer paperwork and instead take advantage of automation and digitisation.

But what exactly do we mean by EDI transactions?

To demonstrate the advantages of EDI and how EDI transactions work, let’s see the difference they can make to the manual processing of business transactions…

Without EDI transactions

First, we’ll consider what a typical business transaction involves if done manually.

Once a company buyer decides on their purchase, they typically send a purchase order to the supplier who then has to enter it into their order entry system and mail back an acknowledgement.

The buyer is likely to need to print, or otherwise save, a copy of the order and acknowledgement for the audit trail.

Based on manual processes, all this can take days to complete.

With EDI transactions

There’s a clear difference for business who harness the use of EDI transactions.

There is no need to print the purchase order as the system automatically creates an electronic version and transmits it to the supplier.

Likewise, the supplier’s system is updated automatically on receipt of the order, generating and transmitting the acknowledgement back to the buyer.

Unlike the traditional approach, the EDI process can be measured in minutes rather than days making the whole proposition of data transfer far more efficient and cost-effective.

Automatic recognition

Essentially this refers to the recognised requirements for the format and make-up of EDI documents including the order of information and where specific data is held.

To conform to EDI standards, the document will include ‘elements’ such as the item number or numbers, the cost, and the buyer’s location. Groups of elements are known as ‘segments’, so the full details of the buyer’s address for example. The completed EDI document is also referred to as a ‘transaction set’.

These definitions are inevitably standardised because of the computer-to-computer nature of EDI. Without standardisation, trading partners’ systems would simply not be talking the same language and the exchange of data would be neither seamless nor automatic.

Among the many standards in operation across the world are ANSI in the United States, GS1 for global retail, ODETTE in Europe, AIAG for North American automotive, TRADACOMS in the UK, and the United Nations rules for administration, commerce and transport, EDIFACT.

For a full breakdown, see our guide to EDI standards.

What then do we mean by the term ‘EDI standards’?

The term EDI transactions is simply another name for standardised business documents as seen through the lens of EDI and exchanged under recognised EDI standards.

An EDI transaction will involve a level of supporting data and align with a format that defines where that data is held in the document.

Depending on the kind of EDI transaction we are talking about, a dedicated transaction number will be given to it from the hundreds available in EDI’s global standards list.

For example, a purchase order will have the transaction number 850, and the resulting invoice 810. EDI software will recognise and distinguish both, automatically understanding the order number, the products involved, the name of the company buyer and the order price.

It’s this seamless automation, and the benefits it brings, that has prompted big names in manufacturing and retail to require supply chains to use EDI solutions and conform to its underlying standards and protocols.

Communications protocols

As well as formatting standards, it is vital to ensure your EDI transactions conform to an accepted communication model such as AS2 or AS4. These are secure, encrypted process models that have been widely implemented and accepted across the world as the best way to achieve EDI integration.

AS2 avoids the risks of an approach that has generally become outdated, known as VAN, or ‘value-added network’. Under this, you pay a charge for every transaction or data character you send, meaning you can easily incur hefty penalties for going over a set limit.

Transalis is one of just a handful of UK EDI providers certified as meeting the AS4 standards of PEPPOL, or Pan European Public Procurement Online. This is a multi-national framework of technical specifications designed to make disparate tech systems interoperable.

AS4 supports all aspects of electronic procurement and supply chain management including the exchange of purchase orders, despatch advice and invoice messaging. It also goes further than its AS predecessors in providing more support for metadata.

Other recognised communications models that Transalis eDI™ can readily support include SFTP and FTP.

Benefits of EDI transactions

There’s a number of benefits of EDI transactions…

Take cost savings, for example:

UK grocers together save more than £650 million a year thanks to EDI. Businesses in general save £14 an order and £8.50 per invoice.

Or faster processing:

E-invoicing cuts ten minutes of time per invoice, creating an annual saving for UK retailers of around £100 million.

Even if there were no cost or time savings, it would still be sensible to move to EDI for environmental reasons. It eliminates paper-based manual processes that are increasingly seen as unsustainable.

And linked to all of the above is the issue of accuracy. Going digital and embracing EDI transactions can eliminate a costly error rate. GS1 UK have found that on average, up to 5% of the data on a typical paper invoice is inaccurate.

Isn’t it time you switched to EDI transactions with Transalis eDI™?