De-mystifying the EDI

Everything you need to master Electronic Data Interchange for electronic component purchase orders… but were afraid to ask!

It may sound trivial to some, but I have come to realize that for many professionals working in high-tech manufacturing, the EDI connection can be something of a mystery. So what is the EDI? Actually, it’s not that complicated and can be easily understood in one short blog post.

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What is the EDI?

Electronic Data Interchange (EDI) is a way for businesses to communicate electronically (machine to machine) from one Enterprise Resource Planning (ERP) system to another. Through an EDI connection you can send a purchase order, send an order alteration, receive an order confirmation or a confirmation change, receive shipment information, receive invoices and much, much more.

To completely demystify the EDI, I’m going to break down common areas of confusion or mystery: EDI languages, EDI message types, VAN and the EDI business model. So let’s go!

How does your EDI work?

Different EDI languages

Of course those messages need to be written so that the machine at each end can understand the other. That means using common software languages and in the electronic industry, we often using the EDIFACT international standard that remains the same since the 90s. EDIFACT can be compared to the spoken English language: many speak and understand it. But some machines prefer to speak – let’s say – Mandarin. As a comparison, the IDoc standard is the native language of the SAP ERP.

As a result, you need to have a translator which able to perform the necessary translations between these machines.

As an example, here is an order confirmation message in the EDIFACT format (a text file):

an order confirmation message in the EDIFACT format
EDIFACT order response message

And here is the same EDI message translated into IDoc format for a machine running SAP (this is more complicated because character spacing must be precise):

EDI message translated into IDoc format
IDoc order response message

Different EDI messages

To manage electronic component purchase orders, you need 5 different EDIFACT messages types: ORDERS; ORDRSP; ORDCHG; DESADV; DELFOR.

The “order” message is the one that is sent from the buyer to the supplier to initially create an order. It is only sent when the order is initially validated into the ERP after the ERP signature process.

Once an order has been initially created and sent via an ORDERS message, any further change buyer-side is an order change (ORDCHG) message. If the requested quantity, price, date and/or manufacturing part number is/are changed, an ORDCHG message is sent to the supplier.

The ‘order response’ message is the supplier response to a buyer ORDERS or ORDCHG message. It is sent from the supplier to the buyer to give the current status of an order. For a given order, you may receive a lot of order response messages (for every order change seller side).

This is the advance shipment advice: a message that is sent by the vendor when the shipment is released.

This is a delivery schedule forecast. This message is sent by the buyer to the supplier to provide short term delivery instructions and long term quantity forecasts.

The Value Added Network

Those EDI messages are sent via a VAN (Value Added Network). This is third-party managed service that provides proof that a message has been sent and received.

Is this necessary? Absolutely not. How many orders are you sending via emails? Do you have the proof that an email has been received? Why would you with an EDI?

My conclusion: a simple FTPS connection is more than enough. Just add daily reminders to follow-up messages for which you have no answer.

The EDI business model

An EDI connection is often an outsourced service priced on a per message basis of about $0.10-$0.30 per message. In addition, there is also a few thousands dollars in set-up fees per supplier connection.

As a result — and it’s a pity — it’s common to have buyers/suppliers with only a few EDI messages activated because of the cost. They often only activate ORDERS and ORDRSP but not ORDCHG (order changes). Which means that any buyer side change after the order creation will have to be sent manually via emails and pdf. DESADV is also seldom deployed. And DELFOR are often Excel files sent weekly.

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Why is it so expensive? It’s a good question. We believe at Precogs that every plant should have access to all EDI messages. The electronic supply-chain is complex enough without having access to such low-hanging fruit.

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while improving purchase processing and efficiency.