EDI integration: definition, how it work and why it is essential for your business

When it comes to integrations that can change the business situation and performance of a company, we can’t help but mention EDI integration. Have you ever heard of this integration? If NOT, this article is for you. In this article, ArrowHiTech will give you a detailed overview of EDI integration, about its definition, importance and also let you know how it works. Then, let’s explore with us right now!

What is EDI integration? 

When it comes to EDI integration, you should understand that it is generated when trading partners develop an EDI workflow. Typically, if you want to integrate EDI, you have to follow two steps below:

#1. Generating the EDI documents, protocols, transactions, and endpoints you will use to communicate with your trade partner. 

#2. EDI data conversion into a format that may be used in your own back-end technological environments, such as your ERP system or accounting software. 

What’s more, data structures are transformed into a mutually agreed-upon EDI standard format (ANSI X12, EDIFACT, etc.) in the center of the EDI integration diagram, as you can see below. Besides, internal data is converted into EDI files, allowing both trading partners to interact in a common language.

EDI integration definition

Then, the EDI files in the middle are translated into a proprietary file such as: IDoc, JSON, or another ERP-specific format that can be readily ingested into the left and right back-end systems (SAP, Acumatica, etc.). More crucially, you must remember that EDI integration can go both ways, with data coming from an ERP or a trading partner.

>>> Refer to: Software integration challenges and solutions 

How does EDI integration work? 

Lots of organizations are looking for EDI integration software and solutions for EDI modernization initiatives. They find solutions which can extend EDI data integration and automation capabilities beyond a traditional EDI message to support emerging business requirements. Regardless of the industry, businesses must select an EDI solution that provides an integrated approach for offering automated workflows. Then, enhancing EDI insight into operations, and improving customer experience. Now, let’s refer to how EDI integration works.

#1. From an internal system or application, a sender exports a business document. A purchase order for products or services is a common example. 

#2. Data transformation mapping software or any of the many EDI translators converts the business document, in this case a purchase order EDI cycle, from the in-house computer system into the required EDI format. 

#3. Then, the EDI business document will run via EDI conversion software to confirm that it is structurally correct and adheres to the current EDI requirements. 

#4. The data from the EDI document is either sent to a value-added network (VAN) via a secure communication protocol. For instance, SFTP, HTTPS, or AS2. After that, it can be integrated into the same validation software or another program. Or, it can be sent directly to the client over comparable protocols. 

#5. For example, direct EDI over AS2 establishes a secure link between two firms. It enables businesses to connect to trading partners without incurring document fees and obtain real-time communication capabilities. The receiving party receives the file, checks the credentials, authenticates the source, and decrypts it before ingesting the EDI doc into its systems. What’s more, it also acknowledges delivery with a message disposition notice (MDN).

how does EDI integration work

Transmit data through a VAN

In addition, it has another alternative called transmit data through a VAN. Despite being albeit outdated, it will determine how the data should be routed. And then, either moves it to a separate VAN utilized by the recipient or delivers it to the VAN mailbox. It is in case the sender and receiver are using the same VAN service. The data has been officially transferred to the receiver, and it is now the responsibility of the receiver and their VAN service. 

Why is EDI integration essential for businesses? 

Most firms need to use EDI system integration for crucial B2B transactions in today’s hyper-digital business world. Businesses which use EDI integration to its full capacity, on the other hand, benefit from automation. It manifests itself in greater visibility over business partner transactions and the elimination of manual processes. 

Advantages of integrating EDI

There are a variety of reasons why businesses start and keep going to employ EDI in their operations. In fact, EDI is a very valuable technology for a huge number of reasons. Some of them include the ability to save a lot of money, boost speed, accuracy, and efficiency. 

Ensure the accuracy of data

Firstly, manual data entry is eliminated by automating EDI transmission to your trading partners, as well as intake and transformation into your ERP. Plus, manual data entry is prone to errors and automating data flows avoids errors from arising in the first place. Hence, you must make sure that to stay EDI compliant.

Speed of the business cycle

EDI integration helps your company reduce processing time. In particular, order-to-shipment times can be cut in half or even half. Thanks to it, time to completion is reduced when EDI transactions are sent in minutes rather than days.

Visibility of trading partners

When EDI integration is done correctly and effectively, your company may spend more time focusing on the business. Plus, if you know your ERP’s data is accurate, automated, and easily accessible, you can easily see how your EDI partners are affecting your overall organization.

Types of EDI integration

 #1. Direct EDI integration 

 A direct EDI integration uses a special protocol to establish a direct link between your ERP and your business partners via the internet. Besides, customers, suppliers, and logistic service providers might all be considered business partners. In fact, without a consistent protocol in place, handling thousands of connections individually can be a difficult job. In short, direct EDI integration is great for complex integrations with a lot of data flowing back and forth. 

#2. Indirect EDI Integration

An indirect EDI integration is when your ERP communicates with customers, suppliers, or 3PLs through a broker or value-added network (VAN). First, your ERP sends a message to the broker or VAN with all of the information you require from your partners. After that, the broker divides the communication into several formats that your customers or suppliers desire and then distributes it to them.

integrate EDI

#3. Hybrid EDI integration

Some businesses want both indirect and direct EDI connection. Hence, the hybrid EDI integration will be the best choice since it is an EDI that allows you to exchange messages both directly and indirectly. In this case, you will need to be adaptable in numerous aspects of the integration process, as well as having the necessary expertise and tools.

#1. Lack of IT tallents

The norms for EDI technology deployment and service consumption models are being rewritten by cloud computing. Besides, there are a wide range of companies seeking the solutions to move applications, connections, data, and integration to the cloud. This includes EDI in the cloud. However, as cloud computing has risen to astronomical proportions, there is a shortage of IT talents. 

In addition, the purpose of creating cloud computing is to provide elasticity, flexibility, and cost savings. However, without the proper internal resources in place to handle cloud migration, cloud service adoption, or a cloud-first IT strategy, the enterprise can’t migrate critical EDI operations to the cloud without incident.

Under the problem of IT skills shortage, many IT departments turn to outsourcing. Partnering with an external IT provider can save money, decrease overhead, and provide 24/7 support. Alternatively, integrity competency is no longer an internal necessity because the EDI integration skillset is outsourced. This will certainly improve the trustworthiness of digital business transactions. Not only that, it will also give control over support and service engagement, which is necessary for successful migration and maintenance.  

Then, if you are looking for a reliable IT Outsourcing company, let’s refer to ArrowHiTech. With 14+ years of outsourcing experience, we will never let you down.

#2. The rapid growth of ecommerce

Nowadays, ecommerce is the fastest-growing segment of the retail industry. The e-commerce revolution continues to have a tremendous impact on numerous industries. This is mainly thanks to the increasingly disruptive Amazon effect and headline-making, paradigm-shifting acquisitions in the retail sector. 

Along with many benefits, the development of e-commerce also brings certain challenges. And that problem is centered on the ever-increasing complexity of data as well as the massive amount of data generated by e-commerce business processes. The final consequence of an e-commerce business model that relies on a variety of technologies. For instance, supply chain management solutions, application, data, B2B integration capabilities and so much more. As a result, it becomes a tremendously complicated environment.

The composition of e-commerce supply chain data is intriguing. Customer, partner, and retailer data are all sources of information. Plus, data access, integration, and management are the challenges that businesses face. Then, you can see that a modern B2B infrastructure plan is more important than ever, and organizations should not disregard it. Moreover, even companies who believe they have a handle on their current data demands fear the complexity blowing out of control. Existing technology is frequently more solid and should be assessed first when attempting to deal with new and upcoming challenges related to the e-commerce boom. 

Best of all, EDI is a key technology for integrating ecosystems and ensuring the smooth flow of supply chain, inventory, and retail data. In particular, for most industry-specific supply chains, EDI continues to function as the present communications standard. 

#3. Business System Integration

The following are some of the advantages of modern EDI:

  • First and foremost, data mapping, translation, and integration from any format to any other
  • Secondly, intelligent automation requires action orchestration.
  • Thirdly, transactional capabilities that are asynchronous, synchronous, and real-time
  • Besides, operational and business intelligence use cases benefit from visibility and analytics capabilities.
  • Furthermore, for on-premise and cloud apps, systems, data, and partners, extensive integration capabilities are available.
Business System Integration

Now, let’s consider the case of digital modernization to illustrate the relevance of business process integration: 

Businesses must be able to undertake business system integration swiftly and efficiently if they want to boost company agility in today’s world. Hence, many companies are upgrading their enterprise resource planning (ERP) software to make their operations more flexible and reliable. However, without a guiding plan that involves business system integration, ERP cloud migration is hard, costly, and risky. That’s the main reason why EDI appeared. 

Plus, EDI must work in tandem with integrated business endpoints such as EDI integration and other enterprise-wide business applications. Best of all, data, applications, trading partners, and the underlying revenue-generating business processes are all connected by EDI. Not only that, it also provides a comprehensive toolkit. Hence, it assures business process integration across every back-office system, from the corporate financial solution to your customer relationship management (CRM) program. 

#4. The development of Blockchain technology 

While blockchain is useful for specific types of transactions, it will not be able to replace all B2B transactional technology. If anything, blockchain technology will just serve to supplement and complement existing EDI systems. As a result, the existing way that businesses execute B2B transactions does not need to change substantially. In reality, it may continue to function in the same manner it has, while blockchain adds a higher level of visibility across three parties. Therefore, it makes EDI become an even more powerful tool.

Wrapping up

To sum up, as you can see, EDI integration is a must for every business since they will benefit a lot from this process. Through this article, ArrowHiTech hopes you can get as much helpful information as you want and then, you can adapt it to develop your business in the future. Then, in case you have any questions or want to start an Integration And Data Migration project but don’t know where to start, don’t hesitate to CONTACT US right now.