EDI is not a new technology, it’s been around for around 50 decades. In the 1990s, industry magazines talked about of EDI as a technology that will give companies a competitive advantage. Will EDI integration really provide companies with a competitive advantage or will it support organizations with a cooperative advantage? This is something we will answer in this article.
Keep on reading to learn more about what EDI integration is, what are the significant EDI integration challenges, what are the benefits of EDI integrations, and what EDI integration tools companies have been using to tackle their data exchange challenges.
Table of contents:
- What is EDI Integration?
- EDI Integration Challenges
- EDI Integration Benefits
- iPaaS as an EDI Integration Tool for Modernizing Your EDI
- Final thoughts
What is EDI Integration?
EDI (electronic data interchange) was developed to simplify how organizations exchange information both internally and externally. It focused on sharing business-critical messages quickly and flexibly, not only to get rid of paper-based processes but also to improve the quality of the data and to ensure that all trading partners receive the necessary information as soon as possible.
The aim was to standardize the logistics industry. While it is debatable whether the objective was achieved, for sure, EDI is still relevant today, and perhaps there are no logistics companies that would not use EDI to some extent even today – despite all the articles that were whispering about the death of EDI. EDI has been the enabler of Just-In-Time (JIT) logistics, meaning that holding limited stocks was only possible as the communication across trading partners was rapid and real-time. Thus manufacturers could react to the emerging material needs of their customers.
Nevertheless, to enable EDI, companies needed to apply system integrations so that they would be able to send the messages. Application-to-application integration is probably the core of EDI integration, but at the same time, it also presents some serious challenges that often put off EDI projects. Typically, companies would use an EDI Value-Added Network (VAN) for message exchange, as well as they would also implement some sort of data storage solution where they could store the information before it would be forwarded to the right system/to the right stakeholder.
While EDI was supposed to standardized communication across trading partners, it is still typical that some use their own proprietary message formats, so the data is often in an unstructured format. This is why EDI has also to take care of the message translation so unstructured in-house data could be turned into structured EDI standards. The most commonly used standards are EDIFACT (especially in Europe) and ANSI X12 (American format that is also used in Asia). Besides these two EDI-specific formats and in-house data formats, companies may also use JSON or XML. The fact that some industries have developed their own in-house EDI formats that then were used industry-wide (e.g., RosettaNet in the automotive sector) proves how vital the data exchange was and how EDI integrations could enhance stakeholder communications and cooperation. Also, the financial industry adopted to EDI, and they are using it for connecting electronic funds transfer (EFT) systems so that they can automate the flow of payment and remittance information (known as Electronic Payments (EP) or Financial EDI).
Shortly, EDI integration is the connectivity between two or multiple systems or applications (endpoints) to enable data transfer between them for improved seamless cooperation across trading partners or even internal departments within an organization.
While EDI integration is often discussed as a competitive advantage for those that implement it, we see it differently. We see EDI integration as a cooperative advantage that will enable organizations to improve their business processes internally and to provide their customers and suppliers with accurate data in real-time.
We believe that EDI and EDI integration are seen as a competitive advantage as too few companies do it right. We will elaborate on the challenges and benefits of EDI integrations so that you can understand how implementing EDI right with modern EDI integration tools can be turned into a cooperative advantage.
EDI Integration Challenges
Companies tend to treat EDI integration as a technology challenge that should be the burden of the IT department. We think that the problem is a lot bigger than something that the IT department should resolve itself.
Implementing EDI in a way that would present the organization with benefits should be a task on the desk of the senior executives. They should realize that EDI is a strategic challenge that requires enormous support from them as well as a plan for how they are going to handle the change management process (as well as consider legal and security concerns). As EDI is still a relevant technology in today’s logistics, this is something that should be handled as part of the company’s integration strategy. Even if an enterprise has EDI processes in place, they should consider if they could modernize their approach to see more benefits of integrating electronic data interchange into the everyday of the company.
Before elaborating on the tangible challenges of EDI integration, it is essential to emphasize that without top-down management support, the implementation of EDI integration is going to be a circle of endlessly failed pilots.
As mentioned a few paragraphs above, application-to-application integration is one of the primary challenges of EDI integration. It is more challenging than ever before as companies do not only need to connect with their trading partners on a domestic level, but also on a global scale. If you have a manufacturer in China, the chances are high that you will need to be able to connect to a system that is protected by a firewall.
EDI integrations can be divided into three categories. The more challenging the integration is, the better the tools and methods you need to tackle the challenge. The categories are the following:
- One-to-Many communication: This is typically applied when a single organization needs to communicate with all its suppliers and customers
- Many-to-Many communication (or “clearing house” systems): Many buyers and sellers interact with each other using EDI. This method is usually driven by two organizations, and it can be considered as a one-to-one connection to enable connectivity between the suppliers and the buyers. This is a model that is frequently used in the automotive industry.
- “Incremental paper trail systems”: Typically, documents need to be amended before they can be transferred to the final endpoint. To send adequate, correct information, all participants need to add their data to the document at each stage in the process. One shipment should be covered with one record, nevertheless, all parties should add their information to it.
While it’s possible to set up these integrations in a point-to-point integration manner, it is usually a lot easier to use a third-party EDI provider so that they would build out the connectivity and handle the rest of the process steps, too.
There are a variety of systems, often in-house on-premise ones, more and more companies use cloud-based applications. Your IT department should be able to tackle all these challenges to be able to transfer messages electronically efficiently. System integrations are not an easy task, but the hybrid environment that has become extremely common today makes it a lot more difficult. Tackling the variety of different interfaces and communication protocols will be your priority number one.
EDI was supposed to simplify how companies exchange business-critical information. But instead of having a single data standard that all enterprises would use for sending and receiving information, now, we have a data standard chaos. To tackle this, you will need to have an EDI integration solution in place that will not only transmit information from place A to place B, but it will also take care of the translation of the data formats.
Another challenge that should be considered when you plan EDI integration implementation is how you are going to tackle the issues with the quality of the data. To ensure that you’re getting the most out of your electronic data interchange initiatives, you should ensure to have rules in place for improving the quality of the data. Most likely, you will have to have processes for validating the data and enriching messages with necessary information.
EDI Integration Benefits
As we mentioned above, we don’t think that EDI would provide you with a competitive advantage, as EDI is not the new kid on the block anymore. As most companies with logistics operations use EDI, you should look for a new angle. We think that this new angle can be the key to doing better than your competition. Frankly, the secret lies in creating a cooperative advantage. By improving your EDI implementation, you will be able to cooperate with your trading partners better – or perhaps even with your internal departments worldwide.
Just think of it for a minute from your own perspective. It is much nicer for you too to work with an extremely responsive partner or customer than with one that is not that responsive.
We believe that if you are looking to justify your EDI integration investments, it is rather difficult to do it in the beginning in a quantitative manner. Instead, you should think of the qualitative advantages of EDI.
When you implement integrations internally, you will be able to save a significant amount of time (perhaps you will also be able to decrease your labor costs). You will have more time to focus on polishing your services, instead of your EDI processes and thus you can enhance your day-to-day operations and eliminate administrative overheads.
You will boost your responsiveness to your customers, trading partners, and stakeholders, therefore you will be able to improve your relationships with them. We believe that enhancing cooperation is an intangible benefit that is hard to measure in dollars, but in the end, we’re confident that it should pay off.
This will result in benefits such as reducing late or incorrect shipments from suppliers and excess inventories. You should also be able to improve your forecasting and improve order entry and production schedules.
iPaaS as an EDI Integration Tool for Modernizing Your EDI
Today, the most common approaches to EDI are still point-to-point integrations or using an EDI VAN. These services are often purchased from traditional EDI providers.
By using a more modern approach for EDI, you could make the most use out of your B2B integrations. Instead of using these traditional tools, you should look for an integration provider that can help you with all the obstacles that can be on your way to implement interconnectivity with all your partners and enables seamless real-time information sharing between multiple endpoints. While integration platform as a service (iPaaS) is a relatively new term among those that are looking for EDI solution implementation, this is something you should read more about to see how you could utilize it and what the benefits would be for your organization.
Whether you want to implement the EDI integration solution yourself or you want to outsource the task completely, there should be an iPaaS vendor that could help you.
An iPaaS is a cloud-based tool for facilitating data integration, and it can be used for a variety of integration scenarios, among others for B2B integrations as well. An enterprise integration platform (EiPaaS) can tackle even the most challenging system and application integration scenarios, as these tools are typically well-equipped to work with hybrid environments. They also provide adapter technologies and APIs to facilitate interconnectivity across any number of trading partners. The connectivity then will create a “channel” for the data transmission and data translation, so that you and your partners always receive the information in the right format. Integration solutions created with an iPaaS can ensure that the data is always received in real-time or whenever when requested (e.g., if batch processes are preferred).
iPaaS is also a tool for tackling any issues with the data quality. It is possible to set up business processes that would validate the data according to your requirements and would also help with the enrichment of the documents that included errors.
Besides all these functionalities, iPaaS is also an ideal integration tool for creating business process integration or business process automation. While iPaaS is a perfect tool for EDI integrations, you will be able to use it for any other integration projects as well.
EDI Integration is a Cooperative Advantage
While EDI integration may not provide you with a straightforward competitive advantage, implementing EDI or modernizing your current EDI efforts shouldn’t be overlooked. Improving collaboration across your entire ecosystem is extremely valuable – you may not be able to quantify it in dollars, but in the longer term, we are sure that you will see positive results from improving your EDI operations.