What is EDI, and how does it work? Electronic Data Interchange (EDI) is the electronic exchange of business documents between companies in a standardized format. It allows systems to exchange information, such as purchase orders, invoices, and shipping notices, without someone manually retyping each document into the receiving system.
If you’re new to EDI, the name might sound technical, but the idea is straightforward. Businesses need to share information to place orders, ship products, and request payment. EDI helps that information move between their systems with fewer manual steps.
Let’s break it down.
How Does EDI Work?
Think of EDI as a shared language for business documents. Two companies may use different software, but a standardized format helps their systems understand the information being exchanged.
Here’s a simple example:
- A retailer places an order. It creates a purchase order listing the products and quantities it wants to buy.
- The order is translated and sent. EDI software converts the information into an agreed format and transmits it to the supplier.
- The supplier receives the information. Its system can read the order details without someone having to retype them.
- Related documents follow. The supplier can send an order acknowledgment, shipping notice, and invoice through EDI as the order moves forward.
The setup varies between businesses, but the purpose stays the same: make exchanging information easier and more consistent.
What Types of Documents Use EDI?
EDI handles many of the documents businesses already use every day:
- Purchase orders: Tell a supplier what a buyer wants to order.
- Order acknowledgments: Communicate the supplier’s response to an order.
- Advance shipping notices (ASNs): Share details about a shipment before it arrives.
- Invoices: Provide billing details for goods or services.
- Inventory updates: Share information about product availability.
These documents help trading partners, meaning the businesses exchanging information, stay informed throughout a transaction.
Why Do Businesses Use EDI?
Manually entering orders and copying information between systems takes time. It also creates opportunities for typing mistakes and missed details.
EDI can help businesses:
- Save time by reducing repetitive data entry.
- Improve accuracy by limiting errors caused by manually copying information.
- Share information faster between connected systems.
- Handle more transactions as order volume and business relationships grow.
EDI still depends on accurate information and a properly configured setup. It can reduce manual work, but it does not eliminate the need to monitor documents or resolve issues.
Is EDI the Same as Sending an Email?
Not quite. When you email a purchase order as a PDF, someone may still need to open it, read it, and enter the details into their system.
With EDI, the information arrives in a structured format the receiving system can process. That is what makes it useful for businesses exchanging large numbers of documents.
See What EDI Means for Your Business
Now that you know the basics, explore how EDI connects to your fulfillment operations. In our next guide, we explain how KSP Fulfillment’s partnership with SPS Commerce helps customers support retailer requirements, reduce manual touchpoints, and keep information moving between systems.