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What is EDI in E-commerce?

EDI (Electronic Data Interchange) is a standardized way of sending and receiving business documents between two organizations. In EDI, instead of sending documents/information manually to your customers via email, phone, fax or mail by printing the document from your computer, you would send them to the receiver electronically. There are set standards that specify the formats, character sets, and data elements used in the exchange of business documents and forms. Both parties must adhere to the same set of rules.

Common EDI documents include purchase orders, invoices, shipping notices, inventory reports as per the ANSI X12 standards. There are more than 300 different types of ANSI X12 EDI standards, all delegated by a different three-digit number, for different industries such as food/retail, finance, government, health care, transportation, and others.

Other EDI standards include EDIFACT, TRADACOMS and ebXML, HIPAA for specific industries with specific versions. Two businesses have to agree on using a specific EDI standard to trade documents with each other.

The below figures show you how the order to cash cycle works without EDI and with EDI.

Without EDI

REST

With EDI

REST

How is the EDI industry growing?

EDI accounted for more than three-fourths of B2B digital commerce in 2021 but had the slowest growth rate among B2B digital channels at 8.3%, according to data and analysis in the 2022 B2B Ecommerce Market Report. EDI is the biggest B2B electronic sales channel that not only conducts transactions between two organizations but increases productivity and effectiveness in the overall order to cash cycle.

What are the benefits of EDI?

  1. Increased Quantity of Orders and Revenue
EDI plays an instrumental role in strengthening the relationship with retailers and suppliers by managing document exchange efficiently and quickens the EDI order processing than a paper-based processing with reliability. As a result of which, there is trust built between the entities if you hire the right resources (EDI software and talent) to keep the process running smoothly. You are more likely to get more orders from your buyers or retailers and more business. More business means more revenue and a good reputation for your brand in the market.
  1. Reduced Time and Money Spent on Overall Processing
Imagine, if you hired resources internally to manually key each and every order entry, invoice and any other document in each of your back-end system. They will end up spending hours and hours of time in doing repetitive tasks that can be boring. At the same time, you are wasting your money paying those resources to do redundant tasks. EDI when automated saves all the time and costs spent on these tasks to free up your resources for business activities that matter and generate revenue. You’ll be surprised that costs of processing an order manually is reduced to a fraction when done with EDI!
  1. Serves as a Marketing Tool for Business Expansion
When you first become ‘EDI capable’ which means you have an EDI software and you have already on-boarded a trading partner on your EDI software, that’s a great sign for other trading partners. This capability shows that you are ‘ready’ to transact with others too. When you are in a position to start doing business with others in the market, you stand a better chance and are given a higher priority over others who are not ‘EDI capable’. Therefore, having EDI as a part of your growth strategy as you scale is one of the best decisions you can even make for your business.
  1. Reduced Errors

This is an obvious benefit of EDI because lesser the manual data entry into systems and more automation, lesser are the chances of EDI errors that can occur while document transmission. However, there is a constant need for your team to keep monitoring for errors proactively even before they appear, make sure all your connections are well set, EDI testing is done before you go into the final production phase. Reduced errors mean few to zero fines or chargebacks from your trading partners which is great because in some cases fines cost millions of dollars for a business.

  1. Increased Business Efficiency and Performance
EDI frees up time for your team to focus on the tasks that are necessary for revenue generation over repetitive and redundant tasks that are cumbersome and boring. Undoubtedly, your team’s performance should get better and is likely to boost their morale for being involved in a constructive process for the company.
  1. Enhanced Visibility into Overall Process

EDI provides visibility and transparency into the entire document exchange and integration process which is greatly useful in every industry whether it is to track origination of errors, inventory data, track shipments, track and trace drugs, transportation of good etc. Data loss is minimal if EDI implementation is followed step by step and is a win-win for all parties involved-your team, your trading partners, your EDI software provider.

  1. Paperless and environmental friendly
The emergence of EDI as a software has eliminated paper use because it is all electronic transmission. There is no fax or mail required to send information from one entity to another. Like many other organizations promoting paperless transactions in every industry, EDI along with APIs as technologies are at the forefront of providing an environment friendly solution.

What is e-commerce? How is the ecommerce industry growing?

Ecommerce is buying and selling of services or products online. Covid accelerated ecommerce sales between 2020-2022 where all businesses (including brick and mortar) were forced to pivot to an online model. Per Statista, In 2021, retail e-commerce sales amounted to approximately 5.2 trillion U.S. dollars worldwide. This figure is forecast to grow by 56 percent over the next years, reaching about 8.1 trillion dollars by 2026. This growth is expected to be driven by the growing number of buyers and businesses using digital channels to buy goods and services from the comfort of their desk and advanced technologies like VR and AR that make it even easier (by bridging the gap between in-person visits to the store and trying something virtually) to shop online. Per Digital Commerce 360, the survey of 750 executives done by McKinsey & Co. in the fall of 2021, found customers now regularly use ten or more channels to interact with suppliers, up from just five in 2016. Buyers are more willing than ever before to spend substantial amounts through remote or online sales channels, with 35% willing to spend $500,000 or more in a single transaction (up from 27% in February 2021). 77% of B2B customers are also willing to spend $50,000 or more.

What is the difference between B2B e-commerce and EDI? Can they co-exist?

B2B e-commerce is a means to sell and buy goods online between businesses. This works by creating and providing an online shopping experience using one of the commerce platforms available like SAP, Shopify, BigCommerce, Wix, WooCommerce etc. to the buyers. The buyers go to a front-end online store, select the products they want to purchase, add them to a cart and place an order. The seller receives the order, processes and delivers it to the address provided.

EDI on the other hand is a way of placing and receiving orders by buyers online following a set of standards called the EDI standards (as discussed above) using EDI platforms on both ends that talk to each other. For e.g. An order is placed via a purchase order (EDI 850) document by the buyer through their EDI platform. The seller receives it and sends an acknowledgment (EDI 855) from their EDI platform. The seller sends an advance ship notice (EDI 856) as the order is ready to be shipped with all the shipping and tracking details and then sends an invoice (EDI 810) as in when the shipment is delivered to receive the payment from the buyer.

B2B e-commerce and EDI can effectively co-exist and in fact can really help a business grow if implemented together. EDI helps automate your entire order to cash cycle and reduces errors. EDI works really well where you want to automate orders based on inventory levels. An ecommerce site cannot provide you that information. If a buyer knows what they want and have high volume orders, EDI is their best choice. EDI runs in the backend whereas an ecommerce website can help provide a face to your brand. EDI is already an established system in the B2B space as in 99% of the cases buyers force the sellers to be EDI compliant with their requirements. Sellers need to comply to those requirements and trade using an EDI platform.

How does EDI work in e-commerce?

The most effective way for EDI to work in an e-commerce setup is by integrating your ecommerce store with your EDI platform and ERP software. The reason is an end-to-end automation will help save a lot of time, reduce manual errors and increase efficiency for your business. There are two ways to integrate all your platforms- either through flat files (XML, PDF, CSV etc.) or APIs whichever your systems allow from a technology stand-point. You need to work with your ERP consultants, internal tech team and your EDI consultant or managed EDI service to put an automated system in place.

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