What is EDI Capability?

EDI capability is a supplier/manufacturer's ability to send and receive electronic documents in the exact format required by its trading partners. 

Being EDI capable enables businesses to:

• Integrate directly with partner systems

• Translate ERP data into EDI documents

• Automate transaction workflows without manual entry

• Ensure compliance with retailers

For suppliers, logistics providers, and distributors working with large retailers, being EDI capable is essential for doing business at scale.

How EDI Capability Works

EDI is a simple technology that started development in the 1960s in search of a standardized way for businesses to transact with each other. At its core, EDI is the computer-to-computer exchange of information between businesses. It converts messages into a standard coded format that can be received by another business’s internal systems (often called an ‘ERP’), which then translates the message back into a form that can be read. 

At a basic level, EDI works by:

1. Translating documents from your internal system into a standardized format

2. Transmitting those documents to your trading partner

3. Allowing the partner’s system to process the information automatically

EDI Capability vs. EDI Tools: What’s the Difference?

It’s a common misconception that simply purchasing EDI software makes a business “EDI capable.” But EDI capability isn’t just about having tools, it’s about how well your business can actually use them.

To be truly EDI capable, your business must have:

• The ability to send/receive EDI documents (like 850s, 810s, and ASNs)

• Systems that can translate and map data between your ERP and EDI docs

• Automated workflows that eliminate the need for manual entry

• Compliance with partner-specific specs, protocols, and business rules

In other words, EDI capability is a way your business operates, not a software license.

A business that purchases EDI software but still has to rely on rekeying data into its ERP isn’t truly EDI capable. The goal is seamless, automated, and scalable EDI ERP integration.

Core Capabilities of EDI Software

EDI solutions are purpose-built to handle the essential tasks of electronic data exchange to standardize documents into and out of EDI formats. This effectively transmits documents between trading partners, and integrates EDI workflows into back-end systems like ERPs, CRMs, and logistics platforms. Below is a closer look at the key components and processes involved in EDI:

EDI Mapping and Translation

EDI mapping and translation are the backbone of EDI workflows. Mapping involves converting standard EDI documents into formats like flat files, XML, or CSV that your internal systems can understand. For example, incoming EDI messages are mapped to files compatible with your ERP, logistics, or CRM system.

On the flip side, EDI translation converts non-EDI business files into standard EDI formats. For instance, a purchase order from your ERP, such as NetSuite, is translated into an EDI X12 or EDIFACT format. Together, mapping and translation automate the transformation of data, enabling seamless communication between disparate systems.

File Transmission with Managed File Transfer (MFT)

File transmission is the secure exchange of EDI documents between trading partners. Modern EDI solutions, like OrderEase, incorporate managed file transfer (MFT) capabilities to ensure secure transmission via protocols such as VAN, AS2, and SFTP.

Back-End Integration

The integration of EDI workflows with back-end systems, such as ERPs, is where EDI delivers the most value but also presents the greatest challenges. Effective back-end integration involves automating workflows that connect EDI data directly to business processes.

This process requires mapping and translating EDI files to the specific formats required by your internal systems, then connecting those systems via APIs and ports. Traditional EDI systems often struggle with these integrations due to outdated architectures. By contrast, modern EDI solutions streamline back-end integration, reducing costs and enabling efficient, automated workflows that scale with your business.

By leveraging a modern EDI solution, businesses can overcome these challenges, enabling seamless data exchange, robust security, and fully integrated operations across their supply chain.

How to Become EDI Capable

When managing EDI, businesses typically rely on one of two approaches: VAN and web EDI or direct EDI. 

VANS

Value-Added Networks (VANs) are secure, outsourced services that enable the exchange of EDI documents. Users typically connect through a web portal, manually entering data into forms, while the VAN processes and sends the information. VANs don’t directly link to back-end systems, requiring ongoing manual data entry and reconciliation. 

For businesses with growing transaction volumes, such as those supplying retailers like Walmart, VAN solutions can quickly become unsustainable. 

Direct EDI

Direct EDI solutions connect trading partners directly to your systems, automating data exchanges and eliminating the need for manual entry. 

What EDI Capability Requires

EDI standards are predefined formats and rules that dictate how business documents should be structured and transmitted between organizations. These standards ensure that systems from different companies can exchange data consistently and accurately, even if their internal systems are different.

Key Elements of EDI Standards:

Document Types

Each standard supports specific business documents, such as:

• Invoices
• Purchase Orders
• Shipping Notices (ASNs)
• Inventory Reports
  
  

Structure

EDI standards define how data should be organized into:

• Segments
  Groups of related data elements (e.g., buyer's name, order number).
• Data Elements
  Individual fields (e.g., price, quantity, or product ID).
• Envelopes
  Wrappers for the document that contain sender/receiver info.
  
  

Compliance

Trading partners (e.g., retailers and suppliers) must adhere to the same EDI standard to ensure proper communication.

Common EDI Standards

ANSI X12 (North America)

Widely used in the U.S. and Canada for industries like retail, healthcare, and logistics.
Example: X12 850 for purchase orders.

EDIFACT (Global)

A United Nations standard, commonly used in Europe and international trade.
Example: ORDERS for purchase orders.

TRADACOMS (United Kingdom)

Common in retail and supply chain industries.

VDA (Germany)

Used primarily in the automotive industry.

HL7 (Healthcare)

A standard specifically for electronic health information.

Where EDI Capabilities Fall Short

EDI standards, while powerful for automating supply chain processes, come with challenges that make them a pain point for many businesses, especially smaller or mid-sized ones. Here’s why:

Complexity of Standards

Different industries or regions often use different standards (e.g., ANSI X12 vs. EDIFACT which means a business trading globally may have to support several standards, requiring additional expertise and resources. To add complexity, each standard often has multiple versions. Trading partners may use different versions, forcing businesses to customize their integrations for each partner. Even if this is done arduously, EDI documents are highly structured, with strict rules for every data field and a small mistake can lead to rejected documents.

Lack of Flexibility

EDI standards are rigid and designed for machines, not people. Adding custom fields or adapting to unique business processes can be cumbersome.

High Initial Setup Costs

Each partner often has its own specific EDI requirements, which takes time and effort to configure and test. Businesses must map their internal data (like ERP systems) to the standard format, which requires technical expertise. Legacy EDI software also comes at a high cost which can be a barrier for growing companies. 

Lack of Expertise

EDI requires specialized knowledge, and skilled professionals are expensive and not always easy to find. Even when outsourcing EDI management, businesses need to closely monitor and troubleshoot issues with their providers.

Error Management

Errors like incorrect segments or missing fields can cause an EDI document to fail. Diagnosing and fixing these errors requires deep technical knowledge. If an error occurs, responses vary by partner. Some may send a detailed error message, while others just reject the transaction.

Ongoing Maintenance

As trading partners update their requirements (e.g., migrating to a new EDI version), businesses need to continually update their configurations to stay compliant. Changes in business systems, such as moving to a new ERP or adopting new sales channels, often require a complete rework of EDI mappings.

Limited Visibility

EDI transactions often happen "in the background," and without robust tracking tools, businesses may struggle to identify where delays or errors occur in the process. Traditional EDI doesn’t offer end-to-end visibility making it harder to keep up with modern customer demands for faster, transparent communication.

A Solution for EDI Capability Complexity

OrderEase simplifies the complexities of EDI standards by providing a centralized platform that integrates seamlessly with both trading partners and internal systems. With pre-configured EDI connections and automated workflows, businesses can easily comply with retailer-specific requirements without needing specialized expertise. Unlike traditional EDI tools, OrderEase integrates EDI with other sales channels, including e-commerce platforms and wholesale B2B apps, allowing businesses to manage all operations from one place. 

Are You Truly EDI Capable? Traditional vs. Modern Tools

Traditional EDI solutions are designed primarily to manage the electronic exchange of standardized documents (e.g., purchase orders and invoices) between businesses. These systems typically focus on the transmission, mapping, and translation of EDI documents into formats that both parties can understand. They often require a higher degree of technical expertise, as the setup of document mappings and integrations with back-end systems can be complex. Traditional EDI also tends to rely on third-party networks (VANs) for file transmission, which can incur additional costs and require manual intervention. These solutions are well-suited for large enterprises with complex partner networks and high-volume transactions, but the costs and technical barriers can make them less ideal for smaller or mid-market businesses.

In contrast, modern EDI software act act as a bridge between EDI solutions and a company’s business systems, such as ERPs and e-commerce platforms. These platforms focus on streamlining integration by automating workflows across multiple systems, often without the need for deep technical knowledge. Modern EDI solutions typically offer more flexibility, allowing businesses to connect not only with trading partners using EDI but also with various other cloud-based tools and digital platforms. These solutions are designed with user-friendliness in mind, often providing no-code interfaces that simplify setup and reduce reliance on specialized IT resources. Modern platforms are well-suited for businesses seeking cost-effective and scalable solutions, particularly those in the mid-market or those experiencing growth and needing multi-channel integration.

The key differences between the two lie in their scope and approach. Traditional EDI systems focus heavily on document exchange and secure transmission between partners, often requiring significant resources for setup and maintenance. Modern EDI software, however, offers broader integration capabilities, connecting various systems and automating workflows across the business. These platforms tend to be more flexible, allowing for easier adaptation to evolving business needs, making them more accessible and scalable for growing businesses. Additionally, modern EDI solutions often come with lower upfront costs and simpler pricing models compared to traditional EDI systems, which may involve complex licensing and transaction fees.

Ultimately, the choice between traditional EDI and modern EDI software depends on the size of the business, the complexity of its operations, and its long-term growth goals. Traditional EDI may be more appropriate for large enterprises with extensive partner networks, while modern EDI platforms offer a more agile and cost-effective solution for businesses looking to streamline integrations and expand into new sales channels.

The Evolving Definition of EDI Capability

EDI became popularized in the 1980s and has been widely adopted by medium-to-large businesses. They developed integrations into their existing internal IT systems to automate their order management and invoicing procedures. For over 40 years, EDI has been used with little change to the technology itself. It offers a relatively simple solution to a significant problem. This begs the question: Does it have a place in the future of business transactions?

EDI Barriers in a Modern Business

Businesses who use EDI require all their invoices and orders to be sent to them through EDI. As you might expect, this can create significant limitations by preventing them from transacting with companies that don’t use EDI. For example, large multinational retailers may require all their suppliers to comply with EDI for all invoicing and order fulfillment. This means that hundreds of suppliers have little choice and have to adopt the old and expensive technology in order to do business with major companies.

The main disadvantages of EDI are:

• EDI systems are expensive which makes it difficult for smaller businesses to implement and comply with the transactional and logistical needs of large companies.
• There are various formats of documentation and network requirements which can cause problems with cross-compatibility of systems.
• Business that fully rely on  EDI can’t accommodate business transactions in other formats, limiting potential business opportunities.
  
  

Removing EDI Capability Barriers With OrderEase

The solution for overcoming technology barriers is a technology bridge. OrderEase’s online ordering solution offers integration options for two-way EDI capabilities and helps to bridge the gap between businesses that use EDI and businesses that don’t.

OrderEase offers a single solution that converts an online order into the EDI data format that automatically transfers into an internal business system.