Understand the EDI basics | Transalis Blog


When it comes to understanding Electronic Data Interchange (EDI), it is always best to start with the EDI basics.

For EDI beginners, such as small business owners and decision-makers, getting to grips with everything can be overwhelming. At Transalis, we want to provide all businesses with the knowledge and tools they need to succeed. This is why we freely share our industry insight, client success stories and strategic expertise in our Knowledge Hub.

Learn all the EDI basics and more

Our ultimate beginner's guide to EDI provides all the information you need to make the right choice for your business, from start to finish.

What is EDI and why do companies use it?

Starting right at the beginning of EDI basics is knowing what EDI stands for and what it does.

A definition

Electronic Data Interchange, or EDI (not to be confused with Equality, Diversity and Inclusion!), is a time-saving technology that automates the exchange of business documents between companies. Effectively, it eliminates the need for manual data entry and paperwork.

EDI supports a B2B supply chain. Companies use it to digitise and standardise the formatting of the documents they exchange with their trading partners. This includes; orders, invoices, shipping notices, customs declarations etc. And the best part? These documents are generated and communicated automatically, even being fed directly into specified applications.

The evolution of EDI

Illustration of woman surrounded by graphs and charts, demonstrating EDI's ability to provide greater business visibility

For over 40 years, EDI has undergone significant advancements.

Initially created in the 1960s for large organisations, it has since evolved into a mature technology. Now businesses of all sizes and industries utilise EDI. Thanks to AI and Machine Learning, EDI is enhanced to facilitate even more intelligent and efficient communication.

Today, EDI is an essential tool for modern business automation. It provides an efficient way to exchange data and documents across global trading networks.

The key benefits

While organisations may have different reasons for implementing EDI, they all will reap the same rewards:

  • Increased efficiency and productivity: EDI enables the frictionless exchange of business documents and data, eliminating manual data entry and reducing the risk of errors, thereby improving operational efficiency and productivity.

  • Faster transaction processing: EDI streamlines the exchange of information, enabling faster processing times and reducing lead times for order fulfilment.

  • Cost savings: By eliminating the need for paper-based transactions, EDI reduces processing costs associated with paper documents such as printing, storage, and mailing. EDI also minimises errors and reduces the need for manual data entry, which saves time and reduces labour costs

  • Improved accuracy: EDI eliminates manual data entry and the associated errors, resulting in more accurate and reliable data and transactions. This leads to improved business processes and decision-making

  • Increased visibility: EDI provides real-time visibility into transaction status and inventory levels, enabling better supply chain management and improving decision-making

  • Improved customer relationships: With faster transaction processing and order fulfilment EDI can greatly improve customer satisfaction

How does EDI work?

All right, let’s dive into the EDI basics of how it works whilst not boring you with all the technical ins and outs!

EDI works by extracting data from a company’s internal systems and formatting it into a standard format. This message is then sent to the recipient through a secure network using a standardised protocol. The recipient’s computer system processes the message and extracts the relevant data, which can also be integrated into the recipient’s internal systems.

EDI messages can include a variety of data and can be customised to meet the specific needs of each trading partner. The use of standard EDI message formats ensures that information can be easily exchanged between different computer systems and trading partners, regardless of the specific software or technology used by each company.

The simple EDI message flow

To help you conceptualise this process, we have put together some visual representations of how it works:

This infographic shows orders and invoices being exchanged between the trading partner (left e.g. a high street retailer) to our client (right e.g. a supplier) thanks to Transalis eDI™ (middle). In this message flow, Orders (dark green) are raised and communicated to the supplier, and invoices (light green) are raised and returned to the retailer for payment.

Core principles of an EDI message

At a base level, all EDI messages follow a set of principles which are determined by an EDI protocol (we cover this in a bit).

Every message includes Elements, e.g. an item number/cost/the buyer’s location. Groups of Elements are known as Segments e.g. the full details of the buyer’s address. The completed EDI document is also referred to as a Transaction Set.

Four principles governing EDI messages:

  1. Syntax – determines the characters and the order they appear

  2. Codes – aids to interpret common details such as date formats, currencies and the names of countries

  3. Message designs – the message type structure (such as an invoice or order) and the syntax rules it follows

  4. Identification values – set out how different values in an EDI document are identified, such as where in the order of information they come

Different protocols and standards

The secret to EDI’s success lies in the protocols and standards that make it all possible.

These are like a common language that allows different computer systems and applications to communicate with each other, no matter what programming language or hardware they use.

By defining a standard message format and method for sending and receiving messages, EDI makes sure that your data stays accurate and reliable, even as it moves between different systems.

Next, let’s check out some of the most commonly used EDI standards and protocols, and how they work:

EDI Protocol Description
EDIFACT The United Nations developed Electronic Data Interchange For Administration, Commerce and Transport (EDIFACT). It is widely accepted as the universal EDI standard for global trade.
ANSI X12 This is the main standard to use if you have trading connections with companies in the USA. It is currently used by more than 300,000 companies worldwide.
EANCOM EANCOM is a subset of EDIFACT and is used primarily in the European market. The international standards organisation GS1 developed it.
TRADACOMS Trading Data Communications (TRADACOMS) is a UK-specific EDI standard developed in the 1980s for domestic trade. Overall, it encompasses 26 message types.
VDA The German motor industry developed Verband der Automobilindustrie (VDA), which is used by companies in the automotive supply chain.
IDOC IDOC is an SAP format to exchange data and messages between SAP systems and other external systems. This specifically helps to ensure integration with your trading partner’s formats.
XML It stands for eXtensible Markup Language. XML defines a set of rules for encoding documents in a format compliant with recognised communication protocols.

Transalis eDI™

So there we have it, the essential EDI basics you should know before choosing a solution for your business!

At Transalis, we support businesses of all sizes with their EDI and other automation solutions. We take on the technical setup so you don’t have to worry about it. From singular EDI connections with 2 message types to fully integrated trading networks and advanced reporting features, we have you covered.

Our eDI Instant product is a great starting point for SMEs and startups looking to scale with large retailer contracts. 1 trading partner, 2 message types, and a 30-day free demo account – it’s as easy as 1, 2, 3!

eDI Software

To learn more than the EDI basics – get everything you need to know as an EDI beginner with a free copy of our guide. You can also schedule a meeting with one of our friendly team to discuss your business needs in more detail. Or call us directly at 0845 123 3746 (UK callers) or +44 1978 369 343 (international callers), and email sales@transalis.com. You can gain hands-on experience with EDI by getting a free demo account of eDI Instant. Take a look at our Knowledge Hub for even more advice, strategic reports and client case studies.

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