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What is EDI?

EDI stands for Electronic Data Interchange. Electronic data interchange (EDI) is the computer-to-computer exchange of business documents between companies. EDI replaces the faxing and mailing of paper documents.

EDI documents use specific computer record formats that are based on widely accepted standards. However, each company will use the flexibility allowed by the standards in a unique way that fits their business needs.

Used in a variety of industries, over 160,000 companies have made the switch to EDI software to improve their efficiencies. Many of these companies require all of their partners to also use EDI.

Overview of EDI Benefits and Drawbacks

The EDI process provides many benefits. Computer-to-computer exchange of information is much less expensive than handling paper documents. Studies have shown that manually processing a paper-based order can cost $70 or more while processing an EDI order costs less than one dollar.

  • Much less labor time is required
  • Fewer errors occur because computer systems process the documents rather than processing by hand
  • Business transactions flow faster.

Faster transactions support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs through fewer emergency expedites.

Paper purchase orders can take up to 10 days from the time the buyer prepares the order to when the supplier ships it. EDI orders can take as little as one day.

One drawback is that companies must ensure that they have the resources in place to make an EDI program work; however, the need for buying and hiring these resources or outsourcing them may be offset by the increased efficiency that EDI provides.

How EDI Works

A buyer prepares an order in his or her purchasing system and has it approved. Next, the EDI order is translated into an EDI document format called an 850 purchase order.

The 850 purchase order is then securely transmitted to the supplier either via the internet or through a VAN (Value Added Network).

If the purchase order is sent using a VAN, then the buyer’s VAN interconnects with the supplier’s VAN. The VANs make sure that EDI transactions are sent securely and reliably. The supplier’s VAN ensures that the supplier receives the order.

The supplier’s computer system then processes the order. In the case of CovalentWorks’ clients, we provide VAN transportation and our servers provide all of the software and hardware required to process EDI documents. Only internet access and email are needed.

Data security and control are maintained throughout the transmission process using passwords, user identification and encryption. Both the buyer’s and the supplier’s EDI applications edit and check the documents for accuracy.

EDI capability involves either buying or outsourcing the following components:

  1. Software for communications, mail boxing of EDI transactions, mapping and translation.
  2. VAN, ASYNC, BISYNC, and Internet communications as required by various partners.
  3. Hardware including a server or PC, communication devices and peripherals
  4. Secured office space and monitored security
  5. Data backups and redundant power for reliability
  6. Additional software will be needed if integration of the EDI transactions with back office systems is desired.
  7. A VAN will need to be contracted for ongoing EDI transmissions.
  8. Personnel must be trained in how to use the software and communication devices.
  9. Maps will need to be developed for each EDI document type to be exchanged with each partner. Maps translate the encoded EDI record into a useable format.


Trading Partner Requirements

Each trading partner has unique EDI requirements that address their specific industry, region or standards. These requirements will include the specific kinds of EDI documents to be processed, such as the 850 purchase order used in the example above, 856 advance ship notices and 810 invoices.

Almost any business document that one company wants to exchange with another company can be sent via EDI. However each EDI document must be exchanged with the partner in exactly the format they specify.

Many partners will have an EDI implementation guide or kit that explains their specific requirements. Maps are required to translate the EDI documents from the trading partner’s format into the format that is usable by the receiving party. Meeting all of a trading partner's EDI requirements is referred to as being EDI compliant.

See common ASC X-12 Transactions

See common EDIFACT Transactions

What you need to be EDI compliant

EDI compliance involves either buying or outsourcing the following components:

  1. Software for communications
  2. VAN service for EDI transmission
  3. Mailboxing of EDI transactions
  4. Mapping and translation software
  5. Installing upgrades to software as needed
  6. Mapping labor
  7. Testing with EDI trading partners
  8. Upgrades for new versions required by trading partners

EDI VAN, FTP, or AS/2 Internet communications will be required by various partners. A server or PC, communication devices and peripherals will be needed as well as secured office space, monitored security, backups and redundant power.

Additional software will be needed if integration of the EDI transactions with back office systems is desired. Personnel must be trained in how to use the software and communication devices. Maps will then need to be developed, tested and maintained.

CovalentWorks Solutions

CovalentWorks specialty is outsourcing all of the above components of cloud EDI for small business. All you need is internet access and email. We take care of everything - all of the software, EDI VAN transmission, hardware, communications and labor.

eSupplierWorks Solution

eSupplierWorksTM is a comprehensive self-service online EDI portal for fast onboarding and EDI testing of suppliers. eSupplierWorksTM accelerates your in-house supplier EDI compliance testing and increases the number of suppliers onboarded by providing real time reporting and testing of EDI documents. It is a solution for hubs that makes EDI easy by reducing the manual labor required to onboard new suppliers. Reduce costs and add more suppliers today!

Frequently Asked Questions (FAQs): Go to the Frequently Asked Questions page for answers to questions about EDI topics. Executive, Sales, Accounting, and Technology questions are addressed.

White Papers: CovalentWorks white papers have more in-depth explanations of EDI topics. Go to the White Papers page to download white papers.

Glossary: Go to the Glossary page for explanations of over 100 of the most common terms and acronyms you may encounter as you implement EDI processes.

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EDI Solution Comparison

Comparison Item




Web-based portal
Interfaces to other systems Optional
Complete turnkey solution: ✓*
GS1-128 bar code labels Optional
Web-based software
Works with 3PL
Phone and email support
Online help
Transaction mapping
Trading partner testing

All EDI Solutions Also Include:

Access from Anywhere

Unlimited number of users

No annual fee, no maintenance fee

No fee per EDI customer per month

Month to month agreement, no long-term contract

*IT support required during testing for B2BWorks.

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