Introduction to EDI

EDI stands for Electronic Data Interchange. It is a technique for businesses to exchange commercially-oriented data in a structured electronic format.

For example, Company A buys widgets from Company B. In a non-EDI environment, Company A's purchasing system prints a purchase order, which is posted or faxed to Company B. Someone at Company B manually enters the P.O. into an order entry system. The order is processed, the item(s) shipped, and B's accounts receivable system prints an invoice. The invoice is mailed to A, where it is manually entered into A's accounts payable for processing. Multiply this by hundreds or thousands of orders and a significant amount of printing, mailing and manual entry takes place.

The idea behind EDI is that since the order and invoice information already exists in an electronic form, and the paper documents serve as a mechanism to transmit this data between the two companies, it would be much more efficient to transmit the data in electronic format, in such a way that the documents can be processed programmatically. This would save the companies exchanging this information (trading partners in EDI terms) all the overhead of printing, mailing and manual entry. It would also eliminate the possibility of typing errors. In a just-in-time or quick-response manufacturing environment, it would eliminate time delays inherent in mailing orders and shipping instructions.

Standards have been developed to facilitate the exchange of business data, and are known generically as EDI standards or formats. These standards cover dozens of different types of documents, including invoices and POs, shipping documents, freight bills, customs paperwork, insurance claims, and so on and so on.

There are several sets of EDI standards around. The most common and widely used standard is EDIFACT, which is used world-wide.

EDI standards are, by design, very flexible so that they may cover a wide variety of different business situations and information requirements. Therefore, some data items on an EDI document are mandatory, but most are optional. The optional data items are transmitted, or not transmitted, depending on the business requirements of the trading partners involved. The structure of EDI documents also vary depending on business requirements.

Benefits of EDI

Implemented properly, EDI can save companies a lot of time and money in both personnel and material costs. Because incoming orders, invoices, etc. no longer have to be entered into a company's computer system manually, the labour cost of the data entry personnel is saved. Furthermore, there is no possibility of typing errors. For outgoing documents, all of the paper and paper handling costs associated with printing and mailing the documents are saved. There are costs associated with transmitting EDI documents, but these are small compared with the paper, paper handling and mailing costs.

Just-in-time manufacturing systems, used in many auto assembly plants, cannot exist without EDI. The plants need to communicate manufacturing and shipping schedules to their suppliers daily, which is why automotive EDI suppliers are required to be EDI-capable by their automotive customers.

Large retailers require their suppliers to be EDI-capable. These retailers rely on low inventory levels, and high inventory turnover, to save money. They also want to be able to respond quickly to demand or shortage situations. The type of quick communication required in this environment is not possible without EDI.


There are several ways trading partners exchange EDI documents, the most common and reliable being via Value-Added Networks (VANs).

A VAN is a commercial service which acts as a clearinghouse for EDI traffic. A company will bundle up all of its outgoing EDI messages into a file, and transmit the file using a modem to the VAN. The VAN will determine where each EDI message in the file is to go by examining the "envelope" surrounding each EDI document. The VAN will place the documents into each recipients' mailbox. When a company connects to its VAN, it can retrieve all of the EDI documents in its mailbox.

VANs will interconnect with other VANs. So, if company A is on one VAN, and company B is on another, the respective VANs will send EDI documents bound for the other company to each other. VANs charge for this service. Usually there is a sign-up fee, a monthly service fee, and a transmission fee. Some VANs have higher monthly service fees and lower transmission fees.

EDI Translation Software

There are a number of software packages available, with varying degrees of sophistication, which help companies to implement EDI. EDI software basically comes in two variations: stand-alone, and fully integrated EDI applications.

Stand-alone packages are rather like glorified fax machines: they receive incoming EDI documents, format them and print them out on paper. A user then takes the paper printout and uses it as he would if the document were faxed or mailed. Stand-alone packages also have data entry front-ends so a user can manually enter data into the package, which will then translate what was entered into an EDI document for transmission to the trading partner.

Software which facilitates integration, referred to as integrated EDI software, such as the ECS/EDI Processor,  will take an incoming EDI document and translate it into an application interface file which can then be processed by application software. It will also take a file generated by application software and translate it into the appropriate EDI document for transmission to trading partners.

The better the integrated EDI software, the more control a user has over the layout of the application interface files being used to transport data between your applications and the EDI software.

Why Use EDI?

EDI maximises the efficiency of exchanging documents (orders, invoices etc.), within your trading community and across enterprise boundaries. It enables the application-to-application exchange of information removing the need for human intervention.

EDI can change the way your company does business without any major re-development to the architecture of your existing business application software. To stay ahead in today's market, companies are choosing EDI because it offers speedy transactions, accurate information exchange and cost savings. EDI can help your company to manage your supply chain more effectively and supports initiatives like Just In Time (JIT) manufacturing and Efficient Consumer Response (ECR).

More precise EDI benefits include:

As a result, EDI improves customer service:

To summarise, EDI:

The EDIFACT Standard

The EDIFACT Standard (EDI For Administration Commerce and Transport) is the only EDI Standard that is truly accepted world-wide.

EDIFACT provides standard formats for business documents and incorporates features that meet international requirements. Consequently, the document structures are large as they try to cater for all conceivable eventualities. It is therefore common to find that individual industry sectors use subsets of the EDIFACT Standard.

Industry Subsets
Whilst EDIFACT messages are designed to meet defined requirements for business data transactions, it is accepted that national/industry conventions will determine which parts of the total message requirements to use. As a result, the message will be reduced down in size to only contain the information required by that industry. For instance, the EANCOM Standard (EAN International EDI Standard) was developed by the European Article Numbering Association, to produce an international EDI standard based on EDIFACT. EANCOM has been in existence since 1990. Another subset, EDIFICE, is used by the electronics industry and EDICON is used by the construction industry. The Article Numbering Association supports UK (UKEDIFACT) and European (EANCOM) subsets.

A key factor in the implementation of an EDI system today is one of multi-standard support. That is, the ability to manage messages of different standards and versions to satisfy the needs of members of your trading community.


Each Interchange is a collection of messages. Messages such as ORDERS, ORDRSP & INVOIC would be packed into a single interchange. 


A Message is a collection of Segments. Messages always begin with a message header segment (MHD) and end with a message trailer segment (MTR). The message header segment includes the message type that is unique for each type of message. 


A Segment is a collection of related Data Elements. Each Segment has a segment name (tag) as the first three characters. The segment name is separated from the Data Element by the delimiter = (equals).

Each type of Segment has a unique name. Within a segment, data elements are always in the same sequence. Missing data elements are shown by consecutive delimiters, with no intermediate data. The end of a segment is indicated by the use of the delimiter ' (quote).

Data Elements 

One item of data is called a data element. They are separated from each other using the delimiter + (plus).

Sub Elements.

Data Elements may be subdivided into sub-elements. These are usually related pieces of information, i.e. Item Code qualifier and Item Code.

Sub Elements are separated from each other by the use of the delimiter : (colon).


It will be seen from above that there are four delimiters, + (plus), : (colon), = (equals), and ' (quote), each of which has its own special use. The question mark (?) is reserved for use as a release character. This is for use where one of the delimiters needs to be transmitted as data, i.e. 100ML + 25% FREE. This would have to be transmitted as 100ML ?+ 25% FREE using EDIFACT standards. If the question mark occurs in the data, it must be transmitted as ??.



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