What is EDI? Electronic Data Interchange Explained

What EDI means for your business

In business, EDI is the language trading partners use to move paperwork without printing, posting or keying it in twice. A retailer's order leaves its system, lands in the supplier's system already formatted, and the supplier's acknowledgement, despatch advice and invoice travel back the same way. For a closer look at the acronym itself, see what EDI stands for.

For most companies this is less about the technology and more about what changes in the working day: fewer queries chasing a missing order, fewer manual checks before an invoice can be paid, and a trading partner who can see exactly where a delivery stands without picking up the phone.

How EDI works: the order-to-invoice cycle

Picture a UK grocery supplier trading with a national retailer. Every stage of the order runs through EDI rather than email or a portal login.

1. Order. The retailer's system raises a purchase order and sends it electronically. It lands in the supplier's order system in the retailer's required format, with no rekeying.
2. Order acknowledgement. The supplier's system replies automatically, confirming what it can fulfil and when, so both sides work from the same figures.
3. Despatch advice. Before the goods arrive, the supplier sends a despatch advice, also called an advance shipping notice or ASN, telling the retailer exactly what is on the vehicle, down to quantity and shelf life.
4. Goods receipt. The retailer's warehouse checks the delivery against the despatch advice, flags any shortfall immediately and books the stock into its system.
5. Invoice. The supplier's invoice is generated from the same order data and sent electronically, matched automatically against the order and the goods received, so it can be paid without manual checking.

Every step happens in minutes rather than days, and each document is generated from data that was already correct, because nobody retyped it along the way. This is the order-to-invoice cycle that sits behind a large share of UK retail trading, and it follows the same basic pattern whether the supplier is a small food producer or a multinational manufacturer, only the volume changes.

The main EDI documents

Most EDI traffic between a UK supplier and a retailer is made up of a small set of recurring documents. For the full set and how each one is structured, see our guide to EDI transactions.

• Purchase order: the retailer's request to buy specific products and quantities.
• Order acknowledgement: the supplier's confirmation of what it will supply and when.
• Despatch advice, or ASN: details of what has been shipped, before it arrives.
• Invoice: the supplier's request for payment, matched against the order and delivery.
• Credit note, product catalogue and stock report: used to correct, list and report on trading data as needed.

The exact combination a business needs depends on the trading partner. A retailer's message specification will list every document it expects, in what format and by what deadline, and a supplier is generally expected to match it before an order is placed.

EDI standards: EDIFACT, TRADACOMS, ANSI X12 and Peppol

A standard is what lets two different computer systems agree on what a piece of data means and where it sits in the document. Several are in everyday use across UK supply chains, and our full guide to EDI standards covers each in more detail.

• EDIFACT: the United Nations standard used across Europe and increasingly the default for UK retail.
• TRADACOMS: the older UK retail standard, introduced in the 1980s, that some trading partners still use alongside EDIFACT.
• ANSI X12: the standard most common in North America, also seen where a trading partner operates internationally.
• Peppol: not a traditional EDI standard, but the framework behind e-invoicing, using a four-corner model to route invoices between systems. See our Peppol network accreditation for how this fits alongside EDI.

Getting the standard wrong means a document arrives unreadable or is misinterpreted by the receiving system, which is why most businesses leave the mapping and translation between standards to a managed EDI provider rather than building it in house.

Ways to connect to EDI

How a document travels between two systems is a separate question from which standard it uses. Businesses typically choose from four connection methods, often mixing them across a trading network.

A single business often uses more than one method at once, for example web EDI for a handful of small trading partners and a direct integration for its largest retail account, all managed through the same provider and the same underlying connection.

EDI versus email, PDF and API

An emailed PDF still needs a person to open it, read it and key the figures into another system. That is where errors creep in and where a retailer's tight delivery windows get missed. EDI removes that step because the data goes straight from one system into another in a format both already understand.

For a business trading with several retailers at once, this difference compounds. A team processing hundreds of emailed orders a week spends that time re-entering data instead of managing stock, pricing or customer relationships, and every retype is another chance for an error to reach the invoice.

API and EDI are often confused because both move data automatically between systems. An API call is usually a live request and response between two specific systems, built and maintained by a developer. EDI is a standardised message exchanged between many different trading partners without custom development for each one, which is why entire retail sectors have settled on it as their common way of trading. Many EDI systems now offer an API alongside traditional EDI, so both methods can run on the same connection.

What is an EDI system?

An EDI system is the combination of software and service that turns a document created in one company's system into something another company's system can read, and moves it there securely. It typically does four jobs.

• Translation: converting a document from your internal format into the EDI standard your trading partner requires, and back again.
• Mapping: matching each field, such as a product code or delivery address, to the right place in the outgoing and incoming document.
• Communication: sending and receiving documents securely over the connection method you use, whether that is AS2, a VAN or a direct integration.
• Integration: getting the translated data into your ERP or accounting system, such as Sage, Xero, SAP or Dynamics, so it appears as an order or invoice without anyone re-entering it.

Locations and trading partners referenced inside these messages are usually identified by a GLN, sometimes called an EDI number, which lets systems route documents to the right place automatically.

Buying an EDI system rarely means buying a single piece of software. In practice it means choosing a provider who runs all four of these jobs for you, on a connection that already understands the formats your trading partners use.

The benefits of EDI

The case for EDI comes down to what changes day to day, not just what it costs to run. These are not one-off gains: once a trading partner is connected, the same benefits apply to every order, delivery and invoice that follows, for as long as the relationship lasts.

• Fewer errors: data moves once, from system to system, instead of being retyped at every stage.
• Faster orders: acknowledgements, despatch advice and invoices are exchanged in minutes rather than days.
• Retailer compliance: suppliers meet the message formats and timescales that major retailers require, without building it themselves.
• Visibility: every order, delivery and invoice is tracked electronically, so problems are spotted before they reach the customer.
• The network effect: once a trading partner is connected, each new document type or new partner is added to the same connection rather than a fresh project.

Who uses EDI in the UK, and why retailers require it

EDI underpins most of the UK's retail and grocery supply chain, along with manufacturing, wholesale and logistics. Retailers such as Argos, AS Watson and Superdrug trade with their suppliers through EDI, and many large retailers make it a condition of doing business at all. Transalis connects more than 15,000 trading partners across UK and European supply chains.

Beyond retail and grocery, EDI is just as established in manufacturing, wholesale distribution, automotive and logistics, wherever high volumes of orders and invoices move between trading partners on a regular schedule.

For a retailer managing thousands of suppliers, EDI is the only practical way to process that volume of orders, despatch advice and invoices without a large back office team. For a supplier, being able to trade on EDI is often what allows them to win and keep a listing with a major retailer in the first place.

How to get started with EDI

There is no single way to start with EDI, and most businesses grow into it rather than adopting everything at once.

• A browser-based service with no integration, for businesses that need to meet a trading partner's requirement quickly.
• EDI integrated into your ERP or accounting system, so orders and invoices flow automatically without anyone opening a browser.
• A fully managed service across a large trading network, where the provider handles onboarding, standards and every connection.

The right starting point depends on how many trading partners you have today and how quickly that number is likely to grow, rather than on the size of your business alone.

All three run on the same underlying connection, so a business can start simple and add integration or partners later without starting again. Transalis OpenEDI supports all three, and you can book a meeting to talk through which fits your trading network.