Have you ever come across the term "EDI" in the retail industry and wondered what it meant?
EDI stands for Electronic Data Interchange (EDI) which refers to the concept of electronically exchanging critical business documents between trading partners. In retail, EDI allows the exchanging of documents such as purchase orders, advance ship notices, and invoices traditionally communicated on paper.
However, In today’s highly competitive market where customers expect faster deliveries and seamless experience which leads to strict requirements for suppliers. As a supplier, vendor, or anyone involved in retail, it’s essential to understand how EDI works and why it’s so important.
Electronic Data Interchange, or EDI, refers to the structured transmission of data between organizations via electronic means. In retail, it allows for the automatic exchange of documents like purchase orders, invoices, shipping notices, and inventory updates. Instead of relying on manual data entry or paper-based processes, EDI lets businesses communicate using standardized digital formats.
At its core, EDI is about replacing email, fax, and spreadsheets with direct computer-to-computer communication between retail partners. This enables faster order fulfillment, fewer errors, and smoother supply chain operations.
When a supplier fails to meet specific EDI requirements retailers impose a financial penalty called EDI chargeback.
Retail is a fast-moving industry where delays and inaccuracies can lead to stockouts, overstock, lost revenue, and damaged relationships with retailers. EDI helps prevent these issues by automating repetitive tasks and reducing the need for human intervention.
EDI involves a wide variety of document types, known as transaction sets. Here are some of the most commonly used in retail:
The EDI process generally involves the following steps:
Document Preparation: The sender’s system generates a document like a purchase order using internal data.
Translation: The document is translated into an EDI standard format, such as ANSI X12 or EDIFACT.
Transmission: The document is transmitted to the trading partner via a communication protocol like AS2 or through a Value-Added Network (VAN).
Reception and Translation: The receiver’s system accepts the EDI message and translates it into a format their ERP or accounting system can use.
Processing: The data is processed automatically within the system, triggering actions such as order fulfillment or invoice approval.
Consider Walmart, which processes millions of transactions daily across its global supply chain. By integrating EDI, Walmart has optimized inventory management, ensuring that stores are restocked just in time. This has minimized stockouts and reduced the waste associated with overstocking.
For instance, when suppliers send Advance Ship Notices (ASNs) through EDI, Walmart can accurately track shipments down to the case level, reducing receiving times and discrepancies. This precision helps them maintain their promise of low prices and high availability.
Retailers like Target and Costco have also leveraged EDI to handle the increasing complexity of stock-keeping units (SKUs) and streamline delivery frequencies, saving thousands of hours in receiving and order reconciliation annually.
In retail procurement, Electronic Data Interchange (EDI) plays a crucial role in enhancing communication and efficiency between suppliers and retailers. EDI automates the exchange of business documents, minimizing errors and improving the speed and accuracy of transactions.
Let’s break down how EDI works in retail procurement, using specific EDI document types to highlight the key steps in the process.
The procurement process begins when the supplier sends an EDI 856 (Advance Shipment Notice) to the retailer. This document provides detailed information about the upcoming shipment, including:
The EDI 856 helps the retailer prepare for the arrival of goods by enabling better inventory management and reducing delays during receiving. It ensures that the retailer is informed about what is arriving and when, making it easier to plan space and personnel to handle the shipment.
Once the retailer receives the EDI 856, the next step is for the retailer to send an EDI 997 (Functional Acknowledgment). This document serves as a response to the EDI 856, confirming the successful reception of the shipment details.
There are two possible responses in an EDI 997:
The EDI 997 is crucial because it ensures that both the supplier and the retailer are aligned in terms of the shipment’s details before it arrives.
Even after a successful EDI 997 acknowledgment, the process does not end there. The retailer might send an EDI 824 (Application Advice), especially if there are discrepancies or issues that were not immediately apparent. This document provides more detailed feedback about the transaction.
For example, if there are minor errors in the shipment or data, the EDI 824 will detail those issues, allowing suppliers to address them before they escalate. This helps avoid disruptions in invoicing or stock reconciliation.
After these initial exchanges, both parties continue to monitor the shipment. Retailers use the information in the EDI 856 to track progress, while suppliers ensure the shipment meets expectations. Any further communication is handled through additional EDI documents, ensuring a smooth and traceable procurement workflow.
EDI standards are essential for the retail industry as they ensure seamless communication between trading partners. Retailers and suppliers must follow these standards to avoid disruptions, maintain accurate transactions, and streamline operations.
EDI Retail Standards
EDI standards for retail define the formats and protocols that businesses must follow to exchange documents electronically. These typically include:
ANSI X12: Common in North America
EDIFACT: Widely used in Europe and international trade
Retailers often impose their own specific EDI retail standards that suppliers must follow to maintain partnerships.
EDI Compliance
To be compliant with EDI standards for retail, suppliers must:
Send and receive EDI documents in the required format and sequence
Respond within specified time frames
Accurately transmit purchase orders, ASNs, and invoices
Compliance ensures accurate and timely exchanges, reducing operational friction and improving vendor-retailer relationships.
EDI Chargebacks
Retailers may impose chargebacks when suppliers fail to meet EDI compliance requirements. Common reasons include:
Late document submissions
Data mismatches (e.g., quantities or pricing)
Incorrect formatting
Chargebacks can significantly impact margins over time, making it vital for suppliers to adhere strictly to EDI protocols.
While EDI compliance chargebacks can be an inevitable challenge, they don’t have to undermine your business. At iNymbus, we specialize in helping vendors and suppliers manage, mitigate, and reduce the impact of chargebacks and deductions.
With our Deduction Management Software, we empower your business to automate key processes, enhance accuracy, and streamline dispute resolution, ensuring that your financial potential is maximized.
Unlock the full potential of your EDI system with iNymbus by leveraging features such as: