The Whole Information to EDI
Welcome to your complete guide on EDI.
What is EDI?
Electronic Data Interchange (EDI) is the exchange of data electronically between organizations.
Essentially, it is a flat file format that B2B (Business-to-Business) trading partners can use to securely send and receive business transactions or files across organizations worldwide.
How EDI Works
Most trading partners who exchange EDI files exist within specific industries where the documents needing to be exchanged must be EDI-compliant. These industries are typically banking and finance organizations, technology businesses, manufacturers, and retail stores. EDI is also useful for healthcare and higher education.
Before files can be exchanged, both parties must agree on a standard, document, and version – as there are thousands of formats to choose from. Next, the data is translated – no cumbersome scripts or programs necessary. Each transaction set corresponds with a number and type of document.
The Benefits of EDI
EDI can be used replace email, fax, and mail communications – saving organizations both time and money. Rather than relying on manual back-and-forth exchanges, automating data transfers with EDI can reduce time spent waiting on paper communications or manually entered information. EDI also provides real-time visibility into transfer statuses – checking for mail, deciphering illegible handwriting, or sifting through email chains can remain inconveniences of the past.
Because EDI is built on standardized data structures, many EDI software solutions facilitate EDI file translation to and from different formats, helping to map each data point to its correct location. With an EDI software solution in place, organizations can move directly to the next step in the process rather than doing manual data entry.
The Different EDI Standards
There are several EDI standards used today, and for each standard, there are many different versions. When two organizations need to exchange EDI documents, they must agree on the specific EDI standard and version before translating the EDI format.
Among others, popular EDI standards include:
X12 is a format of EDI based on the Accredited Standards Committee X12 (ASC X12) standards developed by the American National Standards Institute (ANSI). EDI X12 documents adhere to strict formatting rules that can help streamline moving data between organizations.
Organizations worldwide use the EDI X12 format to exchange data between two or more trading partners.
A single EDI X12 document is referred to as a transaction set. A transaction set is made up of data elements, segments, and envelopes.
EDIFACT, short for Electronic Data Interchange for Administration, Commerce and Transport, is the accepted EDI standard for international trade outside of the U.S.
The EDIFACT standard provides a clear set of syntax rules used to structure the interactive exchange protocol. It allows for a multi-country and multi-industry exchange of electronic business documents and files securely.
HIPAA is the exchange of electronic documents through EDI methods of communication between medical practices and healthcare vendors.
The HIPAA act helped define how the exchange of EDI documents and the methods of communication between medical practices and healthcare vendors would occur. The data transmission specifications strictly govern the electronic transmission of sensitive data in healthcare.
HL7, short for Health Level Seven, is a set of international EDI standards used to provide guidance with the transfer and sharing of clinical and administrative data between software applications used by various healthcare providers.
HL7 helps to bridge the gap between health IT applications and makes sharing healthcare data easier and more efficient.
The HL7 standards were created by Health Level Seven International, a not-for-profit organization accredited by the ANSI. HL7 is the international counterpart to the United States’ HIPAA EDI Standard.
The Types of EDI Protocols
Although, EDI can be transmitted via any agreed upon electronic method capable of transmitting information, the vast majority of EDI is conducted over the internet. There are also standardized protocols used for transmission.
An EDI protocol describes and defines the exchange of data between organizations. In essence, each protocol is like a separate language, and unless the trading partners are using a private value-added network (VAN), the connection is direct (Direct EDI) or Point-to-Point. This means that the trading partners connect by using a mutually agreed upon protocol in order to communicate. This offers control for organizations and is commonly used between larger customers and suppliers with a large number of daily transactions.
The chosen protocol also determines the level of message encryption, what software and hardware will be required, and the ease with which transmissions can be received.
Among others, the most widely used EDI protocols for exchanging data include:
FTP, FTPS, and SFTP
FTP, FTPS, and SFTP are commonly used protocols for the exchange of EDI documents.
Because FTP is not a highly secure protocol, for EDI scenarios, it requires additional layers of security. To add security, FTP messages can be transmitted via a virtual private network (VPN). Or organizations can use FTPS or SFTP, secure file transfer protocols with the help of encryption. However, there are some setbacks with interoperability, as all three protocols do not address non-repudiation. This can make them unsuitable for many EDI applications.
All three methods, FTP via VPN, FTPS, and SFTP can connect using Direct EDI or over a VAN.
HTTP, short for Hypertext Transfer Protocol, is one of the most popular EDI protocols. It requires a web browser to transfer data from one system to another.
Although the HTTP protocol is simple to use, it lacks the ability secure sensitive data during the transfer process. Due to this, the usage of Hypertext Transfer Protocol Secure (HTTPS) with Transport Layer Security (TLS) encryption is always recommended to enhance security.
AS2, AS3, and AS4
Applicability Statement 2 (AS2) is an open-standards protocol developed by the Internet Engineering Task Force (IETF) commonly used to transmit EDI documents. AS2 uses the HTTPS protocol to send EDI messages over the internet securely.
For millions of organizations in a variety of industries, AS2 is used for point-to-point communication and is the EDI messaging protocols used to transfer files between trading partners. It offers advantages like enhanced verification, high-level security, and real-time transactions.
Additionally, thanks to its compliance with HIPAA, AS2 is particularly popular in the healthcare industry today.
AS3 and AS4 are also file transfer protocols in use today by organizations to transmit EDI messages. AS3 is built on FTP and is not intended to replace AS2, it simply works as a protocol using a different technology that benefits different users.
AS4 is a SOAP-based web services update to AS2. It’s an open standard that is more compatible with standard environments than AS2 and is the newest, most modern protocol in widespread use.
OFTP and OFTP2
The Odette File Transfer Protocol (OFTP) is a communications technology built specifically for B2B document exchange. Like all the AS protocols and unlike the FTP protocols, it can provide digitally signed electronic delivery receipts.
OFTP2, the latest updated to OFTP, was designed for use across the web. A single OFTP2 entity can exchange files in both directions; this means that unlike AS2, with OFTP2 it’s possible to push and pull information, rather than just push. OFTP 2 can encrypt and digitally sign message data, request signed receipts, and provide mass data compression. OFTP was originally designed for Direct EDI, but both OFTP and OFTP2 can work with a VAN as well.
OFTP was originally developed for the European automotive industry and although OFTP2 is still widely used in the industry today, it has also become popular across retail, manufacturing, banking, and government industries – among other organizations throughout the supply chain.
Although OFTP and OFTP2 are most common in Europe, they are global standards, so they can be used by companies of any size, regardless of geographical location and connection reliability.