What is EDI: The History and Future of Electronic Data Interchange

Electronic data interchange (EDI) is the computer-to-computer exchange of business documents and information. Fundamentally, EDI is a methodology. It’s a set of best practices, standards, processes and technology that enables the free flow of information between different businesses — specifically, different businesses within a single supply chain.

For example, a car manufacturer (e.g. BMW) buys parts from a load of different companies. It then needs to distribute manufactured cars to auto-dealers — only some of which are under the direct control of BMW. Each of those purchase orders and invoices could be done manually (printing out orders, manually re-entering data, email or mailing invoice etc.). Or it could just be done electronically and automatically using EDI.

However, to automatically exchange information between different companies, the different systems need to be able to understand each other. That means they need to use standardised formatting and compatible technology. EDI is all of the components and processes required to deliver this electronic and automated outcome.

At Data Interchange, we’ve spent decades helping businesses implement EDI systems, and are pioneering new ways to optimise modern EDI outcomes. Here, we are going to explain EDI, how it works, how it’s changing, and how exactly it stands to shape the future of supply chain management.

Suggested reading: If you want to learn more about how EDI can deliver transformational business outcomes, check out our eBook — The Supply Chain Centred Business.

Where did EDI come from?

EDI was first introduced to supply chains back in the 1960s, when Ed Guilbert developed a form of electronic communication between shipment supply chains in the US army. Although it took until the early 90s for EDI to find wide-spread supply chain integration, EDI was a critical facilitator of early globalisation. Rather than relying on slow postal services, EDI enabled instant long-distance communication in an era before the internet.

Today, some of the biggest businesses in the world, including EDI pioneers like Walmart, Volkswagen and Scania harness EDI to deliver benefits like:

  • Lower operating costs
  • Increased transaction security
  • Faster, streamlined communications
  • Removal of manual processes
  • And more

Everything from retail through to the healthcare and automotive industries have benefited from EDI. In fact, our very own co-founder Phillip Friend helped to develop the automotive industry’s first EDI communications protocol (ODETTE FTP — a.k.a. OFTP 2) back in the 1980s.

The major EDI standards

Original EDI implementations were entirely dependent on trading partners sharing the same standard format software, the four most common of which are still:

  1. UN/EDIFACT (United Nations/Electronic Data Interchange for Administration, Commerce and Transport): widely used international standards developed by the UN in 1987.
  2. ASC X12 (Accredited Standards Committee X12): Introduced by the American National Standards Institute in 1979 and predominantly used in North America
  3. GS1 EDI: A popular modern development of EDIFACT used in many global supply chains.
  4. VDA: A newer EDI standard, VDA has experienced rapid adoption and is widely used within the automotive industry, particularly in Germany.

Another common standard is PEPPOL (Pan-European Public Procurement Online). PEPPOL is a particularly interesting development because it also includes a “communication standard” by the same name. PEPPOL is popular across Europe — particularly in the public sector. In the UK, the NHS has been using PEPPOL since 2019.

Communication standards vs messaging standards

Communication standards are the method of transferring information — often also called protocols. Messaging standards (or just standards) are how that information is formatted and presented within the context of the protocol. EDIFACT, X12 and GS1 are all examples of messaging standards.

The most common communication standards (protocols) are OFTP and AS2, both of which were specifically developed for EDI. However, repurposed protocols are also common. For example, HTTP and FTP. PEPPOL is purpose-built for EDI and has both a messaging and communication standard component.

Different types of EDI

To begin with, the EDI process was something of a one-stop-shop, dominated by what we now know as ‘point-to-point EDI’ or ‘Direct EDI’. Point-to-point EDI creates a direct line of communication through two businesses using agreed-upon protocols such as AS2 (as adopted by Walmart), OFTP or SFTP.

Unfortunately, incompatible protocols and the need to keep up with hundreds of suppliers using a range of standards still leaves many companies struggling to manage integrations. Since the advent of the internet, EDI has evolved. The two alternatives to direct EDI are:

  • EDI via VAN: This deploys a hosted cloud to facilitate the exchange of information. Rather than having to set up and maintain a direct connection between all supply chain partners, everyone simply maintains a connection to the VAN. This simplifies management, and VAN providers can help support a wide range of protocols and standards.
  • WebEDI: This often works in conjunction with a VAN, but is specifically defined by EDI input forms presented as simple HTTP pages. This makes it easier for smaller suppliers without EDI systems to engage with larger businesses that require EDI standard communication.

However, global supply chain complexity and current supply chain risks are not fully resolved by current EDI solutions. Unsurprisingly, this has left EDI formats on course to shift once again. The question is, what exactly do these changes look like, and why are they necessary?

Suggested reading: Different Types of EDI Compared

Why does EDI need to change?

EDI has made a huge difference to optimisation and visibility across global supply chains — even largely removing manual processes from communications long before the internet. However, it would be impossible to speak about legacy EDI without mentioning that, in many respects, it never quite managed to live up to its own expectations.

This is hardly a surprise from a methodology that was, let’s face it, far ahead of its time. That said, as more pressure is placed on supply chain resiliency and visibility, inherent issues with EDI are once again at risk of getting in the way. Most notably, right now, businesses looking to EDI for the first time are finding themselves up against significant EDI implementation issues — slow and complex processes (especially where partners have no previous EDI experience) that largely prevent the flexibility that EDI aims to provide.

Even once systems are up and running, companies find themselves constantly tripping over further EDI complications, including:

  • Incompatible protocols and EDI standards that can be difficult or altogether impossible to navigate across partner systems.
  • Siloed and corrupted information off the back of the ongoing need for manual go-betweens, ultimately reducing efficiency.
  • Spiralling costs as companies struggle to implement EDI that still requires training, digitisation of data, and supply-chain wide rollouts.

Of course, these challenges are nothing new. However, as business infrastructure changes, companies are far more liable to expect simple interfaces and easy-to-access cloud-based tools. Together, this contributes to the fact that 41% of businesses still report having no EDI solutions at all. Finding simple answers is important to expanding the value EDI can provide to calming supply chain volatility.

The future of EDI

How exactly does EDI look set to change? The answer comes in the form of a methodology that we refer to as EDI-as-a-Service. This extension of hybrid implementations (currently used in the vast majority of cases), brings together managed services and cloud-based solutions to ensure companies can finally provide the outcomes that modern supply chains need. Specifically, this 21st century EDI overhaul allows businesses to enjoy notable and much-needed benefits, including:

  • Simplified onboarding with the help of cloud-based self-service tools that enable the accommodation of different standards and protocols, as well as ensuring that even trading partners with little-to-no EDI experience can be kept in the loop.
  • The complete accommodation of EDI standards and protocols, using both automated and service-led EDI mapping.
  • Simple to use dashboards that enable anyone to engage with an EDI system and supply chain, and greatly enhance visibility and control over that system from a single-source-of-truth vantage point.
  • Removal of human error thanks to automation implemented alongside monitoring that spots errors and outages at any given time.
  • Predictable costs with long-term service-led solutions that harness cloud-based tools alongside customised offerings to simplify expenses and thus increase profit margins.

Let us not forget that, ultimately, EDI is about simplifying supply chain communications, and this is what EDI-as-a-Service ultimately offers. By increasing control and improving planning, it becomes possible to go beyond trying to maintain your EDI solution and use it to drive bottom-line improvements within your organisation.

Strategic partners can help

The custom-made, service-led approach of EDI-as-a-Service is the turning point that supply chains and supplier relationship management need. However, these benefits aren’t possible if you don’t find a strategic partner with the cutting-edge industry knowledge and capabilities necessary to bring them to your door.

At Data Interchange, we’ve been at the forefront of legacy EDI, and are now pioneering a better approach to EDI in the 21st century. With over 100 EDI experts working within our ever-growing network, we can overlook every stage of your supply chain journey, meeting the needs of you and your supply partners in ways that are out of reach with limited in-house capabilities. To learn more, check out our eBook or contact us for a no-obligation chat to see how we can simplify your EDI today, tomorrow, and beyond.

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