What is EDI and How is it Used?
Electronic Data Interchange (EDI) technology is used to streamline transactions between disparate enterprise systems. EDI Basics defines it this way:
EDI technology is much older than the cloud ( has been around since the 1970s); EDI solutions have helped businesses streamline their B2B transactions ever since on-premises ERP (without cloud functionality) solutions were the norm.
Today, EDI is still used either as a stand-alone product or as part of a distribution management ERP solution. Stand-alone EDI products can be integrated with accounting software and ERP solutions that don’t have distribution management solutions.
Although eCommerce involves electronic transactions, this isn’t the same as EDI technology. The difference lies in the functionality; EDI automates PO transactions between eCommerce customers, trading partners, dropshipping partners, and 3PL partners for one-time and repeat orders, while eCommerce provides the shopping experience and has limited PO automation functionality.
Basically, most eCommerce businesses use both EDI and eCommerce together to give their customers the option of streamlining their transactions through automation. B2B buyers use EDI solutions to fulfill repeat orders, see inventory levels, and complete the entire procurement process.
eCommerce businesses can also use EDI through their 3PL partner’s solutions. Basically, this means ordering, fulfillment, invoicing, and inventory management are automated and processed by the 3PL partner’s fulfillment software with EDI capabilities.
What Type of eCommerce Businesses Need EDI Solutions?
Also, B2B and B2C eCommerce businesses using dropshipping methods or who have trading partners will need EDI solutions to streamline and coordinate the PO process electronically between each party. For instance, an eCommerce business may be selling their products on multiple online platforms, including Amazon, Shopify, and Walmart, and then shipping them through a 3PL partner; EDI is needed to automate ordering and fulfillment processes directly between trading partners, 3PL partners, and customers.
Remember, EDI solutions are needed to translate and process electronic communications between different enterprise systems. When two or more different systems are being used to fulfill PO processes, EDI solutions are needed to translate and process transactions through automation, rather than having the eCommerce business manually process orders and invoices at every stage.
EDI solutions are also used by B2C and B2B eCommerce businesses using a 3PL partner to fulfill and ship orders without using trading partners. If 3PL partners have a software solution with EDI functionality, then eCommerce businesses can offer EDI methods to their direct customers.
An article on MultiChannel Merchant called: “EDI or B2B E-commerce: That is the Question”, written on June 13th, 2016 by Bill Onion, explains the differences between EDI and eCommerce:
Streamlining Ordering, Fulfillment, and Invoicing Processes
Understanding how EDI and eCommerce work with 3PL partners isn’t as complicated as it may seem. Essentially, eCommerce businesses can have EDI functionality through ERP solutions, 3PL partner solutions, or a stand-alone solution integrated into their accounting or ERP software. Mainly, EDI functionality is needed to streamline ordering, fulfillment, and invoicing processes for larger repeat orders with B2B eCommerce businesses using 3PL and trading partners.