What Is EDI?
EDI (electronic data interchange) is the automatic exchange of business documents, such as purchase orders, ship notices, and invoices, between trading partners' systems in a standard format. It replaces email, PDFs, and manual data entry.
How EDI Works
EDI replaces emailed and keyed-in documents with structured data that moves between systems automatically:
A Standard Format
Documents follow an agreed standard, such as ANSI X12, so every field means the same thing to both partners.
Translated From Your System
Your ERP data is converted into the EDI format, or an incoming EDI document is converted into an order in your ERP.
Sent Securely to the Partner
Documents travel through an EDI provider's network or a direct connection, such as AS2, to the trading partner.
Acknowledged on Receipt
A functional acknowledgment (997) confirms each document arrived and could be read.
Common EDI Documents
Each EDI document has a number. These are the ones suppliers and distributors use most:
| Code | Document | Sent By | What It Does |
|---|---|---|---|
| 850 | Purchase Order | Buyer | Places the order |
| 855 | PO Acknowledgment | Supplier | Confirms, changes, or rejects order lines |
| 856 | Advance Ship Notice (ASN) | Supplier | Lists what is in the shipment before it arrives |
| 810 | Invoice | Supplier | Bills the buyer for what shipped |
| 846 | Inventory Inquiry/Advice | Supplier | Shares available stock with the buyer |
| 940 / 945 | Warehouse Shipping Order / Advice | Seller and warehouse | Tells a warehouse what to ship, then confirms it shipped |
| 997 | Functional Acknowledgment | Receiver | Confirms a document was received |
EDI Example: A Retail Purchase Order
A housewares supplier sells to a national retail chain that requires EDI. This is one order cycle:
| Day | Document | Direction | Details |
|---|---|---|---|
| Mon | 850 Purchase Order | Retailer to supplier | PO 4471029 for 360 units across 3 items, for 2 distribution centers |
| Mon | 855 Acknowledgment | Supplier to retailer | All lines accepted; order created in the supplier's ERP automatically |
| Wed | 856 Advance Ship Notice | Supplier to retailer | 12 cartons with GS1-128 labels, sent before the truck leaves |
| Wed | 810 Invoice | Supplier to retailer | Billed for the quantities shipped |
| Fri | Delivery | Carrier | Retailer scans cartons against the ASN and receives without opening boxes |
| Net 60 | Payment | Retailer to supplier | Paid in full with no chargebacks |
No one keyed in the order, retyped the shipment, or emailed an invoice. The ASN arriving before the truck is what lets the retailer receive quickly, and what keeps the supplier clear of compliance chargebacks.
Benefits of EDI
No Manual Order Entry
Purchase orders arrive as sales orders, which removes typing errors and saves hours each week.
Faster Order-to-Cash
Orders, shipments, and invoices move the same day, so you get paid sooner.
Fewer Chargebacks
Accurate, on-time ASNs and invoices help you meet retailer requirements.
Access to Larger Customers
Many big-box retailers, grocery chains, and distributors only buy from suppliers that support EDI.
How to Get Started With EDI
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1
List your trading partners. Note which customers and suppliers require EDI, and which documents each one expects.
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2
Get each partner's requirements. Retailers publish implementation guides with their document versions, labeling rules, and timing rules.
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3
Choose an EDI provider. Pick a provider that already connects to your partners and integrates with your ERP.
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4
Connect EDI to your ERP. Map documents so incoming orders become sales orders and shipments generate ASNs and invoices automatically.
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5
Test with each partner. Exchange test documents and pass each partner's certification before going live.
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6
Monitor and fix errors. Watch for rejected documents and late ASNs, and correct them quickly to avoid chargebacks.
Common EDI Mistakes to Avoid
EDI That Stops at the Inbox
If EDI documents are printed and retyped into the ERP, you keep the cost of manual entry and add a new place for errors.
Late or Inaccurate ASNs
An ASN that doesn't match the cartons on the truck is one of the most common causes of retailer chargebacks.
Ignoring Partner Guides
Every retailer has its own rules. A generic setup often fails the first certification test.
Inventory Out of Sync
Accepting EDI orders without checking real available stock leads to short shipments and fill-rate penalties.
Which Industries Use EDI?
EDI is standard wherever large customers buy from many suppliers:
Distribution
Wholesalers trading with retailers, buying groups, and manufacturers.
Manufacturing
Suppliers to big-box retailers, automotive, and industrial customers.
Food & Beverage
Brands selling to grocery chains and foodservice distributors.
Healthcare
Medical supply companies trading with hospitals and group purchasing organizations.
EDI in Kechie ERP
Kechie connects to SPS Commerce, a widely used EDI provider, so purchase orders from trading partners can come into Kechie as sales orders, and shipment and invoice documents can go back out. Because order management, inventory, warehouse, and accounting share the same data, EDI orders are checked against real available stock and shipments update inventory and billing in real time. EDI is available as an add-on to the core inventory package.
Frequently Asked Questions
What is EDI in simple terms?
EDI (electronic data interchange) is a standard way for companies to send business documents, like purchase orders and invoices, directly between their systems instead of by email, PDF, or paper.
What are the most common EDI documents?
The 850 purchase order, 855 purchase order acknowledgment, 856 advance ship notice, 810 invoice, and 846 inventory inquiry. Warehouses also use the 940 warehouse shipping order and 945 warehouse shipping advice.
What is the difference between ANSI X12 and EDIFACT?
Both are EDI standards. ANSI X12 is most common in North America, while EDIFACT is used more widely in Europe and internationally.
What is an advance ship notice (ASN)?
The 856 ASN tells the customer what is in a shipment before it arrives, down to the carton and item level. Many retailers require it and charge penalties when it is late or wrong.
What is an EDI chargeback?
A fee a retailer charges a supplier for not following its EDI or shipping requirements, such as a missing ASN, wrong carton labels, or a late shipment.
Do I need an EDI provider?
Most companies use an EDI provider to handle partner connections, document mapping, and compliance, and connect that provider to their ERP so documents flow in and out automatically.
What is the difference between EDI and an API?
EDI exchanges standardized business documents in batches between trading partners. An API is a more flexible, real-time connection between systems. Many companies use both.
Why do retailers require EDI?
EDI lets large retailers process thousands of orders, shipments, and invoices from many suppliers automatically and accurately, without manual data entry.
Related Guides
Connect Your Trading Partners to Kechie ERP
Turn EDI orders into sales orders and ship faster, with fewer chargebacks.