What Does EDI Capable Mean? Definition and Importance

Transform your business with EDI capability and Orderful

EDI capability isn't just nice to have; it's required to work with an extensive network of trading partners and streamline your business processes. Orderful’s cloud-based solution works for manufacturers, distributors, retailers, and other companies. Speak with an EDI expert to transform your business by becoming EDI capable in a matter of days.

Modern B2B integrations offer a massive return on investment and are vital to contemporary business operations. With revenue on the line, your company can't afford to use time-consuming manual processes. Find out what's required to become EDI capable, plus the main benefits and challenges of EDI capability.

What is “EDI capable” in business?

Electronic data interchange (EDI) is a system for electronically exchanging business documents between partnering companies and supply chain connections. A company is EDI capable if it has the requisite resources to select and implement EDI software.

Instead of spending your time filling out paper forms and mailing them to trading partners, the right EDI capabilities let you exchange data electronically, eliminating manual processes and maximizing efficiency.

It's never too early to position your organization for EDI capability. If your company handles invoices, payments, and other documents daily, switching to EDI is the best way to improve relationships with supply chain partners and explore new opportunities.

Major EDI users

Many of the largest organizations in the world use EDI to facilitate transactions. For example, Walmart uses EDI to interface with its dropshipping vendors. The retail giant works with countless vendors, making fast and efficient transactions vital for continued operation.

Medicare also uses EDI to process millions of claims from physicians, nurse practitioners, and other healthcare professionals. Filing electronic claims helps providers get paid quickly and lessens Medicare's administrative burden. EDI is so crucial that Medicare requires that providers use the electronic claims system to get paid for their services.

What is EDI format capability?

EDI format capability is a company's ability to send and receive electronic business documents formatted according to a specific standard. It differs from general EDI capability, but complying with EDI standards ensures everyone is on the same page.

How to become EDI capable

Most major organizations are EDI capable, meaning you must be as well in order to work with them. Although the process is somewhat complex, it has three main steps:

1. Receive messages from your enterprise resource planning (ERP) system.
2. Convert those messages from an internal format into a standard EDI format.
3. Implement a communication protocol to ensure trading partners can use your electronic documents.

As you follow these steps, several other tasks will ensure your new EDI system meets your needs and complies with partner requirements. Here's a closer look at what's involved in developing your business’s EDI capability:

Understanding partner requirements

You must connect with each of your trading partners to use EDI. There are multiple EDI formats, so research your partners’ requirements before you invest in an EDI system or make other critical decisions.

For example, one partner may use the Voluntary Interindustry Commerce Standard, whereas another uses EDI transaction sets developed to comply with the Health Insurance Portability and Accountability Act (HIPAA).

Choosing an in-house or outsourced EDI

Next, determine if you want an in-house or outsourced EDI. An in-house system gives you more control but requires significantly more resources. You’ll need a team of experienced information technology professionals to install and maintain the system. If you don't have an in-house IT department, outsourced IT services can get expensive. You’ll also need new hardware and employees with mapping skills to onboard new trading partners.

Outsourced EDI lets you reap the benefits of electronic data interchange without significantly increasing labor and equipment expenses. Outsourced EDI (aka EDI-as-a-service) requires no special hardware or software. It’s also cloud-based, so you can access it from any computer or mobile device with an internet connection. With outsourced EDI, the provider takes care of everything, leaving your employees more time to focus on growing the business.

If you'd rather focus on making sales and building relationships with customers, an outsourced EDI is likely the right choice. An in-house EDI is better if you already have the equipment and expertise to set up an EDI and onboard new partners.

Choosing an EDI solution provider

If you decide to work with a third-party EDI provider, look for one that offers your ideal level of speed, flexibility, and reliability. Simplicity is also essential, as your employees need to use the system without extensive training. Orderful can help you simplify your EDI integration within nine days, eliminating delays so you can take advantage of EDI’s benefits. 

Testing your new EDI solution

EDI testing confirms your new system does exactly what it's supposed to do. The process involves mapping EDI transactions to ensure you can exchange data with trading partners. You should complete the following types of testing before rolling out your new EDI solution:

• Requirements testing: This confirms that your EDI solution conforms to each trading partner's requirements and ensures you meet specific EDI standards, such as those designed to help healthcare organizations comply with HIPAA.
• Situation testing: This verifies that the system responds appropriately to particular scenarios, such as by requiring essential data for each type of file.
• Integrity testing: This type of testing confirms that your EDI files conform to all relevant syntax requirements.
• Line of service/product testing: This determines whether the EDI solution processes data records associated with a specific line of service or product without errors.
• Balancing testing: Balancing testing confirms all your line totals are correct. For example, if you test a purchase order against an invoice, the items on each document should be an exact match.

Benefits of EDI capability

Becoming EDI capable has many benefits, but these are some of the most significant:

• Increased efficiency: Implementing EDI reduces or eliminates cumbersome manual processes, raising output without increasing the demand for resources.
• Improved security: Only authorized individuals can access your data when using EDI solutions. Paper documentation enables others to intercept your mail or distribute documents to unauthorized individuals.
• Reduced risk of errors: Imagine you had to type up 100 purchase orders every day. You'd probably make a few mistakes, costing your company money and damaging its reputation. Automated EDI processing results in a substantially lower risk of data-entry errors.
• Shorter sales cycle: With paper documents, it takes a long time to prepare business forms, mail them to trading partners, and wait for a response. This increases the length of the sales cycle, wasting resources and straining business relationships. EDI eliminates all the waiting, shortens the sales cycle, and provides more opportunities to generate revenue.
• Lower costs: With EDI, there’s no more printing documents, putting them in envelopes, adding postage, and wasting labor hours to get them to the post office. As a result, EDI lowers operational costs.

Challenges of becoming EDI capable

EDI capability has many advantages, but it's not without challenges. There’s no overstating the importance of partnering with experts who know how to manage EDI integration. Here are some potential hurdles you should consider before making the switch to EDI:

• Scalability: As your company grows, you'll add more trading partners to your network. That can make scaling your EDI solution difficult. To prevent this, work with a company like Orderful, which offers a cloud-based EDI platform known for its agility.
• Increased costs: EDI solutions reduce operational costs but may increase hardware and software expenses. A cloud-based EDI platform will put less strain on your budget. You can enjoy the benefits of EDI without investing in expensive equipment.
• Lack of expertise: Without a skilled IT team, your organization may struggle to develop an in-house EDI solution. Fortunately, a third-party provider, such as Orderful, can transition you to EDI without requiring you to hire more workers or provide additional training to current employees.