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What is EDI and Why Should I Care?

by cin7admin
Once upon a time, there was no getting around paper.  A retailer would fill out and send a purchase order to a supplier.

The supplier would process the order, fill out an invoice to mail to the retailer, and record the transaction in a manifest.  These days there are more efficient options.

The pencil-paper-and-post transaction was unwieldy, time-consuming and ripe for copying-errors that could result in shipping the wrong product at the wrong quantity at the wrong price to the wrong place and a month late.

Computers, evidently, haven't made things a lot better for many smaller businesses. For example, a 2015 survey of 200 companies showed that 50% receive most of their invoices as a piece of paper sent through the postal service.

That data entry and filing work might be manageable for doing business with a stable list of small trading partners. But it might not get you anywhere when the opportunity to sell through big box retailers arises. For that, you will likely need to use EDI.  What does EDI stand for? It stands for Electronic Data Interchange.

EDI is often the required access point for trading with a big retailer. It is how that company sends purchase orders, receives invoices and otherwise exchanges all business documents directly between their computer system and yours. If a big retailer wants your product, you may have no choice but to use EDI and a Value Added Network (VAN) over which to transmit EDI data. Big retailers deal in high volume and may not accept just any old email (and paper? Forget about it).

It used to be that only large wholesalers could afford the cost of EDI because of the programming, integration and network maintenance costs. The good news for smaller wholesalers is EDI doesn't have to be cost-prohibitive anymore.  The fact is, EDI has a long history, and it isn't going away any time soon.

Manifest Destiny: The  Rise of EDI

Edward Guilbert is considered the grandfather of EDI, for helping implement a system to track two million tons of supplies to the besieged West Berlin during the 1948-1949 Soviet blockade of the city. Guilbert helped develop a way to transmit cargo manifests by phone, telex or radio-teletype, in order to accurately track supplies as they were quickly transferred from trucks to the supply planes.

Guilbert adapted the concept to the private sector in the 1960s, while many rail lines, shipping companies and other big corporations were also using electronic data manifests. So many, in fact, that a committee formed to standardize electronic data transmission across many industry sectors, out of which came the first official EDI standard in 1975.

The use of EDI spread to more industries through the 1980s along with the rise of networked desktop computer systems. This expansion led to the rise of third-party providers known as Value Added Networks (VANs) which automated the conversion of data between two companies’ computer systems, secured the network over which the data moved and took care that the network was always running.

Only the largest companies could afford the EDI software and the ongoing per-transaction fees the VANs charged to use their networks. Big companies had the capital investment in Information Technology, and high volume trading meant they could absorb the cost of EDI transactions. Smaller companies needed not apply.

Alternatives to EDI—most notably, XML—developed along with the maturity of the Internet and ecommerce, but EDI’s underlying, secure communication structure guarantees that EDI will continue to dominate.

Learn more about how Cin7 "bakes" EDI into its Inventory Management System in order to enable businesses to grow comfortably.

Download the EDI Guide