Electronic Data Interchange in Shipping

Understanding the entire scope of shipping logistics can be an overwhelming task, especially once a business begins selling products through larger marketplaces. Over time, merchants have been required to adapt to modern markets and the increase in online commerce with the growing popularity of ecommerce marketplaces. Especially for transactions between businesses, ensuring that all shipping information and consumer data is secure is crucial for success. The need for accurate and protected exchange of information is why electronic data interchanges have become such a fixed component of business-to-business transactions. We will be covering the below main points of EDI:

What is EDI (Electronic Data Interchange)

In simplest terms, EDI is how businesses can communicate important information and data to each other for business-to-business (B2B) transactions. The EDI is responsible for the exchange of electronic data between the businesses translation systems for orders, packaging specifications, shipping locations, delivery notifications, and order invoices without any individual needing to get involved. The automation of these responsibilities and tasks prevents the need for data re-entry and expedites the process of conducting these transactions and orders while also ensuring the exchange of information is more accurate.

For new or growing businesses that are looking to do business with larger marketplaces or Big Box stores, integrating EDI into your shipping logistics is a required step. Over 150,000 companies use EDI within their electronic transactions globally. To stay competitive within modern markets, businesses need to have a strong working knowledge of what EDI is and how EDI works. Let’s break down a few different ways EDI is used to help business owners identify if they’d benefit from moving into an EDI format.

Computer-to-Computer

A computer-to-computer EDI arrangement in place ditches postal mail, emails, and faxes between businesses. Naturally, email is electronic, but any documents exchanged via email are still handled by people rather than the computer. The physical nature of email can slow down the processing of these documents and makes the exchange susceptible to human error. For computer-to-computer EDI, those emailed documents will flow directly through the application on the receiving end’s computer. The process ensures that processing takes place immediately without any physical manipulation.

Business Documents

Paperwork is a natural element of running a business but can become cumbersome fairly quickly without the proper management systems in place. Business documents that are most commonly exchanged through an EDI arrangement include invoices, purchase orders, and advance ship notifications to name a few. Depending on the business, there might also be inventory documents, shipping updates, or customs documents for other types of services. These business documents are all very important to ensuring business records are accurate, and an EDI simplifies that process quickly.

Standard Format

As we have covered, EDI documents are processed by computers rather than physical employees. Since there are so many businesses that utilize EDI, a standard format is needed to ensure the computers can interpret and understand each document. The standard format will describe each document with a description of the information and ensure that companies don’t struggle through contradictory styles and formats. The standard format is especially important for documents between businesses that may speak a different language so that the receiving computer can understand the sender’s format. Some of the EDI standards in use today include:

  • ANSI, EDIFACT, TRADACOMS, ebXML: There are several EDI standards currently in use, with these as some of the most common versions. Businesses that are exchanging documents will agree upon a desired EDI standard format. 
  • EDI Translator: For data to be used within internal applications for document processing, many businesses will have an EDI translator. The translator might be in-house software or through an EDI service provider that translates the EDI formats.

Business Partners

EDI typically refers to the exchange of documents between two companies, which are called business or trading partners. EDi between business partners is fairly simple, one company might purchase goods from a different company, so the first business would send orders to the company through an EDI system. B2B commerce is centered around a seamless exchange of information to conduct these common transactions.

How Does EDI Work

Now that we understand what EDI is and some scenarios in which EDI is commonly used, let’s dive deeper into how EDI works. The goal of a properly set-up EDI system is to eliminate human involvement as much as possible. The only way to ensure the EDI system works is by preparing pre-existing systems for the transition. While EDI service providers might have unique steps involved, generally speaking, the process for applying and preparing for EDI involves:

  1. Prepare Documents: Gather and organize electronic data for the EDI. This might include purchase orders, data files, or other important business documents. Gather these electronic files and data to build an EDI document. This step might involve reformatting electronic information into data files. 
  2. Documents Translated in EDI Format: Once the electronic documents and data are collected, it’s time to feed that data through an EDI translator software to convert the information into the EDI standard format. It’s best to invest in an EDI translation software to properly organize this information and is sure to pay for itself in no time once the EDI is fully set up. Some EDI service providers will offer translation services as a part of their services. 
  3. Connect and Transmit Documents to Partner: After the necessary documents have been translated to an EDI format, it’s time to transmit those documents to business partners. There are numerous ways to connect with other businesses for transmission, but the most common option is connecting directly through a secure internet protocol or an EDI network provider (or VAN provider). Some businesses might even prefer a combination of both of these options depending on the businesses exchanging the data.

When it comes to businesses setting up shipping logistics, a reliable EDI can be a welcomed system to simplify business functions. Especially for businesses or merchants that operate through larger marketplaces, such as Amazon or even Walmart, streamlining purchase orders and shipping information is important for guaranteeing profit growth.

For example, let’s say you offer products through a Big Box store like Target. Target will send orders through an EDI to you through the EDI system for two orders for two separate stores, going through two different distribution centers. Once those orders arrive, the EDI software accepts the transactions and guides the warehouse for correct orders, communicating the appropriate packaging and shipping information. Now, let’s imagine that instead of two orders, you receive an order for 1000. An EDI can process those larger orders and ensure they’re properly ordered and shipped according to the seller’s standards, regardless of the order amount.

Benefits of EDI

There are many benefits of choosing to integrate EDI software within your business’ current processes. Especially for businesses that handle many transactions simultaneously, the automated function of EDI is a welcomed adjustment. While each business might operate uniquely, the benefits of EDI are fairly universal. Some of the benefits of EDI include but are not limited to:

Lower Costs

When running any business it’s important to save money wherever possible to support long-term growth. Exchanging important data and documents electronically can speeden up the translation process while also saving money on the labor that would be required if this was done manually. Entrepreneurs can also save money with the lack of expenses for paper, storage, printing, storage, etc. as the EDI eliminates many of these processes. By switching to an EDI model, transaction costs can be lowered by at least 35%.

Improve Speed and Accuracy

As we’ve briefly covered, EDI is also a great option for businesses looking to expedite their transaction process. An automated electronic system is bound to be more accurate and quick versus an employee that might make a mistake at some point. While prior your business might have been at the mercy of the postal service, EDI can exchange transactions within minutes while also improving the overall data quality. The quick and accurate results that EDI provides can be especially attractive for businesses looking to scale their logistics quickly.

Increase Efficiency

Choosing to incorporate EDI into your business’ transaction model is not only quick and cost-savvy, but it’s also more efficient overall. The automation of tasks allows employees to focus on other business responsibilities while also ditching the likelihood of products needing to be re-ordered due to a transaction getting submitted inaccurately or slowly. Business data can be sent promptly every single time, shortening the order processing system and delivery expectations overall.

Let ShipCalm Help you Integrate Your EDI System!

While understanding what EDI is in shipping terms might be complicated at first glance, the benefits of EDI within your business’ operations can positively transform your current transaction systems. ShipCalm is proud to be partnered with numerous EDI business partners that can help entrepreneurs further streamline their business and transaction systems functions. From the moment a customer places an order to the day it arrives at their front door, ShipCalm has a strong awareness of how to improve your business’ shipping logistics to encourage long-term success. Contact a ShipCalm representative today to learn more!