Modern EDI Part 1

December 3, 2019

EDI is extremely important for global business, as it automatizes workflows of the global economy. However, the world is changing, and businesses must align to these changes, taking full advantage of the huge steps made in the information technology. Even though invaluable, current EDI solutions have their weaknesses. In this two-part blog series, we will first discuss about the challenges in the current EDI world, and in the second part outline some potential paths to cope with these challenges.

 

This world would not work without Electronic Data Interchange (EDI). Even as it is invisible to majority of people, it is an integral part of the underlying infrastructure our modern living relies on. Without EDI we would run out of groceries, our goods would not flow from our favorite web store to our front door, our payments would not be processed automatically, we wouldn’t be able to travel around the world as easily as we can do today… Examples can be easily found everywhere in our daily life.

 

However, EDI is not the last stop on humankind’s journey towards more efficient business processes. Actually, it is just the first step of development towards better automation – a logical step on our path of leveraging the capabilities of modern information technology, but it has its limitations.

 

Where are we coming from?

To understand why the current EDI world is not the optimal one, we first need to understand how EDI was born. And to understand that, we need to go backwards in time – not tens of years, but hundreds or even thousands.

 

Since early civilizations learned how to read and write, we have created a peculiar relationship with documents. We have used our skill of writing to create documents about everything – documenting history, stories, diaries, everything. We have created an internal need to capture the current moment to pieces to paper in our personal lives but in businesses as well. We are using documents for negotiating contracts, signing agreements, creating archives of numerous things. Whatever the purpose of a specific document is, it is capturing a specific situation at a given moment of time. We are using documents for communicating information held by us to other interested parties as well as coming back to our archives to check what was the situation at some point earlier in the time. As documents are primarily immutable, they give us a warm and fuzzy feeling of security and understanding the past as much as they are tools to design our future plans.

 

When EDI was born, it was designed as a logical step to move our document-based business processes towards the digitalizing world. Instead of exchanging paper documents between businesses, we were suddenly able to exchange the same documents electronically, with a fraction of the time compared to the paper-based business. However, the introduction of EDI did not change the fundamental way how our business processes work – it only changed the format how information is transmitted as a part of these processes. If for some weird reason an alien virus would exterminate all the EDI technology in the world, the business processes could still work – we would just replace the EDI messages with more traditional, paper-based approach. Things would be slower, but processes would mainly stay the same.

 

What is happening?

After the birth of EDI, information technology has taken huge leaps, and our understanding of its capabilities has evolved accordingly. The changes are very visible in our personal lives; increased utilization of IT has altered the way we manage our personal businesses in rapid and unforeseen manner.

 

A simple example how our personal processes have changed involves the way we handle money. A few decades ago, the predominant way to utilize money was document-based. We carried documents – made from paper or metal – with us and exchanged those documents for goods or services. Today, in many places of the world, this document-based approach is slowly disappearing. Instead of using these familiar documents, our daily payment processes have been replaced with us identifying ourselves and accepting the transaction – with the paid amount then automatically deducted from a centralized repository holding our account balance. In most advanced economies, this may happen instantly – the single truth of our cash balance is always up to date in a single place and not distributed to our banks, our wallets, jeans pockets and cookie jars.

 

Then, how do we know what is our account balance? We don’t need to go backwards in time too long to recall that this information used to be delivered to us in documents received once a month or so from our bank. These account balance statements described the situation at a given moment of time, and we could then plan how to utilize our money in the next month. However, today, for most of us, this sounds like an ancient process. Utilizing our different devices, we can see the current situation – not the one from the end of last month – whenever we want, wherever we want.

 

Our personal processes have changed rapidly and have taken the modern IT possibilities into use way faster than what is happening in business world. EDI still prevails as the main tool to interchange information between businesses. As it is document-based, processes are stuck to the way they have been running for decades – and centuries.

 

But the world is changing. The new generation of software developers has learnt the capabilities of modern APIs as a primary way to exchange information between software applications. Instead of sending information from one application to another in batches, maybe on scheduled basis, the information can be queried or updated whenever there exists a need for that. The information is always up-to-date and maintained in a single location – not in numerous quickly outdated documents circulating around in a potentially complex business network.

 

A simple example of differences of EDI and API based approaches can be easily found from logistics industry. A simplified lifeline of a shipment can be divided into three phases – set-up, actual movement of goods, and aftermath. In the set-up phase, business parties are exchanging orders and order confirmations; during the actual movement of goods, parties are interchanging statuses (such as appointment confirmations, location updates, incident information etc.), and in the aftermath phase documents such as invoices are sent.

 

The most visible difference in the EDI and API based approaches can be seen during the actual movement of goods. Because the carrier (one who is actually moving the goods), does not know exactly when the shipper (one who has ordered the shipping) needs to know e.g. the location of the shipment, the carrier sends updates all the time. On longs journeys, carrier may send hundreds or thousands of updates – even if the shipper doesn’t need the information right then. And when the shipper needs that information, it is based on the latest update – not the information right at that moment.

 

When using API based approach, these updates would not need to be sent with such frequency. Instead, the shipper could ask the situation directly from the carrier when he needs that information. As the carrier knows the current status, the shipper would get the most up-to-date information available. The API based approach is thus 1) more precise, and 2) more economical, minimizing the need to transmit information that might never be used.

 

There are a lot of initiatives around the world attempting to move different industries towards more modern, API based approach and away from EDI. For instance, IATA is working on a new standard called ONE Record with a goal for air cargo businesses and associated services to share and update data in real time, instead of relying on EDI (Cargo-IMP or Cargo-XML) based approaches – or even often still relying on paper documents.

 

Interestingly, one could claim that moving from EDI to API world is like moving back to prehistoric times – to the age when writing was not yet invented. As man couldn’t write, there weren’t any documents to rely on, and you needed to go meet the information source and ask. The good thing is that over the past few decades we have invented technologies that enable us to do that efficiently – globally.

 

In the second part, we will discuss the road ahead – where is the world heading to, and how should we cope with the changes.

Modern EDI Part 1

Still wondering if you need an iPaaS?

If you like what you’ve found, reach out and we will be happy to guide you. Meanwhile, we thought this document might be useful for you.
Download product sheet