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Your Guide to Understanding EDI Compliance

EDI compliance involves adhering to a trading partner's requirements and instructions for exchanging business documents. These requirements are not a one-size-fits-all solution and vary from business to business.

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EDI fulfills the age-old business need for effective communication. The technology enables fast, secure integration between buyers and sellers.

However, it’s not quite as easy as ‘plugging in’ to another trading partner–there’s the small matter of EDI compliance to handle.

EDI compliance means adhering to another business’s requirements for message interchange, which can be quite onerous when dealing with leading retailers like Walmart or Amazon.

You might have been asked to comply with a trading partner’s EDI guidelines already, or if not, it’s good practice to be ready for when that happens.

By optimizing your EDI compliance strategies, you’ll be in the best place to positively interact with trading partners and build those all-important relationships in the process.

This article explains what EDI compliance is, how it works in practice, and how to ensure you’re ready to comply with trading partners for more durable, profitable relationships.


EDI Compliance Varies From Partner to Partner

EDI compliance involves adhering to a trading partner's requirements and instructions for exchanging business documents. These requirements are not a one-size-fits-all solution and vary from business to business.

Joe Cicman, a senior analyst at Forrester Research, offers insightful commentary on the proliferation of EDI and its compliance in the context of the cleaning product Sham-Wow. “When I look at the spread of EDI, I look at the power map in a supply chain. The buyers like Walmart and Ford have the power. They mandate that their suppliers adopt EDI. That’s how it spreads.”

“When the deal [with Walmart] got signed, the Sham-Wow guy got a supplier compliance packet that told him exactly how the orders would come through, the case pack factor, how the shipping label needed to be formatted, and the EDI standards to comply with. Sham-Wow had to implement EDI in order to get the Walmart business. That’s a simplified version of how EDI spreads.”

These retailer-specific EDI instructions are tailored based on the EDI documents they use, formatting quirks, and security protocols, among other things.


An Example: Walmart's EDI Framework

To help you visualize how EDI compliance works, here’s an example of how Walmart–a company with over 100,000 suppliers–sets EDI compliance rules.

Walmart has established a comprehensive EDI system to manage its vast supply chain.

This system is designed to handle various functions, including order processing, inventory management, and shipment tracking, all facilitated through electronic data interchange.

Here’s how it works, as per Walmart’s Developer portal:

EDI Transaction Sets

  • Walmart uses a variety of EDI documents, such as the EDI 850 Purchase Order, EDI 855 Purchase Order Acknowledgement, EDI 860 Purchase Order Change, EDI 856 Ship Notice/Manifest, and EDI 997 Functional Acknowledgement.
  • Each document serves a specific purpose, from order placement to shipment details, and partners need to use the full extent of documents as and when necessary.

EDI File Naming Conventions and Segmentation

  • Walmart has set clear protocols for naming EDI files. This includes identifiers like the vendor ID, the file creation date, and a unique number for easy tracking and identification.
  • Walmart specifies standard delimiters within EDI files to segment data effectively. These delimiters include symbols for segmenting various parts of the data, ensuring consistency and readability across different EDI documents.

Additional Rules

  • Timeline for EDI Testing: Walmart sets a maximum period of six weeks for vendors to demonstrate they can support all basic EDI documents. Exceeding this could result in the trading relationship being terminated due to non-compliance.
  • AS2 Connection Consistency: Vendors are required to maintain a continuous AS2 connection with Walmart. Walmart mandates that vendors shouldn’t face any downtime or disruptions in communication. Failure to comply could adversely impact the vendor's relationship with Walmart.
  • Timely EDI 997 Functional Acknowledgments: EDI trading partners must send EDI 997 functional acknowledgments within 24 hours of receiving Walmart purchase orders.


Navigating Chargebacks for Non-Compliance

Effective EDI compliance provides another key benefit: avoiding penalties and chargebacks.

EDI chargebacks are financial penalties imposed for non-compliance with the agreements you form with trading partners prior to trading.

Chargebacks occur when vendors make errors that disrupt business operations, leading to extra costs. Common triggers include:

  • Late deliveries.
  • Mislabeling of packages.
  • Damaged or incomplete shipments.
  • Non-compliance with routing specifications.
  • Failure to meet packaging specifications or order fulfillment rates.
  • Incorrect delivery locations or incomplete paperwork.

The impact of EDI chargebacks can be severe, ranging from hundreds to many thousands of dollars per transaction.


Software for Supporting EDI Compliance

Dealing with EDI compliance can be tricky, and inadequate integration, as we can see, is expensive.

Fortunately, there is a solution–transitioning to a flexible, modern, and reliable EDI platform that automates processes and incorporates safeguards to guarantee compliance, even with the most stringent trading partners.

Pre-built connections to partners, pre-configured code, and automated processes handle much of the heavy lifting. This reduces the chance for errors and chargebacks dramatically, providing peace of mind alongside bottom-line savings.

Cloud-based EDI solutions mean you're not stuck with a rigid system. Instead, you have the flexibility to evolve your integration solutions as your business and trading partners grow and change. It’s about building an EDI setup that adapts to you, not vice versa.

Furthermore, your EDI provider should provide access to a repository of up-to-date trading partner maps. With these maps, you can start trading with new partners immediately with minimal manual effort.


Introducing Managed EDI Solutions

Sometimes, keeping up with EDI compliance and avoiding chargebacks can be overwhelming. To remain competitive, you should be spending your time on high-value strategic work rather than dealing with constant updates to EDI guidelines. This is where managed EDI providers come in.

Managed EDI providers, such as 1 EDI Source, handle the entire EDI process for you from start to finish. They stay up-to-date with the latest developments and requirements, so you don’t have to. This is particularly beneficial for businesses without the in-house resources or expertise to manage EDI compliance effectively.


The Bottom Line

EDI compliance might initially seem like a formidable challenge, especially when dealing with major retailers like Walmart or Amazon, but it need not be a burden. With the right software and strategies, managing EDI becomes not just manageable but also an opportunity for significant growth.

By leveraging flexible, modern EDI platforms, businesses can automate processes, reduce manual errors, and ensure compliance with diverse trading partner requirements. This technological adaptation saves on potential chargebacks and penalties and paves the way for building robust, long-lasting, and profitable relationships with trading partners.