Why do retailers use EDI?

As a brand grows and expands its footprint to major retailers, it will be expected to process orders using Electronic Data Interchange (EDI). If you’re new to EDI, it can be challenging, time-consuming, and seem difficult to meet the compliance standards of your trading partners. In fact, as frustrations mount, you may find yourself asking: why do retailers use EDI?

It’s a fair question. EDI is not without complexity. But it is a proven data format that speeds commerce, replacing paper documents, faxing, and email attachments. 

EDI allows retailers and suppliers to communicate directly, exchange order information seamlessly, maintain accurate inventory counts, automate repeat orders, and streamline their supply chain to ensure that goods arrive at the right place at the right time. 

EDI is a workhorse component of the supply chain. Today, even many smaller retailers and eCommerce operations realize that it adds great efficiency, and are beginning to utilize it.

The basics of EDI order processing. 

Here’s a typical use case of EDI with a trading partner that has recurring orders:

The retailer receives the Inventory Advice (EDI 846), and sees the stock that is available. A Purchase Order (EDI 850) is sent to the supplier, containing the quantities, product numbers, and shipping instructions. The EDI 850 may even contain information specific to packing. 

When the supplier receives the EDI 850, a Purchase Order Acknowledgement (EDI 855) is sent. The EDI 855 indicates if the order can be filled, or if  items are back-ordered or unavailable.  It also confirms the price with the retailer. 

The order information goes to the warehouse or 3PL provider. After it is picked and packed, a packing list is created and an Advanced Shipping Notification (ASN or EDI 856) is sent to the retailer. Any changes are detailed, and the ASN informs the retailer when the shipment will arrive.  

With the Lingo platform, users can choose to automate tasks. For instance, data for the ASN can be automatically pulled from the original Purchase Order, as well as from any established system settings. This ensures accuracy, and eliminates the errors that occur with manual entry. 

When the retailer receives the order, they confirm that the shipment is as described. Confirmation is made within their EDI system, and inventory is updated. 

When the brand or supplier sends an invoice, the right software will match all the data from the Purchase Order, the EDI 856, and the packing list to ensure accuracy. If everything matches, the retailer prepares to pay the invoice, while any discrepancies are flagged for review. 

EDI is fast, efficient, and accurate.

That whole process happens quickly. In many ways, EDI keeps trading fluid and in motion. 

Think about the order process without EDI. A phone call from a retailer who wants to order products, emails with purchase orders and invoices attached or—gasp—faxes, followed by confirmation about the order from team members on both sides of the equation, and finally, an invoice from the supplier. Not only is all of that a giant time sink, the possibility of mistakes looms over each step of the process, record keeping is inconsistent at best, and the time-to-payment is not swift.

With a platform like our Lingo software, multiple steps can be automated to reduce the number of hours people need to devote to order processing. Which means they have more time to spend growing sales. 

For large retailers, now operating multi-channel operations with brick-and-mortar locations and robust eCommerce sites, EDI is an essential part of an efficient supply chain. Major trading partners will rely on EDI to ensure Just-In-Time deliveries, track sales of products, and ensure consistent re-ordering of popular items. They can order products in minutes instead of hours and adjust quickly to shifting consumer demand. In today’s fast-paced retail environment, that kind of speed is critical for success.

EDI demands compliance. 

Retailers rely on EDI to ensure compliance with their protocols—standards that are established to ensure that stock is available in stores and online at the right times in the right markets. 

“Companies don’t get paid if the product doesn’t make it to the customer.” — Bart De Muynck, Gartner 

What does compliance mean in EDI? Once an order is received, there is a document chain that needs to be followed, and it typically varies slightly depending upon the trading partner. For instance, some retailers demand that a Purchase Order Acknowledgement (EDI 855) be sent within 24 hours of the receipt of a Purchase Order. Others may have an even quicker turnaround. Retailers use this to ensure that the process to get inventory they want on their shelves is underway. 

The ASN (EDI 856) is also critical for supplier compliance. It lets the retailer know that a shipment is on the way, and provides the information needed to prepare for it. Logistics is a time-sensitive process for large stores—they need to know precisely when a shipment will arrive at a distribution center or a store and will penalize suppliers when an order shows up either too late or too early. When these issues arise, retailers will issue chargebacks—cash penalties the brand or supplier is required to pay. Avoiding these costs is important for both the bottom line and the retailer relationship. It’s why growing companies turn to expert EDI software providers—it gives them confidence that their transactions with key clients will go smoothly. 

EDI can eliminate errors. 

With a software platform that automates tasks, the mistakes that manual data entry or copy-and-paste actions create are eliminated. You won’t have to worry about team members inadvertently transposing two numbers because it’s late in the day and they are exhausted from dealing with orders all day. Software that is tailored to your company workflow will make order processing far more efficient. 

But…EDI can be time-consuming.

EDI has a learning curve that can be daunting. It is a data format with its own language, and brands need to make adjustments according to the requirements of each retail trading partner.

Without the right software, backed by humans in development and support who understand how to unlock its power, EDI will chew up staff time. When you’re a growing company, the question you’ll face is whether you want team members devoting hours to increasing order volume—finding new customers, building strong relationships with existing ones, seeking new market opportunities—or simply managing the business at hand. 

A powerful EDI platform allows companies to scale order processing as sales increase without adding staff or investing in expensive technology infrastructure. 

EDI shortens the time to payment. 

Without a paper trail or confusing email threads, everything about the order process happens more quickly. Guess what? That includes the path to payment. Brands and suppliers using EDI can expect their time-to-payment to decrease from what they expected when they were not using EDI. Which means that while EDI can seem unwieldy at the outset, you’ll feel better about it when you’re managing cash flow. 

EDI is essential for companies that want to scale. 

If a company is only handling a small number of orders to a limited group of retailers, EDI is probably not necessary. But with growth, it will be expected by major retailers. What’s more, if a brand works with a powerful platform such as Lingo, revenues can be increased without making significant investments in people and technology infrastructure. 

Bottom line: you won’t love EDI. But by choosing the right EDI partner, one with robust software and excellent customer support, it will add value and make your company more efficient.