What is EDI and How Does It Work?

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As an EDI expert implementing EDI, every day I talk to businesses selling products – some small, some large about the meaning of EDI along with the following:

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We specialize in helping businesses find the right cloud software for their business and we are experts in inventory management, e-commerce and manufacturing – so that’s the type of businesses we help.

 EDI Translation

EDI stands for Electronic Data Interchange.
Super Retail Group explains Electronic Data Interchange (EDI) nicely as:

The electronic exchange of information in a defined and structured format between their business and their suppliers.

Benefits of EDI:

      • Faster, more efficient and more accurate procurement
      • Increased service levels and compliance
      • Overall supply chain visibility and efficiency
      • Enhanced collaboration with our trade partners

EDI replaces manual data entry and exchange of business documents. It is also used by large companies that have multiple stores throughout the country or world.

Think Coles & Woolworths (for food and beverage products), Iconic, Myer, David Jones or Nordstrom (for fashion businesses), Bunnings (for manufacturing businesses) or Houzz and Wayfair (for lifestyle products businesses). Even if you want to sell your products to Kmart, Target, Walmart, Whole Foods or Rebel Sports they all use EDI. They might call it different names, but it is essentially slightly different versions of the same thing.

 How Does EDI Work

EDI is its own language, like banks have a way of exchanging data between the banks that they all understand, EDI is like that. The information exchanges are defined and structured in the same way so that the buyer (e.g. Coles) can place a purchase order in their system and it can automatically flow into the supplier’s software as a sales order.

Furthermore, when you are working with a buyer like Coles, you need to send them an order acknowledgement, confirming if you can fulfil the order that they have asked for and if you can meet their deadline. Coles has a lot of moving parts and you need to send the goods they have purchased from you to their Distribution Centres and then they need to distribute everything to their hundreds of supermarkets around the country.

They need to know exactly when you are sending their order to them, when it’s going to arrive and ensure that it is labelled correctly. This involves you sending them what’s called an Advanced Shipping Notice, printing off the shipping labels they need to successfully receive your order at the Distribution Centre. Finally, you need to electronically send them an invoice or an electronic document to get paid!

If you don’t do it on time – at any stage – you can get a “black mark” against your company name and risk losing your accreditation.

Here’s a visual depiction of this process from Cin7, one of the software systems we implement for customers with Xero and QuickBooks Online that can manage their inventory management requirements and their EDI service needs all-in-one.

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 EDI Translation

Step 1: Become an Approved Supplier

You become an approved supplier of a big chain buyer, like Target. (Yay!… Congratulations!)

Step 2: Use Software that Can Connect via EDI

You need to be using a software system that can connect electronically to Target’s EDI platform. (We use Xero, QuickBooks Online, Cin7 or DEAR Inventory or a mix of two, depending on our client’s needs). Depending on the software you use, you might also need an EDI provider, such as B2B Gateway or Crossfire EDI.

Step 3: Get Accredited by your Buyer’s specialist EDI team

You need to have your EDI provider/software, contact the Accreditation/Certification team of your buyer. For example, Target will have a team dedicated to approving new suppliers and their software connections. Once you have been accredited after going through quite a rigorous testing process, you can start trading via the EDI with your buyer.

Depending on the buyer and your EDI provider, EDI testing and accreditation can take from 2 weeks to 5 months. Sometimes the EDI connection doesn’t exist yet and your provider needs to build it working with the buyer’s EDI team. The accreditation process should not be rushed.

Step 4: Receiving Orders from your Buyer

The process of what needs to be exchanged between your buyer and you, the supplier, throughout the process from order to fulfilment to payment, can be different for different buyers, but you can be guaranteed that it will always start with the buyer sending through a Purchase Order outlining what they want to buy from you.

We will use Cin7, one of the software systems we use, for these examples.

In Cin7, the order will either be automatically imported into the Sales Orders section as a New Sales Order (if Auto-Import is turned on) or when you know you will be receiving orders from your buyers, you can go into the EDI Dashboard in Cin7 and select Import to import all the new orders instantly.

This Purchase Order Invoice is often called an 850: Purchase Order.

Step 5: Order Receipt Acknowledgment is Sent Back to the Buyer

Once you have reviewed the new order/s and confirmed (in Cin7) that you have enough stock to fulfil the orders by the deadline provided, Cin7 will automatically generate an Order Acknowledgement receipt and send it back to the Buyer via the EDI system.

If you need to change their original order because you can’t fulfil what they want in time, Cin7 will send a Change Acknowledgement.

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Step 6: Prepare the Order for Fulfilment and Send the Advanced Shipping Notice

You prepare the order for shipment and then once ready to ship, Well Before the Buyer’s Deadline, you will need to print the labels to put on your boxes/pallets and then Cin7 will create an Advanced Shipping Notice to the Buyer via the EDI system.

Sometimes the label you need to print will be generated by Cin7, which is created and approved during the accreditation process. Or you can use a custom shipping label for the postal providers you are approved to used to send to the buyer, such as Australia Post, UPS, FedEx, Toll etc.

No matter where you generate the shipping label from, Cin7, a shipping software – like ShipStation or StarShipIT, or the shipping company directly online – you need to ensure all the shipping information is in Cin7 to be included in the Advanced Shipping Notice (ASN). The ASN reports the status of the product to the buyer.

    • What’s in the box
    • Where it’s going to
    • Where it’s coming from
    • What’s in each box
    • Who sent it
    • The order reference
    • What Carrier was used
    • The tracking number

As long as all this information is in Cin7, then the ASN can be generated and sent to the Buyer via the EDI.

Step 7: Ship the Order and Send the Invoice

Finally, you need to ship the order to the buyer as promised and send the invoice electronically to the Buyer via the EDI for payment. Cin7 will manage this for you too and send a copy of the invoice to your accounting system automatically if you are using a system like Xero or QuickBooks Online.

You can also download this guide about everything that you need to know when starting out with EDI in your business

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