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What Is EDI?


As a manufacturer or business owner, you’ve likely heard the term EDI used in the past. EDI, or electronic data interchange, is one of the many tools that manufacturers have at their disposal to increase sales. As direct to consumer (D2C) shipping continues to gain popularity, EDI will grow in importance. Read on to learn about EDI, and the role that it plays in streamlining business for manufacturers and retailers.

EDI: Electronic Data Interchange

The premise of EDI is fairly simple, but the way it is applied varies by industry and business.

When a customer makes a purchase in a retail outlet like JCPenney, the sale information is routed through multiple systems. Some of these systems are unique to the retailer, and only distribute information internally. For example, it’s possible to view the details of a jewelry purchase made in New York while in Massachusetts. EDI enables retailers to share that information with the manufacturer as well.

As stock depletes, the retailer’s system can interact with the manufacturer’s system and alert it of declining inventory. These POS systems send alerts instantaneously, and are crucial in saving both organizations the need to communicate about stock.

Since the ‘70s, EDI has grown in popularity across all inventory-based industries. Now, retailers consider custom EDI software to be mandatory for all manufacturers in order for them to sell products.

How Does EDI Work?

In the past, the various tasks that an EDI system performs were instead accomplished on paper. With a custom EDI software, this is accomplished instantly.

  1. A customer places an order. This can be in-store or online.
  2. The retailer’s inventory system checks the manufacturer’s inventory to ensure the stock is available. If it is, then the order is confirmed. If not, it is rejected.
  3. The EDI software translates and distributes transactional information from the store into an easily understandable format. This often includes details such as shipping information, product sku, product cost, payment method, and more.
  4. The EDI software sends this understandable information to the manufacturer.
  5. The manufacturer bills the retailer for the order and for shipping costs.

In short, EDI distills unique language used by individual companies into a universally understood format. The process does vary slightly, depending on the point of purchase.

E-Commerce EDI

As a result of the rise of D2C shipping, custom EDI has played an instrumental role in meeting consumer demands. When a customer purchases a Sony television from Best Buy’s website, the order is not filled by Best Buy. Instead, the order is filled by Sony. Shipping directly to the consumer, rather than involving the retailer, benefits both parties. For the retailer, it means that they will not have to pay for any products until they are sold. For the manufacturer, it offers a new way to build lasting relationships with the consumer.

In-Store EDI

With modern EDI technology, inventory replenishment is a completely automated process. When the quantity of a particular Blu-Ray player decreases, integrated EDI software alerts the manufacturer to ship more. In-store EDI software is designed to meet compliance requirements such as daily inventory counts.

Why do Manufacturers Need Custom EDI?

Without the infrastructure of medium-large retailers, manufacturers cannot maximize profit. While manufacturers can sell products on their own website, they do not have the same presence or reach as retailers. And, because of compliance requirements, many retailers refuse to sell products unless manufacturers use a compatible custom EDI software.

Additionally, custom EDI software also makes the selling process effortless. It saves both parties time, and eliminates the potential for human error in distribution. Finally, it ensures that this information is secured and safe from interference.

What Are The Necessary Components of EDI?

In order to properly integrate EDI software into a retailer’s system, there are four essential components:

  1. Translation: Converts all transactional information into the cohesive and understandable EDI format
  2. Mapping: Coordinates accounting systems to be compatible with each other
  3. Communication: Sends product and customer information from each relevant transaction quickly and easily
  4. Support: Provides maintenance when errors occur

With these EDI components successfully integrated, your business can enjoy the benefits of effective EDI.

Custom EDI

As a modern product manufacturer, EDI is an indispensable tool. Custom EDI software improves the flow of information between you and your customers. But, it will also create stronger relationships with other businesses. For more information about how EDI can help your business, contact us.