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What is the Role of EDI in the Supply Chain?

At a glance, EDI might appear as just another 3-letter technical acronym. But delve deeper, and you'll uncover a transformative tool that amplifies efficiency, reduces costs, and revolutionizes how businesses communicate.

August 25, 2023

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Electronic Data Interchange (EDI) is a pillar of modern supply chains, facilitating the transfer of crucial data between companies and their partners. But what exactly is EDI, and why does it hold such significance in the supply chain ecosystem?

At a glance, EDI might appear as just another 3-letter technical acronym. But delve deeper, and you'll uncover a transformative tool that amplifies efficiency, reduces costs, and revolutionizes how businesses communicate.

This article explores the pivotal role of EDI in the supply chain, highlighting its benefits and impact on businesses of all sizes. Let’s dive in! 


What Is EDI? 

Electronic Data Interchange, commonly known as EDI, is a standardized method for exchanging business documents and data between companies electronically. Instead of relying on traditional means like fax, mail, or even email, EDI provides a more streamlined and automated way to send and receive information.

At its core, EDI converts documents, like purchase orders or invoices, into a standardized digital format. This allows two different systems or software to communicate with each other effortlessly.

Over the years, various EDI standards have been established, such as X12 and EDIFACT, ensuring consistency across industries. Today, EDI is fundamental to global commerce, fostering efficient, reliable, and secure data exchange.


How Does EDI Work in the Supply Chain?

At the heart of the supply chain, EDI acts as a digital messenger, ensuring smooth communication between suppliers, manufacturers, distributors, and retailers. But how does it manage this complex task?

First, when one party initiates a transaction, say a purchase order, their internal system generates the document and then translates it into a standard EDI format. This translation ensures the data can be universally understood, regardless of the original software or system.

Once translated, the EDI document is transmitted over a secure network to the receiving party. Upon receipt, the document undergoes another translation, converting it from the EDI format back into a format compatible with the recipient's internal system. This seamless transition allows for immediate processing without manual intervention.

The magic of EDI in the supply chain lies in its automation. By eliminating the need for paper-based processes and manual data entry, EDI reduces errors, speeds up transactions, and ensures that each link in the supply chain is continually updated with real-time data.


Benefits of EDI in Supply Chain Management

EDI is a vital tool In an interconnected global economy, taking supply chain operations to new levels of efficiency. Here's a deep dive into the transformative advantages of incorporating EDI into your supply chain.


Enhanced Speed and Efficiency

With EDI, your business can process orders, invoices, and other transactions in real-time. This swiftness ensures that goods move through the supply chain rapidly, reducing lead times and enabling quicker responses to market demands.


Reduced Errors

Manual data entry is prone to errors, be it a mistyped number or a misplaced decimal point. EDI automates this process, dramatically decreasing the chances of mistakes. Fewer errors mean fewer returned orders, disputes, and delays, increasing trust among your company and its trading partners.


Cost Savings

The automation brought by EDI eliminates the need for paper, postage, and manual labor associated with traditional document processing. These operational savings, over time, can significantly impact your bottom line, letting you reinvest in other areas of your business. In the UK, the grocery sector saves £650 million every year from its use of EDI.


Improved Visibility and Traceability

With real-time data exchange, you can monitor the status of orders, shipments, and payments more effectively. This granular visibility into transactions helps in proactive decision-making, efficient inventory management, and the ability to address issues before they escalate.


Strengthened Business Relationships

By standardizing communication, EDI levels the playing field, allowing businesses of all sizes to interact using a common language. This uniformity fosters smoother collaborations, leading to longer-lasting and more fruitful partnerships.


Environmental Benefits

Paper invoices are responsible for at least 10% of trees cut down worldwide, according to the Greencarrier Group. As a paperless system, EDI promotes eco-friendliness. By reducing the need for physical documents, you can significantly reduce paper usage, contributing to environmental sustainability and signaling corporate responsibility.



As your business grows, so does the volume of its transactions. EDI systems are inherently scalable, ensuring that as your company expands its operations, it doesn't outgrow its data exchange capabilities. This adaptability is crucial for businesses eyeing global markets and partnerships with larger companies.


Enhanced Security

Data security is paramount in today's digital age. EDI employs stringent encryption and security protocols, ensuring that sensitive business data remains confidential and protected from potential breaches.


Regulatory Compliance

For many industries, adhering to regulatory standards is non-negotiable. EDI ensures that transactions are traceable, transparent, and compliant with industry-specific regulations, providing peace of mind and reducing legal risks.


Common EDI Transactions in the Supply Chain

With EDI streamlining communication, certain standard EDI documents have become ubiquitous in facilitating these operations. Each document or type of transaction corresponds to a specific transaction set identified by a code.

Here's a quick overview of the most prevalent EDI transactions in the supply chain, along with their standard ANSI X12 transaction set codes:

Transaction Set: 850 Purchase Order

This document initiates the buying process. A buyer sends a PO to a supplier indicating the type, quantity, and agreed price of items or services they wish to purchase.

Transaction Set: 810 Invoice

Post-delivery, suppliers send invoices detailing the products delivered and the amount due. This EDI document expedites payment processing by reducing paperwork and manual entry.

Transaction Set: 856 Ship Notice/Manifest (ASN)

ASNs provide detailed information about a shipment's contents and configuration. This prepares recipients for incoming goods, ensuring efficient receiving and stocking processes.

Bills of Lading

Crucial for transportation logistics, this document details the shipment, including item types, quantities, and the shipper's and receiver's information. While there isn't a direct transaction set for Bills of Lading, the closest is Transaction Set: 857 Shipment and Billing Notice, which combines the features of an ASN (856) with an Invoice (810).

Transaction Set: 846 Inventory Inquiry/Advice

To ensure stock levels align with demand, suppliers send inventory updates to their partners, detailing current stock levels, product availability, and potential backorders.


Integration of EDI with Other Systems

In the intricate web of business operations, the true potential of EDI shines when it's integrated seamlessly with other core systems. This interconnection amplifies the efficiency and responsiveness of your organization.

EDI dovetails nicely with Warehouse Management Systems (WMS) and Customer Relationship Management (CRM). But the most crucial integration is EDI with ERP. Integrating EDI with ERP  systems streamlines operations across finance, manufacturing, and logistics. For instance, when an EDI-generated purchase order is received, the ERP system can automatically update inventory and financial forecasts.

Beyond traditional EDI integration, modern Application Programming Interfaces (APIs) allow for real-time, two-way communication between systems, enhancing the flexibility and immediacy of data exchange. With the advent of cloud-based (SaaS) solutions, integration has become as straightforward as a few clicks.


The Importance of a Robust Supplier Portal

When researching a new EDI solution for your business, it's crucial to consider the significance of its supplier portal. These portals grant you visibility across your entire supply chain, centralizing the management of all your suppliers in one place.

Here are some of the benefits of the Supplier Portal from 1 EDI Source (and if you want to learn more, take a product tour).  

Improve supply chain management with data-driven decisions: Use real-time supplier monitoring and tracking to improve accountability.

Find New Ways to Grow: Stay ahead by quickly adjusting to what customers want. Connect with online marketplaces to get ahead of competitors.

Drive cost savings and increase productivity: Make ordering easier, avoid unnecessary charges, and ensure suppliers follow your protocols.

Ensure supply chain resiliency: Maintain a clear view of supplies across multiple suppliers and easily onboard new ones when needed.

Use Tech That Helps Your Business Grow: Data backups, disaster recovery, and other infrastructure challenges are handled for you. Your internal IT resources can concentrate on developing the core parts of your business.


3 Key Takeaways

1.    EDI's Central Role in Supply Chains

EDI is a foundational component of modern supply chains, streamlining communication between suppliers, manufacturers, and retailers. Converting business documents into standardized digital formats ensures smooth, error-free, and rapid data exchanges, making it pivotal for global commerce.

2.    Benefits of Implementing EDI

EDI enhances speed and efficiency, leading to real-time transaction processing. Automation reduces the likelihood of errors and eliminates manual interventions, leading to cost savings and more accurate communication.

3.    Integration Elevates EDI's Potential

The true strength of EDI is realized when integrated with other core business systems, such as Enterprise Resource Planning (ERP). Modern integration tools, including APIs and cloud-based solutions, make the entire supply chain operation more interconnected and efficient.