EDI & APIs: Data Interchange in the Supply Chain

Today, supply chain operations must move faster than ever before, largely due to the deluge of individual consumer orders that must be processed from online shoppers.  Operational and order processing speed can provide a competitive advantage and affect the satisfaction level of consumers when rating the customer experience. 

Keeping supply chain costs under control is another major challenge, particularly as this affects the cost of goods to consumers.  Using effective inventory management business processes and digitizing the supply chain are two ways of keeping costs down.

But how can supply chain operations increase the speed of operations without also increasing the cost?  One way of doing this involves data interchange.  If you are a third party logistics provider or other supply chain business, you probably use some form of electronic data interchange to communicate with your trading partners or are planning to do so.  When businesses communicate electronically with trading partners, there are less errors.  Costs can be reduced and processes can be expedited.  It all sounds good on paper, but how does this happen?

Many, if not most of today’s highest grossing online retailers and brands utilize some form of automated data exchange when operating their business. 

Many, if not most of today’s highest grossing online retailers and brands utilize some form of automated data exchange when operating their business.  For years, EDI has been the most popular form of automated data exchange, however new methods are evolving to meet current rapid pace demands.  EDI solutions have, to some extent, become a catch-all phrase for a variety of ways that electronic data is transmitted to trading partners.  For many, this extends well beyond the traditional use of electronic documents and EDI transmission to include web-based EDI and API application integration.

The Basics of Supply Chain Data Interchange

What is Electronic Data Interchange (EDI)?

Inspired by developments in military logistics more than 60 years ago, EDI or Electronic Data Interchange is the computer-to-computer exchange of digital business documents in a standardized electronic format between parties that conduct business together.  Exchanging data electronically makes this process less prone to errors, streamlines communication between business partners, reduces costs and improves operational performance across your enterprise.

By using EDI solutions, vital information can flow seamlessly from the computer system of one trading partner to that of another, without the need for manual intervention, postal mail, fax or email.  In supply chain logistics operations, some of the most common documents that are exchanged include invoices, purchase orders, customs documents, documents involving shipping status, inventory and payments as well as advance shipping notices (ASNs).  Using an EDI system significantly reduces the time and cost of sending documents and transmitting information.

An EDI System Relies on Electronic Standardized Formats

Developed to be independent of communications used by companies as well as of the software which generates EDI electronic data, EDI transactions enable fast, clear transmission of business-critical data.  Processing business documents using computers instead of humans requires that there is a standardized format so that the computer will have the capability of deciphering, reading and understanding the information presented.

An electronic standardized format identifies what each bit of information is and the format of the data, i.e. decimal, integer, etc.  so that each computer system “speaks the language” and can communicate effectively.

There are numerous EDI standards, also referred to as EDI formats, used across the world.  Of these, the American National Standards Institute (ANSI X12) is most frequently used in North America and the only internationally recognized standard, United Nations EDI for Administration, Commerce and Trade (known commonly as EDIFACT) is used in Europe.

EDI Documents

EDI Documents contain the same basic information typically found in the functional equivalent of a paper document.  This eliminates the need for paper documents and error-prone human intervention in processing and saves vital time.

The Evolution of Electronic Data Interchange

Over the years, EDI has evolved.  Now instead of having to install an on-premise solution or use a costly VAN, companies are using AS2 for secure communications over the Internet.  EDI solution providers can host cloud-based solutions and transmit EDI messages via FTP.

EDI

Messages can be sent directly to business partners using AS2 or through a value-added network commonly referred to as a VAN.  In this case, the message would be transmitted to the VAN which would then review it and send it to the correct recipient.

Somewhat cumbersome and time consuming, implementation of EDI can tend to carry hidden costs as compared to that of modern API integration.

AS2 Direct EDI Solutions

The direct method, Applicability Statement 2, known as AS2 was advocated by Walmart.  AS2 assures the security of EDI documents through encryption and the use of digital certificates.  Because data is traveling over the Internet, there are no fees for data.  With AS2, each trading partner must be implemented independently.  Less technologically advanced organizations may find the process especially challenging.

EDI Value Added Network (VAN)

Thinking of an EDI VAN as a virtual post office makes EDI value added networks easy to understand.  In this example, each trading partner would have its own mailbox.  Data information flow is routed between the respective mailboxes by the VAN.  Setup and related services would be provided to each trading partner by the EDI VAN.

Typically when using a VAN, the EDI communications needs to only be configured once and can work for any other VAN trading partner.  Usually monthly fees are charged based upon the volume of data that is exchanged.  The EDI VAN provides VAN partners with customer support and also handles the testing of communications and any necessary troubleshooting.

Application Program Interfaces (APIs) and B2B Integration Technologies

Traditionally, EDI transmits data over timers.  The data is stored then forwarded without confirmation, much like a fax machine.  The storage delay can slow down processes somewhat and the data transfer gaps can result in decision making based on information which may have changed.  Because the data is not real time, proactive decisions cannot be made using information that may be outdated.

APIs are a messaging format which enable data to be transmitted from system to system nearly instantaneously.  APIs use simplified code and are structured to clearly define how a program will interact.  Used to connect other businesses including e-commerce and on-demand networks, API technology is transformative.

EDI vs. API Integration for Data Exchange Capabilities

The speed of supply chain operations and changing customer interface demands is driving businesses to evaluate a variety of options for data interchange including APIs.

EDI is a communication technology, a tool that enables the transmission of data from one system to another.  As the capabilities of the Internet have expanded, EDI has not been modernized.  Both EDI and API transmit data from one entity to another:  the difference is how this is accomplished.

Application Program Interfaces (APIs) act as messengers to other systems and enable data to be transmitted in mere nanoseconds.  To enable more seamless flow of integration, companies leave parts of their software “open”.  This enables other software applications to more easily integrate with them so that information can be passed back and forth.  API management does not have the specific “handshaking” qualities used by EDI such as OFTP or AS2.  In addition, API management does not have the standardized defined message types found in EDIFACT or X12 for example.  Data security protocols and message types are the hallmark of EDI.  These established specifications enable businesses to communicate effectively and securely.

Why are APIs becoming more popular for data interchange?  For one thing, speed.  Using APIs and the related tool sets helps software developers to get off to a fast start and finish projects more quickly.  Second, ease of use.  By providing simple interfaces and development environments, API management makes challenging projects easier to accomplish, saving time and money.

Another reason why APIs are increasing in popularity as compared with EDI involves basic functionality.  Generally, EDI does not tend to be useful in secondary interactions.  For secondary calls between business entities, often Web Services are used.  Today API management is often the preferred technology due to factors including simplicity.

Conclusion

From the automotive industry, grocery and big box retail to life sciences and health care, businesses across the supply chain rely on EDI transactions and data integration to communicate.  Most have success stories to tell.  As the times have changed, companies are no longer getting started using electronic data exchange systems, but rather are using increasingly modernized versions to communicate with trading partners.

As times change, so much methods.  Information flow of electronic data can now be facilitated using modern means including APIs and that will make it faster, less expensive and more efficient for supply chain businesses.