A Practical Overview of EDI (Electronic Data Interchange)
Rev 2.4 16-APR-02
This documentation is directed to people and companies who desire to start transacting EDI, or existing EDI users who want to take a look at changing their existing EDI Service Bureau to another. Those wishing to outsource some or all of their EDI operations will be interested in this as well. If you are a corporate executive interested in getting a basic, general overview of EDI and how it can help your company, this document is for you.
This document is primarily focused towards small to medium sized manufacturers or suppliers of goods to large retail outlets. We say small to medium because large companies (500+ employees) are usually already doing EDI, and have their own in house EDI staff.
For those experienced with EDI, you might skip the first 17 chapters and just look at our EDI Service Bureau offerings here:
This document is intended to serve as a layman's general overview of EDI. There are many places to get more detail, we hope you find some of it on our website!
Oh I know what EDI is, say ye! That¡¯s when I go onto the web, look at the Sears web site, select a product, whip out my Master Card and buy it online!
Well, not exactly. It¡¯s a common misconception. What you are thinking about is very loosely called "eCommerce", not EDI. During the focus of this document, we are going to speak about traditional EDI, not "eCommerce".
Simply stated, EDI (Electronic Data Interchange) is the electronic exchange of business documents between companies. This includes Invoices, Purchase Orders, Ship Notices, Message Documents, Sales Forecasts, Medical or Insurance Claims, Text documents, and many other types of documents.
The company you exchange these documents with is called your EDI trading partner.
An entire EDI system encompasses much more than just electronically sending files to and from one another. Label printers, web connections, modem communications, acknowledgement handling, database interfaces and many other items are involved in a fully configured EDI system.
Initially started in 1969 by Sears, Roebuck and Co., EDI has grown substantially to include the retail industry, the food and medical industry, the auto industry, and most other industries that require repeated re-ordering and even multiple different orders of items on an ongoing basis.
These days it is almost impossible to do serious business with any large company without involving EDI. Indeed, large companies force their smaller suppliers to accept electronic PO¡¯s and send them electronic Invoices. This speeds up the entire sales and manufacturing process, speeds payment to you (the supplier), and (unfortunately for some!) forces your company to become more streamlined and industry standardized.
By deciding to embark on an EDI program, you are making a decision to strengthen your business, grow your business, and tighten up many aspects of your sales, manufacturing and shipping process. EDI will grow your business, without question. By becoming EDI capable, you tell the world you are current with business technologies, and you are serious about your business. EDI also eliminates most if not all of the typing or keypunch steps in order and invoice processing, thereby greatly reducing errors attributed to these manual functions.
The most basic EDI flow of information is as follows (there are many variants to this simple scheme):
Your customer generates an electronic Purchase Order, which gets sent to a VAN (Value Added Network) EDI mailbox. More on VANS later.
Your in house EDI system picks up this PO, converts it to a human readable form, and prints you a hard copy format of it. The EDI system then sends an acknowledgement back to the customer via the VAN to tell them they received it in good order. At this time, you may also have an electronic image of the PO, formatted for import into your computer order entry system.
Your order entry system imports the EDI PO, then you follow your normal company procedure to manufacturer or otherwise get the goods packed and ready to ship. Your EDI system may also supply a label format batch file to allow you to print UPC sales tags for each of your items. More on POs later in this document.
When the shipment is ready, your Invoicing system generates an Invoice for your customer, along with a pick list or any shipping information required.
Your Invoice is sent back to your VAN (addressed to your EDI trading partner) in a pre defined form (via email attach or dial-up modem connection). At this same time, if required, an Advance Ship Notice (ASN) is generated listing all the items on the packing list, which match the invoice. If an ASN is required, the ASN is sent to your trading partner along with your invoice. More on ASNs later.
Your customer picks up your electronic invoice and ASN from the VAN within 24 hours, when it gets processed by their computer systems. The customer sends an acknowledgement back to VAN, who in turn forwards it on to you.
Thus a basic EDI transaction process cycle has been completed.
Many of the initial requirements to start an EDI program for your business are already in place. Others will need to be either purchased, added on or designed in. Some of these requirements are discussed in more detail later on in this document.
3.1) A personal computer running the Windows operating system:
Most small companies these days have at least one PC running Windows. Of course EDI runs on large computers as well, and on computers with UNIX, VMS, or SUN operating systems. But the small business of today typically follows the Microsoft standard of computing; while this may not be the best of all worlds, it is popular and options and enhancements are readily available.
This PC should be Pentium class, preferably 450 MHz or faster, with 128Mb memory, plus a modem and/or a network connection for VAN and email.
3.2) A Uniform Code Council Manufacturing Number
The UCC will assign you a manufacturing number, which is typically a 6-digit number specifically for your company. This number is used to identify you as a supplier to the EDI community. You need a UCC number before you can begin EDI. More on the UCC later.
3.3) UPC codes for each item you will be invoicing electronically
Each item you sell to an EDI ready customer will require a UPC code. The UPC code is a unique 5-digit number you define, which follows your UCC manufacturing number. You assign UPC codes in any way you like, but there are some common sense guidelines to use when doing this. More detail on UPC codes comes later in this document.
3.3) A software method of importing PO data and exporting Invoice data
You will need to define, or have defined, a method to import purchase orders and export invoices from your existing computer system. If you do not do this, you would be forced to accept a FAX or mailed hard copy of the customers PO, then type it into your system. NO! This invites all sorts of errors and really defeats the purpose of doing EDI. Likewise with Invoices, it makes little sense to print an invoice to paper, then have someone key it all in at the ESB. We strongly encourage, if not insist, all our customers have a developed method of importing and exporting documents from their financial and inventory control software. USI CAN HELP YOU WITH THIS!
Our experienced staff can work with your software vendor to design such a system or help you implement a procedure with existing software to do this.
3.4) A thermal or direct thermal label printer:
You should have a printer onsite, which will print your UPC tags and UCC-128 shipment labels. If you do not have a printer, buy one. You can use it for all types of labels you never thought you might need, like inventory labels. More about this later on, as well.
We briefly discussed VANS in the basic EDI operations flow overview. A VAN is an intermediate clearinghouse where your EDI documents go first, before your customer (EDI trading partner) picks them up. In the other direction, your customer¡¯s documents go to the VAN first. Then you EDI communications software pick them up.
You may think it would be more practical to simply send your documents directly to your customer. In a perfect world, it would. But in our current situation, there are far too many computer types, electronic transmission formats, connection speeds and types, file transfer protocols, and more to be concerned about.
The VAN takes most of the guesswork out of all this. VANs are setup to allow all sorts of different computers to connect to them using all sorts of methods. The VAN allows everyone to send and receive documents from one central point of location. If you know how Federal Express works, most of the shipped packages go to one central point first. Then they get transferred to planes taking them to their final destination. For some packages, it would be shorter to ship point to point. But for millions of packages, shipping everything to one place, then out from there, assures overnight delivery.
Without VANs, you would have to have several, if not many, different communications packages to connect with all your EDI customers. Customers would want their documents in a different format (although most of this is standardized, thankfully). Plus you would need to deal with customers on their particular time schedule of operation. It would be a big mess.
Another benefit of VANs is they have a highly refined method of verifying and checking data. VANs add integrity to the EDI document transmission train. If a document arrives at the VAN incorrectly formatted or missing certain key data, it is rejected before it ever gets to the customer or supplier.
The VAN cannot check everything, of course; it does not know your style numbers or UPC codes, but it does know whom your EDI trading partners are. The VAN does do a good job of making sure the basic data packets are addressed correctly and get to and from their destinations.
As you would imagine, VANs charge for their services. It is usually a minimal charge, when compared with the dollar amount of your PO or Invoice. This charge is usually levied on a "per KC" basis, which is a fixed dollar amount per 1,000 characters transmitted.
Also, there are 4 or 5 major VANs in the USA today. While their prices are competitive, they do vary. They also each use a different method of communicating with trading partners. Sometimes it is necessary to send EDI information to one VAN, and have it picked up by another. If this happens, there is usually an "interconnect charge" levied to each trading partner involved.
The Uniform Code Council is an organization, which represents manufactures and suppliers. They exist for a variety or reasons, but mainly to help assure various levels of conformity in the manufacturing industry.
You will need to contact the UCC directly, and pay a fee to have them supply you with a Manufacturing Number. The Manufacturing Number is usually a special 6-digit number, which is assigned only to your company. It identifies you to the world as a manufacturer, and any reference to products associated with that number means they were manufactured or supplied by you.
This Manufacturing number precedes all your UPC numbers, and is used on the UCC-128 ASN shipping label to identify goods shipped as coming from your company.
As of this writing, the fee to join the UCC and have a manufacturing number assigned was in the $700-$1000 range, depending on company size, membership type desired, etc. This fee is required yearly.
More information is available at
Universal Product Codes are typically 5 digit numbers, which uniquely identify individual products you make or sell. Your UCC 6 digit manufacturing number usually precedes the UPC code. The two together form an 11-digit number, which means you can identify 100,000 products uniquely within your organization. We say 100,000 products because you can use from 00000 through 99999 inclusive, which is 100,000 unique numbers.
You assign each product you sell (or as a minimum, each product you will sell using EDI technology) an individual UPC code. Therefore, a separate number can identify each product you manufacture. This allows automated bar code scanners in receiving departments or at the final sales counter to quickly determine what the item is and who made it.
The final UPC code is actually 12 characters, and it is the 12 digit number we are all familiar with at retail stores everywhere. It becomes 12 digits when the first eleven are tallied up and run through a special formula, producing a "check digit" which is added to the end of the UPC number. This check digit is used when forming a bar code out of the UPC number. It is also used when scanning the bar code later on at the cash register.
The UPC code is important in EDI because it is used in every basic EDI document. When a customer places an electronic order, he orders using the UPC code. If he specified "Medium Red Dress" on the order, any one of many dresses you make might fit the bill. If he orders your product by UPC code 747422001235, he gets a red dress, size 12, special black hem, belt included. You can see this is much more accurate at both ends of the business spectrum.
Likewise, you will Invoice your customer by UPC code, and you will pack his order by picking product off the storage shelf by UPC code. With everything tied so closely together, you can see the chances of making an error becomes less and less. The electronic Invoice will list line items by UPC code, and the Advanced Ship Notice will list each line item shipped by UPC code. If this all works, everything matches the original customer PO.
With so many UPC codes, you might wonder how a relationship is made between a 12-digit number and an actual product. After all, you don¡¯t go to McDonalds and order a 674455011236 and expect a Big Mac and fries to be delivered. But be assured, the buns, meat, fries, wrapper, pickles and lettuce all have UPC codes, which McDonalds uses to re-order these items automatically.
Likewise, your customer¡¯s buyers don¡¯t look at UPC codes when they want to buy something. They want to find that red dress with the black hem in a medium size, and they want to see a picture of it. They want to find it and re-order that dress using the same old description they have used for years to buy that hot summer seller ¨C "The Summer Smash Dress".
But to their sophisticated in house buying and ordering system, a UPC code is required. Now you might have a catalog of your goods and you might include the UPC code with each picture and description. But when was the last time you looked in a Spiegel catalog and saw a 12-digit UPC code with each item? There must be a better way.
There is ¨C or so say some. There are several companies who maintain "UPC Catalogs" on large computer databases. This follows a similar path as VANs and the Federal Express example shown previously. If everything is located at one point, you only have to go to one place to find it.
Your UPC Catalog is a list of each item you carry, it¡¯s UPC code, it¡¯s size, color, free form description, trade name, and any of a hundred other things you wish to use to describe it. The UPC Catalog is should be updated whenever you add or remove a particular item from your sales base.
8. UPC TICKETS:
The UPC tag or ticket is the little label with the bar code that goes on the items you sell. It may have more information on it, such as your item number, a description of the item, a "class" for the item, or special customer information.
UPC tags come in all sizes and shapes, and your customer will give you instructions on what they need on the UPC tag.
A good EDI system will have the capability to print these tags for you if you desire. Since what is ordered is usually what is shipped, there is a direct relation to how many UPC tags are printed.
9. ANSI X.12 EDI DOCUMENTS:
The American National Standards Institute sets forth a number of standards in an effort to homogenize these electronic business documents.
The X.12 standard is often used where EDI documents are concerned. X.12 describes a repetitive, standardized way to define a Purchase Order, Invoice, Shipping Document, and many others. X.12 give you many different fields to choose from, including trading partner description, P.O. number, item type, description, quantity, UPC code, and several hundred others.
This was an excellent idea. If everyone used the same format for sending business documents around to each other, wouldn¡¯t that make things so much easier in doing business? Everything would be in the same format, and every business would know what they were talking about, since they would all be using the same language.
Well, leave it to the major companies of the world to take a great idea and turn it into a "Tower of Bable". The difficulty comes from the fact that every company wants different information on their electronic P.O. What is important to some is not to others. The ANSI X.12 standard gives you a lot to choose from. But since there is no need to use every available field of information, customers just choose the fields they want.
It becomes your responsibility as the manufacturer to send them only the fields they want on the electronic Invoice and the ASN, or any other EDI document you send. If you send your trading partner more than they want, there is an extra cost incurred because the document becomes larger and those KC¡¯s the VAN charges for add up quickly.
While there certainly is commonality between EDI PO¡¯s from every customer, there is a lot of information, which is different as well. This makes it virtually impossible for one complete EDI system to handle everyone¡¯s needs, without some customization. And this is exactly why you cannot walk into Comp USA and buy a neat little shrink-wrapped EDI package for $250.
10.0 EDI TRANSLATION PROCESSORS:
An EDI translator is a piece of software which takes your Invoice (either imported into it or typed in) and converts it to ANSI X.12 language file which is then sent to your customer via the VAN. It also takes your customer¡¯s PO and interprets it for your use. A good translator works with most major EDI document standards.
Often a good translator will include a communications module to allow your EDI documents to be sent to and picked up from your VAN.
There are many translation processors available, including our EZ-EDI product of course, and they all have features and limitations. You need to speak with an EDI professional before just going out and buying a translator. Many times we have been approached by clients who tell us they have just purchased an ABC translator, XYZ label printer, and a JHK UPC program. Then they find out they were not designed to work together in harmony. That¡¯s when a straightforward EDI implementation becomes a mini nightmare. The client saw some advertisement depicting a great product, which it would be, if he knew enough to buy the correct associated products to go along with it.
EDI is not a place to be "penny wise and pound foolish". As we have mentioned elsewhere in this document and on our web site, as a perspective new user of EDI, never be talked into buying an EDI product that claims to do everything with regard to full and total EDI. Such a product does not exist and any salesman trying to sell you one is blowing smoke at you.
11.0 EDI PURCHASE ORDERS (850):
The 850 is the ANSI X.12 document standard for a purchase order. This is the document sent to you from your customer telling you what he wants to purchase. The 850 is one of the more simple EDI documents. The 850 will have a line by line item listing of what the customer is ordering. Included might be your style number, their style number, the price they are paying, the UPC code for the item and perhaps his own UPC code.
The 850 usually has "do not ship before", and cancellation dates on it. Your customer will expect you to follow any special guidelines on the 850 he sends you.
12.0 EDI INVOICE (810):
The 810 is the ANSI X.12 document standard for an electronic invoice. This is the document sent to your customer from you, depicting payment amounts and payment terms. The 810 has a line by line listing of the items sold, their prices, style numbers, UPC codes and sometimes more.
Your 810 should be sent as soon as the product is shipped, to assure timely payment. It will generally accompany the ASN document if one is required.
13.0 EDI ADVANCED SHIPMENT NOTICE (856):
The 856 is the ANSI X.12 document standard for an Advanced Ship Notice (ASN). The ASN is a listing of everything you shipped against the customer¡¯s PO. The ASN should match the corresponding Invoice (810) exactly.
The ASN has a line by line detail of everything in the package being shipped. This will describe the master pack or outer box, the internal boxes of goods, and the contents of each internal box, down to the specific item. The UPC code for each item shipped is almost always on the ASN. It also has the UCC-128 shipment label code on it.
Since the ASN is expected in advance, it needs to get to the customer¡¯s computers before the product gets to their shipping dock. This is one of the issues to watch when sending ASNs. If they arrive after the shipment, you will be charged back a few by your customer.
The ASN is one of the more complex EDI documents. Our favorite example of this is Champion Spark Plugs and Chief Auto Parts.
Champion sells to Chief nationwide. In a typical shipment, their ASN needs to describe:
Well the corresponding ASN document needs to detail all of this, and it can get to be thousands of lines long. It also needs to be dead on accurate, because if it is not, it will be rejected and Champion could get charged back.
We think you get the picture!
14.0 UCC-128 SHIPMENT LABEL:
The UCC-128 label is a bar coded shipping label, which gets placed on the outside of the box of goods you are shipping to a particular location. It has text information describing whom the package is from and where it is going. It can also have store number bar code, a destination zip code bar code, and other bar codes on it.
Most important, it has the UCC-128 bar code, usually at the bottom of the label. The UCC-128 bar code is an incrementally numbered bar code signifying the number of the package shipped. This number needs to be on the ASN as well.
When the package gets to it¡¯s destination, this bar code is scanned and compared with the ASN (remember the ASN gets there in advance of the shipment itself) and if everything matches up, the shipment is accepted.
Once again, each trading partner you deal with who wants the UCC-128 label has their own guidelines for what they want on the label, where they want it, how big it is to be, etc.
15.0 THERMAL AND DIRECT THERMAL LABEL PRINTERS:
Most customers who create their own in house UPC and UCC-128 labels will use a thermal or direct thermal label printer. You could use a laser printer, but it makes managing the label stock itself very difficult. Printing just one label using a laser printer and sheets of labels make for a lot of wasted labels.
A thermal or direct thermal printer uses rolls of labels. This makes it easy to print just one at a time, or however many you need. The labels come in all sizes, usually up to a maximum of 4" wide by 6" long. There are longer labels of course, and special applications for wider labels, but in the most common EDI label applications, those are the size limits.
A direct thermal printer uses special paper stock that is heat sensitive. The printer head is heated and applies the label image using heat to heat up areas of the label stock to emboss an image on it. Direct thermal printers are usually less expensive than thermal printers. But the stock labels cost more because they are heat sensitive, and the resolution or print quality is often not as good as with a thermal printer.
A thermal printer uses a ribbon to create the printed image. Thermal printers usually cost more than direct thermal printers, but the label stock is less expensive because it is not heat sensitive. However, you need to add in the cost of the ribbons to the cost of the label stock. Thermal printers usually have a higher print resolution than direct thermal printers do, and therefore usually create a cleaner, nicer looking label.
Many companies use thermal printers for printing the UPC tags, and direct thermal printers for the UCC-128 labels. The best of all worlds is usually to have several thermal printers, each loaded with different stock, and make all your labels look nice and neat.
16.0 EDI CHARGE BACKS:
One of the most often asked questions is "Why am I being charged back by my customers?" We feel the answer is "Because they can".
EDI charge backs are levied to the manufacturer when an invoice or ASN does not contain the correct information, meaning it does not match what was on the PO or what was expected in shipment. These documents may be missing UPC codes, missing a line item, have the incorrect store number, or many other discrepancies.
In most cases, your EDI system should take care of missing information, or inform you when it is missing before the documents are sent.
Customers charge EDI charge backs because they have found them to be a new profit center for them. Few customers will give you a detailed list of exactly what the chargeback was for; in most cases the list you get may just say "810 discrepancy", meaning something was wrong with the 810 invoice.
It has become more and more difficult to communicate with a lot of EDI customers to try and find out why these charge backs are levied.
In a lot of cases, if charge backs occur the first time, they can be reversed if you prove to the customer the problem was fixed. In a lot of cases, the customer is correct and items were missing from the shipment, improperly packed, or miss labeled with wrong UPC or UCC-128 tags.
If the customer receives improper goods, incorrect quantity, or miss labeled goods, he does have a right to charge the supplier back something. This is because the customer now has to fix the problem or send the items back and get the correct ones returned, and this costs him money.
Chargeback costs vary greatly from customer to customer, but $50 for a missing or incorrect ASN would not be uncommon. We have seen customers get charged many thousands of dollars in charge backs, even for one large shipment. So it pays to pay attention in this area and make sure you have everything in order!
17.0 EDI COSTS:
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