Jims eCommerce Connection
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What the Heck is EDI and Why Should I Care?

April 2, 2012 | By | 12 Replies More

One of the backbones of eCommerce is EDI (Electronic Data Interchange), a standard method of exchanging files that has been around since the 1980’s. EDI is used in some degree in almost every industry. Over the years, it has become widely adopted throughout the retail, manufacturing, transportation and health care industries for exchanging data between entities. Some industries require their trading partners to use of EDI in an effort to reduce ordering costs for things such as ordering, invoicing and shipment notifications. Let’s define what EDI is all about, and how it relates to QuickBooks.

EDI networkOver time, EDI has evolved to what it is today. Some of the changes over the years are the introduction of EDI translation software and Value Added Networks (VAN). Now, with the internet, EDI providers can store the “maps” of all the possible transaction sets and trading partners. What used to be a very expensive proposition for small companies is now much more attainable by taking advantage of some of the technological advancements available today.

Put simply, EDI is the process of transferring standard business documents between trading partners.

A trading partner is a business entity, wholesale or retail, that supplies or sells a product using electronic methods to place an order or receive order related information, such as ship notices and invoices.

An EDI provider is a business entity that acts as a bridge between trading partners to pass transactions.  They are responsible for data translation mapping to ensure that data flows accurately between trading partners.

Perhaps the most common transactions for general business are:

  • Purchase Order (EDI 850)
  • Invoice (EDI 810)
  • Advance Shipping Notice/ASN (EDI 856)

Each of these documents has a standard format developed and maintained by the American National Standards Institute (ANSI) known as the ASC X12. In practice, however, each trading partner may deviate slightly from the standard making it necessary to have intermediaries to map the data accurately from one entity to the other. Make sense so far?

So, you still may be asking yourself, why do I care about all this? EDI is old, outdated technology, developed years ago and sure to be rendered extinct over time, right? Not really. There have been advancements in data exchange with the internet such as XML which allows for a standard format for exchanging data over the internet, but EDI is still here and shows no sign of going away. So, more and more small to medium-size businesses are turning to EDI as a way to keep pace and cut costs in a more competitive market. As Why Do I Care?IT/Finance consultants we need to be aware of these market shifts in order to help our clients stay profitable.

Implementing EDI

There are many EDI integration companies out there, and a plethora of accounting packages available that interface with each of these companies. For today, let’s just look at QuickBooks and the integration opportunities involved.

Here is a typical EDI transaction using QuickBooks:

  1. A Retail trading partner places an order with customer. They issue an EDI 850 Purchase Order (PO), and that order is then sent electronically to the EDI provider.
  2. The EDI provider translates the document using their maps and sends to the customer.
  3. The purchase order is picked up electronically by the customer and brought into QuickBooks using one of the methods provided by one of the EDI providers mentioned below. That PO is brought into QuickBooks and processed. A Sales Order or Invoice is issued and the product is shipped to the retail trading partner.
  4. An EDI 856 Advance Shipping Notice is then sent to the trading partner by way of the EDI provider to inform them of the shipping information.
  5. An EDI 810 is sent to the trading partner (again by way of the EDI provider) for payment.

All of the data is passed using one of several methods of data transport, some of the most common are:

  • Value Added Network (VAN): A go-between for trading partners to pass files.
  • File Transfer Protocol (FTP): This is used to pass files from one computer to another using a login, but still passes that data as clear text and is not encrypted. File Transfer Protocol Secure (FTP/S) provides an extra level of security.
  • EDI-INT: This is a set of standards for transferring EDI files through the internet more securely. Those standards are defined through Applicability Statements using AS1, AS2 or AS3. AS2 is the most common and defines the standards for sending files using HTTP (web browser).

A good place to start if you want to learn more about EDI, Linkedin has some basic EDI groups that are open to new users.

QuickBooks EDI

Here is a list of the EDI products that I have worked with, and are some of the more well known.

QuickBooks Enterprise comes bundled with True Commerce (provided by HighJump Software). It is fairly easy to configure and cost effective.

Another inexpensive option is B2B Gateway.

For more advanced integration capabilities, two other EDI providers emerge. DiCentral  and SPS Commerce. Both offer integration with QuickBooks and other accounting and ERP (Enterprise Resource Planning) systems as well as web EDI, which is a way of being EDI compliant without the cost of integration. Customers simply go to their EDI web portal and print out their orders, but the orders still need to be manually entered. For many companies, this is an acceptable solution, but with increased volume, integration will be needed to be more efficient and reduce data entry errors.

The four EDI providers I listed are the ones that I know will work with QuickBooks.  There may be others.  True Commerce does a good job with basic document processing, but each implementation is different and may require customization, so I list the others as alternatives.

Navigating EDISo, if you have managed to get through this article without gouging your eyes with sharp objects, just know that you don’t have to know everything there is to know about EDI to get started. You can refer customers directly to the EDI provider -all of the companies mentioned above have some sort of referral program. Don’t leave opportunities on the table: check with someone in your network of associates, chances are someone knows something about EDI. Happy EDIing!

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Category: Ecommerce, Expert's Corner, For Consultants/Accountants, Jim's eCommerce Connection, QuickBooks Tips/Tricks, Working with QuickBooks

About the Author ()

Jim Savage has been a QuickBooks Pro Advisor since 1999. He has since signed on with the Intuit Solution Provider program, which specializes in marketing to the mid-market channel. In addition, he is an Advanced Certified Pro Advisor and his company, Savage and Associates, is an Advanced Certified Pro Advisor and certified in QuickBooks Enterprise and QuickBase in the ISP channel. Prior to becoming a Pro Advisor, Jim was an IT director for a major health insurance carrier and has been involved in large scale IT projects throughout his career. He is now specializing in EDI and E Commerce clients and integration with QuickBooks. Since he has referred to himself as "The QuickBooks Guy" since he started, his website is named appropriately, www.thequickbooksguy.com.

Comments (12)

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  1. Bob Michlin says:

    Jim, thank you for an excellent write-up. If anyone reading this blog has successfully integrated QuickBooks with 940/945 EDI transactions (‘third-party warehouse’), I would be interested. We have implemented 940 and 945 EDI many times in the MAS90/MAS200 world. But have not yet found a QuickBooks solution that really works.

    In the spirit of ‘what is it and why you should care’, here is background. Companies use 940 and 945 EDI transactions to communicate with 3PL (Third-Party Logistics) warehouses. As with other EDI transactions, 940 and 945 transactions save boodles of time and errors–by eliminating data entry steps.

    A 940 transaction tells the 3PL warehouse what order to ship. In reply, the warehouse sends a 945 transaction, advising what they actually shipped. The 945 provides the information to electronically create an EDI invoice to the Customer. (Also, an ASN transaction too, if required). The ‘sticking point’ seems to be the 945 EDI transaction with QuickBooks. Properly implemented, the 945 would (a) create an Invoice in QuickBooks for what the 3PL actually shipped, and (b) automatically adjust QuickBooks for backorder quantities. To date, we have seen only a partial solution for the EDI 945 with QuickBooks. If Jim or anyone else out there in Sleeterland has a working solution to recommend for 940/945, we would love to hear from you.

    Bob Michlin
    bmichlin@mbsg.net
    Systems and Consulting
    Inventory/ERP/Accounting/Manufacturing

  2. Chris Kelley says:

    EDI has been around since 1993 and I’m only learning about it today?! I have built dozens of special purpose Quickbooks connections! I need to read up on this EDI stuff. I’m currently building an XML order importer.

    Bob, you might need to go find something like QODBC driver and write an intermediate interpreter for your EDI messages. I use php as my programming language of choice for talking to Quickbooks via the QODBC driver.

  3. Linda Keigher says:

    I am working with a company right now that has been using another source for EDI’s and they are just swapping over from it to QuickBook Enterprise that has the ability to process EDI’s. A lot of learning happening here.

  4. John says:

    Please clarify implementing EDI step 1. “A Retail trading partner places an order with customer.” Place an order with a customer? I don’t get this – Customers (or buyers) place orders with vendors (or sellers). Also, clarify what you mean by a “retail trading partner” – a buyer, seller or third party.

    Thanks

  5. Jim Savage says:

    John,
    Let’s use your company for an example. Say you are selling a product to Wal Mart. You would be the customer (seller), Wal Mart is the trading partner (buyer). You also have customers that you sell to. Gets a little hairy depending on the point of view since a customer could also be a vendor, it just depends on your viewpoint.

    Short answer, we are all trading partners in the supply chain.

  6. I cannot thank you enough for this. I’m launching my own product soon. While samples are in production I’ve been searching trying to comprehend the back end of selling to retail and how that will add to my costs. EDI was like a foreign language. Thank you so much for helping me this is the best article I’ve found and I’ve seen quite a few.

  7. Chris Grilli says:

    Great article! The importance of EDI and b2b integration goes unmatched in today’s business world. Currently my company is using the IBM Sterling Integrator software and have seen wonderful results.

  8. Amy Gray says:

    Hi Jim,

    Thanks for this article. It helps a lot. We are getting prepared to sell to major retailers like Ace Hardware, True Value and others that require EDI. We’ve done a manual entry version with a different product in Australia, but haven’t done the real version in the USA with anything yet. I use Quickbooks as my software as we are a small independently owned company. We have also hired a distribution warehouse to process and send out the orders. My question is do we and our distribution center need to set up EDI or is there a way that we can manually approve orders that come in and send on to our warehouse for shipping. We are trying to make it cost effective of course. Second, what is the first step of getting this setup, Call one of the companies you listed and ask for a quote to do it? It is merely a software that they provide or do they have to come out to location to do anything? And third, I shouldn’t be required to use a specific EDI company by my trading partners (ie. they all will be able to work within their specs on documents correct?) Thanks for your help as this stuff is pretty confusing for a first timer!

  9. Brij says:

    Hi – does anyone have any experience with Covalent Works?

    http://www.covalentworks.com/

    Also – is EDI used for inventory management as well? If so, is it possible to get inventory data in real-time like a webservice call?

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