What the Heck is EDI and Why Should I Care?

One of the backbones of eCommerce is EDI (Electronic Data Interchange), a standard method of exchanging files that has been around since the 1980’s. EDI is used in some degree in almost every industry. Over the years, it has become widely adopted throughout the retail, manufacturing, transportation and health care industries for exchanging data between entities. Some industries require their trading partners to use of EDI in an effort to reduce ordering costs for things such as ordering, invoicing and shipment notifications. Let’s define what EDI is all about, and how it relates to QuickBooks.

Over time, EDI has evolved to what it is today. Some of the changes over the years are the introduction of EDI translation software and Value Added Networks (VAN). Now, with the internet, EDI providers can store the “maps” of all the possible transaction sets and trading partners. What used to be a very expensive proposition for small companies is now much more attainable by taking advantage of some of the technological advancements available today.

Put simply, EDI is the process of transferring standard business documents between trading partners.

A trading partner is a business entity, wholesale or retail, that supplies or sells a product using electronic methods to place an order or receive order related information, such as ship notices and invoices.

An EDI provider is a business entity that acts as a bridge between trading partners to pass transactions.  They are responsible for data translation mapping to ensure that data flows accurately between trading partners.

Perhaps the most common transactions for general business are:

• Purchase Order (EDI 850)
• Invoice (EDI 810)
• Advance Shipping Notice/ASN (EDI 856)

Each of these documents has a standard format developed and maintained by the American National Standards Institute (ANSI) known as the ASC X12. In practice, however, each trading partner may deviate slightly from the standard making it necessary to have intermediaries to map the data accurately from one entity to the other. Make sense so far?

So, you still may be asking yourself, why do I care about all this? EDI is old, outdated technology, developed years ago and sure to be rendered extinct over time, right? Not really. There have been advancements in data exchange with the internet such as XML which allows for a standard format for exchanging data over the internet, but EDI is still here and shows no sign of going away. So, more and more small to medium-size businesses are turning to EDI as a way to keep pace and cut costs in a more competitive market. As IT/Finance consultants we need to be aware of these market shifts in order to help our clients stay profitable.

Implementing EDI

There are many EDI integration companies out there, and a plethora of accounting packages available that interface with each of these companies. For today, let’s just look at QuickBooks and the integration opportunities involved.

Here is a typical EDI transaction using QuickBooks:

1. A Retail trading partner places an order with customer. They issue an EDI 850 Purchase Order (PO), and that order is then sent electronically to the EDI provider.
2. The EDI provider translates the document using their maps and sends to the customer.
3. The purchase order is picked up electronically by the customer and brought into QuickBooks using one of the methods provided by one of the EDI providers mentioned below. That PO is brought into QuickBooks and processed. A Sales Order or Invoice is issued and the product is shipped to the retail trading partner.
4. An EDI 856 Advance Shipping Notice is then sent to the trading partner by way of the EDI provider to inform them of the shipping information.
5. An EDI 810 is sent to the trading partner (again by way of the EDI provider) for payment.

All of the data is passed using one of several methods of data transport, some of the most common are:

• Value Added Network (VAN): A go-between for trading partners to pass files.
• File Transfer Protocol (FTP): This is used to pass files from one computer to another using a login, but still passes that data as clear text and is not encrypted. File Transfer Protocol Secure (FTP/S) provides an extra level of security.
• EDI-INT: This is a set of standards for transferring EDI files through the internet more securely. Those standards are defined through Applicability Statements using AS1, AS2 or AS3. AS2 is the most common and defines the standards for sending files using HTTP (web browser).

A good place to start if you want to learn more about EDI, Linkedin has some basic EDI groups that are open to new users.  There is a free eBook at http://www.dbm-consulting.com/a0912465hz7341.htm that is a good basic primer on EDI.

QuickBooks EDI

Here is a list of the EDI products that I have worked with, and are some of the more well known.

QuickBooks Enterprise comes bundled with True Commerce (provided by HighJump Software). It is fairly easy to configure and cost effective.

Another inexpensive option is B2B Gateway.

For more advanced integration capabilities, two other EDI providers emerge. DiCentral  and SPS Commerce. Both offer integration with QuickBooks and other accounting and ERP (Enterprise Resource Planning) systems as well as web EDI, which is a way of being EDI compliant without the cost of integration. Customers simply go to their EDI web portal and print out their orders, but the orders still need to be manually entered. For many companies, this is an acceptable solution, but with increased volume, integration will be needed to be more efficient and reduce data entry errors.

The four EDI providers I listed are the ones that I know will work with QuickBooks.  There may be others.  True Commerce does a good job with basic document processing, but each implementation is different and may require customization, so I list the others as alternatives.

So, if you have managed to get through this article without gouging your eyes with sharp objects, just know that you don’t have to know everything there is to know about EDI to get started. You can refer customers directly to the EDI provider -all of the companies mentioned above have some sort of referral program. Don’t leave opportunities on the table: check with someone in your network of associates, chances are someone knows something about EDI. Happy EDIing!