Electronic data interchange (EDI)

Electronic transactions create efficiencies for both suppliers and retailers in a digital economy. Adopting modern automation, like electronic data interchange (EDI), can save time and eliminate human error when exchanging B2B purchase orders, invoices, and shipping information.

What is EDI?

Electronic data interchange (EDI) is the transmission of information between B2B suppliers and purchasers over a secure, computer-to-computer connection. EDI systems standardize how businesses exchange supply chain data needed to fulfill and manage wholesale orders, eliminating the need for antiquated paper- or fax-based processes that can contribute to errors and delays.

In a wholesale distribution context, EDI systems allow businesses to securely send and receive electronic documents like:

  • Purchase orders
  • Invoices
  • Trade partner agreements
  • Payment documents
  • Inventory trackers
  • Advance shipping notices (ASNs)

The standardized, electronic transfer of shipping, receiving, and invoicing data automates supply chain communication between buyer and seller to improve order fulfillment and visibility. As a brand’s wholesale business expands, EDI transactions also enable more accurate information sharing and significantly reduce the time needed to process orders—which can quickly add up when selling to multiple retail partners.


Why is EDI necessary for wholesale distribution?

Electronic data interchange is critical for wholesale shipping because it streamlines order fulfillment processes, improves supply chain visibility, and accelerates the exchange of information. Because EDI automates the sharing of order-related information between buyers and sellers, it also strengthens retail partnerships

Many retailers—particularly big-box stores—now require the use of EDI transactions to exchange documents and manage order processing. Complying with these retailers’ EDI requirements as a supplier is non-negotiable if you want your products to appear on their store shelves. 

The speed and accuracy of EDI communications are also essential for B2B fulfillment success and viability. Since retailers typically implement delivery time windows for their trading partners, using EDI helps brands reduce order-to-shipment times—and ensure they can meet retailers’ strict delivery requirements. 

Ecommerce brands that outsource fulfillment to a 3PL should seek out a provider that is EDI compliant, especially if they’re aiming to execute an omnichannel fulfillment strategy.


Types of EDI

Specific standards govern EDI transactions. An EDI solution provider may advise on which type of application is best for a particular use case. In general, there are two types of EDI:

  • Direct connections: Direct EDI connections are also called “point-to-point.” In the one-on-one model, a business must establish direct and individualized connections to each partner or provider, and conditions are agreed upon before trading.
  • Value-added network (VAN): In a VAN setup, the network is closed. The number of parties participating is reduced to only those necessary. Communications are often sent and received in a mailbox design. VAN is an included offering for many European EDI products.

What are the benefits of using EDI?

Electronic data interchange is the gold standard for communication between buyers and sellers in a wholesale business model. Using an EDI system to send and receive documents electronically benefits DTC brands and their retail partners.

Streamlined flow of secure information

EDI eliminates intermediaries and ineffective manual processes. As a result, wholesale distributors and buyers equally enjoy a transparent flow of information. Once EDI onboarding is complete, the information bridge opens to any connection or data exchange, regardless of time or place.

With EDI, businesses benefit from more accurate tracking, reporting, and analytics. Many EDI solutions integrate seamlessly into other IT systems, so stakeholders are better equipped to review and evaluate historical business data from transactions.

EDI automation also encourages the use of standardized formatting or a common trading “language.” This is an important feature for B2B buyers and distributors who must work collaboratively to ensure orders are fulfilled, delivered, and invoiced in a timely manner.

Single source of truth for multichannel distribution

Electronic data interchange reduces data entry mistakes and inaccuracies. Errors of this nature tend to occur more frequently with manual or “by hand” processes.

EDI transactions replace the need to house or track similar information in separate places. For example, brands that sell goods to multiple retailers no longer have to maintain separate databases for each retail partner. 

Essential documents like purchase orders and invoices are seamlessly linked electronically, making it easy to go to one place for critical answers. When distribution problems or glitches do arise, a secure auditing trail helps businesses resolve issues quickly.

Time and resource savings

When an EDI system integrates with an organization’s existing tech stack, users can avoid bottlenecks and other time-related challenges. After the initial setup and onboarding, businesses are equipped with intuitive tools for various tasks—many of which happen on autopilot.

EDI transactions appear in close to real time, eliminating tedious time lags that can hinder operations. Replacing manual data entry with automation also allows for the reallocation of resources that were once spent on order processing and shipping to more strategic business priorities.

Elimination of outdated paper-based transactions

When it comes to wholesale shipping, paper-based processes aren’t only costly and elaborate—they’re often prohibitive to growth. Digital exchanges made possible by EDI remove physical- or location-based barriers that may have existed previously—limiting the full scope and potential of modern business operations. By replacing paper-based transactions with electronic transactions, data accuracy improves and discrepancies that delay payment or delivery can be avoided.

Paper-based exchanges also lack the level of security and protection that EDI provides. With electronic information exchange, participants must follow specific protocols and standardization criteria. Protocols add even greater security to vetted EDI software and cloud-based solutions.

Real-time insights

EDI enables better supply chain tracking and visibility. Real-time data insights are especially important for businesses that want to enhance inventory management and produce more accurate demand forecasting.

Over time, having access to accurate insights saves time and money. Brands have a better grasp on spending and wholesale distribution costs, and the prices passed to buyers reflect up-to-date economic data from the supply chain.

In this regard, EDI is essential for leaders who want to make more strategic business and operational decisions.


The future of EDI transactions

Although the basic technology behind electronic data exchanges goes back several decades, the capabilities of today’s EDI systems merely scratch the surface. In the future, brands can expect even more digital advancements. These may include:

  • Artificial intelligence (AI) influence on the purchasing process
  • Expanded integrations to additional apps and APIs
  • Chat-based messaging services within the EDI system
  • Wireless tracking tools to deliver even better real-time shipment data

Moving beyond EDI compliance with fulfillment integration

As digital business expands around the globe, all organizations can benefit from automated and effective data exchanges. For brands fulfilling B2B orders, leveraging EDI transactions and ensuring EDI compliance with their retail partners is essential to wholesale success. And while there are a variety of EDI systems in use by retailers, choosing a fulfillment platform that seamlessly integrates with EDI software can help brands seamlessly fulfill wholesale and ecommerce orders—all from a single platform.



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