EDI

101 Guide
 TABLE OF CONTENTS

Chapter 1: What is Electric Data Interchange (EDI)? 3

Chapter 2: Six Good Reasons to Use EDI 4

Chapter 3: The Process of Exchanging EDI Data 5-7

Chapter 4: Four Ways to Implement & Manage EDI 8

Chapter 5: Five Steps to Empowering EDI 9

Glossary of Terms 10

Common Transaction Sets 11

Getting Started 11

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 Chapter 1
What is Electronic Data Interchange?
EDI is a set of standards developed in the 1960s that defines common formats for information to be exchanged
electronically between two organizations that do business together – or “trading partners.” In practice, it allows
companies to speak the same language electronically and communicate more efficiently.

Before EDI was widely adopted, companies conducted business by sending paper documents using mail and
couriers. Even with access to modern technology, some still operate using these paper-based processes. EDI eliminates
much of that manual processing – and the inefficiencies that come with it – by automating the electronic flow of the
same information in packets of formatted data. Documents exchanged through EDI may include invoices, purchase
orders, advance shipping notifications, student transcripts, healthcare claims and many more.

EDI Standards EDI Formats

Trading partners communicating with EDI must first follow EDI transactions represent one or more individual
the same standards for formatting the data. This way they documents. In the ASC X12 standards, each document
(or their computers) know where to find “elements” — type is referenced by a three-digit number. (See page [??]
individual data units that include dates, item numbers, for more on transaction sets.) EDI can include documents
prices, order quantities and other information within in many formats, such as XML, CSV, fixed length and even
the message. spreadsheets; however, EDI traditionally represents one
formatting structure for data following industry standards.
EDI standards define both what pieces of information are
required and optional for a particular document, as well EDI Data Structure
as the rules for the structure of the document. In the U.S., An EDI file contains data organized into groups and
organizations traditionally follow standards set by the smaller units. This data represents particular transactions
American National Standards Institute (ANSI), a private, that replace traditional documents. EDI standards were
nonprofit organization that oversees the development developed at a time when the transmission of electronic
of voluntary consensus standards for products, services, data was very expensive, so the most widely adopted
processes and systems. An ANSI committee developed the standards represent data in a very compressed format,
most common standard for EDI, often referred to as “ASC limiting the size of the transmitted files.
X12” or just “X12.”
Following the ASC X12 standard, each document
Outside the U.S., the international EDI standard is Electronic represented in an EDI transaction contains a string of
Data Interchange for Administration, Commerce and data elements divided into rows called “segments.” The
Transport (EDIFACT), which was developed under the elements are separated by a symbol— known as a delimiter
United Nations. —used to distinguish data elements (element separators) or
to indicate the end of a segment (segment terminators).
EDI Guidelines of Specifications Each segment begins with a segment identifier indicating
Individual trading partners have their own sets of rules and what type of data is being presented. A block of segments
preferences for EDI, typically laid out in a manual called containing related data that can repeat is called a “loop.”
an “implementation guide.” Guidelines often are based The combination of data that forms a single message or
on a given EDI standard, with some additions, exceptions document is called a “transaction set,” according to the
and changes based on a company’s preferences. These X12 standard. Multiple transaction sets can be grouped and
differences are akin to local variations in language – both transmitted together in a package called an “envelope.”
businesses speak EDI, but with different dialects. When When the transaction sets are related in function, the
creating EDI to send to a trading partner, companies should grouping is called a “functional group envelope.” Functional
consider how data will be organized according to the EDI groups from the same trading partner are grouped into an
standard and the specific requirements of each, referencing “interchange envelope,” and a series of interchanges from
their implementation guides. different trading partners form a “transmission.”

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 Chapter 2
Six Good Reasons to Use EDI
Companies often view EDI as a burden placed on them by trading partners, but implementing EDI can
provide a number of tangible benefits. Your company may have little choice but to use EDI, as it’s often
required by many larger organizations, especially big retailers, manufacturers and government agencies.
Integrating EDI allows companies to grow their business and provides:

1 Cost Savings 4 Security

As EDI automates the flow of information, reducing human EDI makes the exchange of critical business or personal
interaction, companies can save money in a variety of ways, information more secure since many communications
including reduced: protocols for transferring data include encryption and other
• Overhead costs related to manual document security measures, like digital signatures. This is one reason
management why HIPAA, the U.S. Federal health insurance law of 1996,
• Printing and paper costs encourages the widespread use of EDI in the healthcare
• Data entry errors, leading to heightened system.
customer satisfaction
• Inventories and inventory carrying costs 5 Visibility
• Risk of penalties or chargebacks for errors or EDI allows users to share valuable information with trading
for not following guidelines correctly. partners, including product sales data, inventory status
of products and component parts, demand forecasts and
2 Accuracy more. They can then share similar information with their
Data sent via EDI is never physically “touched,” reducing trading partners, and so on, all the way down the supply
the likelihood of costly errors and promoting stronger chain. Improving visibility across the supply chain allows
relationships between trading partners. Manual and suppliers to plan and respond to changes in demand, better
duplicate data entry is eliminated, and, with internal moderate inventory levels and prepare for larger orders
integration, orders received via EDI can flow through before they ever arrive.
your entire process exactly the way they were prepared.
6 Actionable Management Information
3 Efficiency EDI also provides a data trail. Orders, shipments, claims,
Sending information via EDI takes minutes – sometimes loan applications, inventory status and other business
only seconds. Trading partners can act on received data functions can more easily be tracked and compiled for
immediately with less manual work, meaning more further manipulation and analysis. Data can be mined and
efficiency for you and for them. Furthermore, integrating specific functions, while transactions and information on
EDI with your internal business or accounting system makes trading partners can then be assessed for trends, errors
for a more streamlined workflow. Incoming transactions or redundancies providing actionable information to help
can automatically convert to actionable items (i.e. orders guide business management decisions.
or claims) with minimal human intervention, saving a
significant amount of time.

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 Chapter 3
The Process of Exchanging EDI Data
Most EDI-based transactions are the same as those you would traditionally handle with paper
documents, the lone difference being that all EDI information is sent and received electronically.
This section explains the steps in the process.

FIVE STEPS IN THE EDI PROCESS

1 Sender extracts data from a back end business or
Three major processes involved
accounting system; in the mapping of EDI data:
2 Sender maps that data into the proper EDI format to MAPPING
be transmitted;
Involves transforming an EDI document into another
format (such as XML, a flat file, a delimited file, etc.)
3 EDI file is translated in preparation for transmission;
or vice versa
4 Sender transmits the message – the outbound data – TRANSLATION
to the recipient;
The process of accepting in bound EDI data, or
Recipient translates the inbound data and provides preparing an outbound file for transmission
5
the sender with a digital receipt called a “functional
COMMUNICATIONS
acknowledgment.” Refers to the transmission of the EDI transaction

SEND EDI DATA TO YOUR TRADING PARTNER

Translate
Extract data Send EDI Data
Map data to EDI Data in Process and
from Back to Trading
EDI Format Preparation for Reconcile FA
Office System Partner
Transmission

RECEIVE EDI DATA FROM YOUR TRADING PARTNER

Integrate Data Map EDI Data to Generate and Translate and Receive EDI
to Back Office Internal Data send FA to Validate EDI Data from
System Format Trading Partner Data Trading Partner

Understanding Functional
Acknowledgments Functional Acknowledgments (FA) 997 and 999 are digital receipts
meant to confirm the successful transmission of EDI data and notify
senders that it is structurally acceptable, with three possible outcomes:

• Accepted. The EDI message conforms to all agreed upon EDI

standards
ICON or graphic here • Accepted with Errors. The EDI message does not meet the EDI
standards, but is sufficient to be processed by the trading partner
• Rejected. The EDI message does not meet the EDI standards and
is not being processed by the trading partner

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 Three Major Processes Involved
in the Exchange of EDI

1 MAPPING
Electronic information typically resides within a Core Functionality
software application on a computer or mainframe.
of an EDI Translator
As long as it is possible to import and export files from
that application, (such as XML, a flat file, a delimited Successful EDI translators provide features
file, etc.), pertinent information can be extracted and such as:
mapped to an EDI transaction. • Validation of the document’s adherence to EDI
standards as agreed upon with your trading
The function of mapping outbound data involves partner;
establishing what information from the business or • Document checking to flag redundant EDI
accounting software, (the data source), goes where messages and ensure that duplicate documents
in an EDI file (the data destination). EDI software don’t create unnecessary work or confusion; &
allows you to map EDI data and then save that map
like a template to use repeatedly, allowing for quick • Functional acknowledgement reconciliation
conversion of information in the future. Multiple data that alerts EDI teams when inbound and
maps can be created to accommodate each trading outbound documents don’t match up with
partner’s unique specifications or data requirements. corresponding FAs.

When inbound data is received, it also must be

converted to a format your business or accounting
system can understand. Through system integration,
the EDI data can be mapped to automatically and
seamlessly load into your internal system.

2 TRANSLATION
When an inbound transmission is received by the EDI
software, the file must be broken down, or “parsed”, to
identify everything it contains and what actions should
be taken. EDI translation software will determine
what trading partners and individual transactions
are included in a transmission, and whether there
are any duplicates.

The senders of each transaction are validated as

legitimate trading partners and the file structure
and individual data fields of each are analyzed for
compliance with EDI standards. If required, an FA
is sent to the trading partner. Only then is the data
mapped and applied to your internal business system.

A similar process occurs when preparing an outbound

file for transmission. The translator will prepare the
transaction(s) and await receipt of the appropriate
acknowledgment(s).

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 3 COMMUNICATIONS
The actual transmission of EDI data requires a Communications
communications connection which come in both
direct and indirect varieties.
Protocols Defined
• FTP—transferring files over a TCP-based network
Indirect connections with trading partners are such as the Internet
done through a value added network (VAN). Often
• FTPs—FTP secure is FTP with support for
referred to as the “electronic post office,” a VAN is a
encryption protocols TLS or SSL
third-party service that transmits and stores data in
an “electronic mailbox” until it is picked up by the • sFTP—SSH-FTP is using FTP with the SSH (secure
appropriate party. Since the EDI message contains shell) security protocol
addressing information, the VAN routes the message
• AS1—EDIINT standard for sending EDI data
to the mailbox of the recipient.
encapsulated within MIME email messages (SMTP)

Direct connections allow trading partners to transmit • AS2—EDIINT standard for EDI transmissions over
data directly to each other over the Internet via: the Internet (HTTP) with SIMIME encryption
• EDIINT, commonly known as applicability standard • AS3—EDINT standard for using FTP with SIMIME
2 (AS2); encryption
• A virtual private network (VPN); or
• FTP, sFTP or FTPs.

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 Chapter 4
Four Ways to Implement & Manage EDI
There are a number of ways to implement EDI in your organization. You can choose to manage it yourself in house or
outsource the entire function. Here are your options:

WEB-BASED EDI SOLUTION INSTALLED SOFTWARE

Great for small companies that are new to Best option for companies with many trading
EDI and need to make a quick, inexpensive partners and high monthly transaction volumes
initial connection. The platform mimics that want full control over their EDI operation.
email where EDI messages are imported Requires an investment in hardware and software;
into an inbox and responded to with pre- full integration with back-end business and
populated data forms. accounting systems; and EDI and IT personnel
to manage and support the function.
MANAGED SERVICES
A fully outsourced option designed to serve CLOUD-BASED EDI SOLUTION
larger organizations that do not want to Best option for companies that want to maintain
invest in additional personnel to manage all the flexibility and control that an installed
the day-to-day EDI operation. Managed software option provides, but don’t want to
services handles all routine activities and manage the IT infrastructure.
trading partner onboarding, while providing
ongoing support for every party involved.

7 Questions to Help Determine The Best Solution for You!

Take a moment to answer these questions:
1 How many trading partners will you need to 5 Do you intend to integrate the EDI data with your
exchange EDI with? back office systems?

2 What types of transactions do these trading 6 Are you able to provide data from your back office
partners require? system for all of your trading partner needs, or will
you need a system that allows you to manually
3 How often do you expect to receive a transaction create EDI data?
from these trading partners?
7 Do you have the resources to manage an ongoing
4 For each trading partner, will you need to send EDI operation inclusive of new trading partner
transacations to a single specified location, or onboarding and operational data management
multiple facilities? responsibilities?

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 Chapter 5
Five Steps to Empowering EDI
The value of EDI does not stop at the initial connection. In fact, EDI can help you to transform your business and
achieve operational excellence. Following these steps can get you there.

LEVEL 1: CONNECT With automation, cross functional teams can easily

When the goal is to make an initial connection and lose visibility into the process. To keep customers and
the transaction volume is low, it’s best to employ a trading partners happy and improve supply chain
Web-based EDI solution. This satisfies trading partner visibility, empower everyone in the organization to
requirements and allows you to do business with them, re-engage with the most critical business processes
but EDI remains a manual process for you. by exposing them to EDI data.

LEVEL 2: AUTOMATE VOLUME LEVEL 5: APPLY INTELLIGENT LEVERS

As the number of documents increases to more than EDI documents sent to your trading partners represent
100 per month or your trading partners expand beyond milestones within your own internal business processes,
three, you should explore automation opportunities. so information about these documents can also
This involves mapping the EDI data to a format that describe the effectiveness of your different internal
can be integrated into your back-office system, giving teams. In addition to the contextual business rule
you the ability to automatically send data to trading validation, companies are now able to track trends
partners with little or no human interaction. over time to assess issues in their internal business
Automation can save your company money and processes that can be improved in an effort to
time through reduced manual processing while transform business operations.
improving data accuracy.
Integrating EDI data with back office systems and
LEVEL 3: AUTOMATE INTEGRATION RULES providing the needed visibility into the process for
Even after integrating data with your back-office your stakeholders can position your company to
systems, you may still find yourself reviewing the EDI leverage the full potential of EDI data. As EDI is a
data manually. Perhaps ship-to locations are not yet standard with common data structures, reusable
set up in your ERP, causing errors when loading the business rules may be leveraged to ensure that data is
order. Or maybe the price a customer included on their integrated successfully and that the actual content and
order doesn’t match the internal price that you have in context of the data is correct. Checking the EDI data for
your ERP, forcing you to override the trading partner’s content issues may illuminate a variety of opportunities
expectations or undermine your internal price controls. to improve trading partner relationships, such as
You can solve this problem by building business rules making sure prices on invoices and customer orders
right into your data integration process, enhancing match and that Advanced Ship Notices are being sent
order accuracy and limiting unnecessary friction with on time.
trading partners. Best of all, it increases efficiencies,
since you won’t need to manually check orders
anymore.

LEVEL 4: EMPOWER COLLABORATION

Prior to EDI, sales teams handled orders manually,
shipments were loaded onto trucks by the fulfillment
team with bills of lading, and invoices were sent
by accounting personnel. Everyone involved was
intimately familiar with transactions.

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 Glossary of Terms
ANSI (American National Standards Institute): A voluntarily Functional Acknowledgement (FA) (997): An EDI transaction
committee that coordinates standards. Its subcommittee, set sent from the receiver of the EDI transmission to the
the ANSI Accredited Standards Committee (ANSI ASC) sender. The 997 indicates receipt and acceptability of data
recommends a standard referred to as ANSI ASC X12 or and allows the receiver to notify the sender if problems
simply X12. have been encountered within the data.

ASN (Advance Ship Notice or Advance Shipping FTP (File Transfer Protocol): Standard Internet protocol for
Notification): A Notification of forthcoming delivery transferring files. FTPs (File Transfer Protocol secure) uses
of product. FTP with support for encryption protocols TLS or SSL to
provide greater security in transferring files.
AS2 (Internet Applicability Statement 2): Specifies how to
transport data and the means to connect, deliver, validate Map: The pattern in which EDI information is to be arranged.
and reply to data in a secure and reliable manner. AS2
Software specifically supports transmissions using the ODBC (Open Data Base Connectivity): A standard software
AS2 protocol, such as AS2 Complete from 1 EDI Source. interface for injecting and extracting data to and from
computer systems, such as business or accounting
Communications Session: The uninterrupted flow of software applications.
data from one computer system to the other.
Protocol: Rules that determine the format and transmission
Compliance Checking: A process for ensuring that the of data between the sender and the receiver.
EDI transmissions comply with the established rules.
Segment: A grouping of one or more data elements that
CSV File (Comma Separated Values File): A File format appears as a line of information within an individual EDI
in which the data elements are separated with commas, message.
also known as a Comma Delimited File.
sFTP (SSH File Transfer Protocol): Using FTP with the SSH
Data Element: The smallest unit of EDI information. A data (Secure Shell) security protocol for a higher level of security
element could be a code, a name, a quantity or any other in transferring files.
individual piece of information.
Trading Partner: The business with which you are
Data Mapping: The method by which information in one exchanging data.
format is restructured into a different format.
Transaction Set: The electronic version of a written
EDIFACT (Electronic Data Interchange For Administration, document.
Commerce and Transport): A standard different from X12.
It’s usually used in European countries and among the Translator: A software tool that accepts an EDI transmission
automotive industry. and converts the data into another format.

EDIINT (EDI over the INTernet): The ability to send EDI GS1-128 (formerly UCC-128): Scannable, barcoded label
data directly over the Internet without the use of a VAN. located on the outside of a shipping carton.

Electronic Mailbox: Term referring to the place (located VAN (Value Added Network): A third-party EDI service
within a third party’s provider system) where an EDI provider that supplies a communication link between
transmission is stored for pickup or delivery. companies so they may exchange electronic transmissions.

Fixed Length: Term that describes a data field with an X12: A standard of EDI
established number of characters.
XML (Extensible Markup Language): A simple and flexible
Flat File: Alphanumeric and/or numeric files with no text format designed to meet the needs of electronic
control characters used for transferring data. publishing.

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 Common Transaction Sets
Manufacturing/Retail

Ready to Get
810 Invoice
850 Purchase Order
855 Purchase Order Acknowledgment
856 Advance Ship Notice
864 Text Message Started?
Procurement
Our EDI experts are here to help you not only
940 Warehouse Shipping Order
943 Warehouse Stock Transfer Shipment Advice learn EDI, but also provide the expertise,
944 Warehouse Stock Transfer Receipt Advice experience and solutions that will help your
945 Warehouse Shipping Advice business grow. We have a full suite of options
947 Warehouse Inventory Adjustment Advice ready for you.

Healthcare Whether you choose a web-based, managed,

270 Eligibility, Coverage or Benefit Inquiry installed or cloud-based EDI solution, we
271 Eligibility, Coverage or Benefit Information have a product that will exceed expectations.
276 Health Care Claim Status Request We also provide communication, integration
277 Health Care Claim Status Notification and migration services to help complete your
834 Benefit Enrollment and Maintenance solution.
835 Healthcare Claim Payment Advice
837 Healthcare Claim If you have questions about EDI, or you’re ready
to get started, contact us and we’ll walk you
Freight, Trucking and Logistics through what EDI option is best for you and be
204 Motor Carrier Shipment Information your guide through the entire implementation
210 Motor Carrier Freight Invoice and beyond. In no time at all, EDI will become a
211 Motor Carrier Bill of Lading natural part of your business. And through our
212 Motor Carrier Delivery Trailer Manifest ongoing training, you can learn as much or as
214 Transportation Carrier Shipment Status Message little as you’d like about the solution, process
and ways to maximize success.
Other
753 Request for Routing
754 Routing Instructions
811 Consolidated Service Invoice/Statement Call 877.334.9650
812 Credit/Debit Adjustment or visit 1edisource.com.
820 Payment Order/Remittance Advice
997 Functional Acknowledgment

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