EDI 101 Guide 1EDISOURCE BUYER S GUIDE

Transcription

1 EDI 101 Guide 1EDISOURCE BUYER S GUIDE 3

2 TABLE OF CONTENTS CHAPTER 1: WHAT IS ELECTRONIC DATA INTERCHANGE (EDI)? 3 CHAPTER 2: SEVEN GOOD REASONS TO USE EDI 5 CHAPTER 3: WHAT S THE PROCESS OF EXCHANGING EDI DATA? 7 CHAPTER 4: FOUR WAYS TO IMPLEMENT AND MANAGE EDI 10 CHAPTER 5: FIVE STEPS TO UNLEASHING THE POWER OF EDI 11 GLOSSARY OF EDI TERMS 13 COMMON TRANSACTION SETS 14 GET STARTED 14 2

3 Chapter 1: What is electronic data interchange (EDI)? EDI is a set of standards that define common formats for information to be exchanged electronically between two organizations that are doing business together (referred to as trading partners ). EDI allows companies to speak the same language electronically and communicate more efficiently. In practice, EDI is the act of exchanging data through computers. Many businesses and other organizations use EDI every day since it makes doing business more automated and efficient. USES FOR EDI Before EDI was widely adopted, companies conducted business with paper purchase orders, invoices, insurance claims and other documents sent back and forth using mail and couriers. Even with computers and other more modern technology, many companies still operate this way today. Information received on paper, by mail or fax, must be re-keyed into their computer systems for processing, fulfilling and billing orders. EDI simply eliminates much of that manual processing. In its place is an invisible, electronic flow of the same information in packets of formatted data. There are many different types of documents that may be exchanged through EDI across a wide range of industries. These include invoices, bills of lading, advance shipping notifications, student transcripts, healthcare claims, and many, many more. Is EDI new? While EDI utilizes modern technology, it s actually not very new. In fact, it was first developed in the 1960s. EDI standards define both what pieces of information are required and what are optional for a particular document, and provide the rules for the structure of the document. Just as two houses can be built to code, but look different, two EDI documents can follow the same standard and contain different pieces of information. For example, a clothing manufacturer might choose to include color and size information, while a food producer might include an expiration or sell-by date. In the U.S., organizations traditionally follow the American National Standards Institute (ANSI), a private, nonprofit organization that oversees the development of voluntary consensus standards for products, services, processes and systems. An ANSI committee, ANSI ASC X12, developed the most common standard for EDI, often referred to as simply ASC X12, or even just X12. Outside the U.S., the international EDI standard is Electronic Data Interchange for Administration, Commerce and Transport (EDIFACT), which was developed under the United Nations. EDI STANDARDS In order for two organizations trading partners to communicate electronically via EDI, they must first follow the same standards for formatting the data. This way they (or their computers) know where to find the particular information called data elements, which may include dates, item numbers, order quantities and more within the message. 3

4 EDI GUIDELINES OR SPECIFICATIONS Individual trading partners have their own sets of rules and preferences for EDI. Their specifications are typically laid out in a manual called an implementation guide. Trading partner guidelines are often based on a given EDI standard, with some differences additions, exceptions and changes based on their own preferences. This is akin to local variations in language. You both speak EDI, but they speak it with a particular dialect that you need to understand and accommodate. When creating EDI to send to a trading partner, you not only need to consider how data will be organized according to the EDI standard, but also the specific requirements of each following their implementation guides. EDI FORMATS EDI transactions represent one or more individual documents like a healthcare claim. In the ASC X 12 standards, each document type is referenced by a three-digit number, for example 837 for a healthcare claim, 810 for an invoice, and so on. (See page 14 for more on transaction sets.) EDI can include many formats of these documents including XML, CSV, fixed length and even spreadsheets. But traditionally, EDI specifically represents one formatting structure for data following the industry standard. SAMPLE: EDI IMPLEMENTATION GUIDE ISA Interchange Control Header Mandatory ISA01 Authorization Information Qualifier 00 ISA02 Authorization Information ID Blanks ISA03 Security Information Qualifier 00 ISA04 Security Information ID Blanks ISA05 Interchange Sender Qualifier 01 ISA06 Interchange Sender ID STOREORP (STOREORT for test) EDI DATA STRUCTURE An EDI file is simply a computer file that contains data organized into groups and smaller units. This data represents particular transactions that replace traditional documents. How this data is arranged is based on the standards described above, which were developed at a time when the transmission of electronic data was very expensive. As a result, the most widely adopted EDI standards (e.g. X12 and EDIFACT) represent the data in a very compressed format, limiting the size of the transmitted files. Following the ASC X12 standard, each document represented in an EDI transaction contains a string of individual data units called elements (i.e. dates, reference numbers, prices and the like), divided into rows that are called segments. The data elements are separated by a symbol, known as a separator or delimiter. There are delimiters to distinguish data elements called element separators and delimiters to indicate the end of a segment called segment terminators. Each segment of data starts with a segment identifier indicating what type of data is being presented in that particular segment. A block of segments containing related data that can repeat is called a loop. The combination of data that forms a single message or document is called a transaction set, according to the X12 standard. SAMPLE: EDI DATA Multiple transaction sets can be grouped and transmitted together in a package called an envelope. When the transaction sets are related in function, the grouping is called a functional group envelope. Functional groups that come from the same trading partner are grouped into an interchange envelope. Finally, a series of interchanges from a number of different trading partners form a transmission. 4

5 Chapter 2: Seven Good Reasons to Use EDI Often companies see EDI as a burden placed on them by trading partners. But even if you aren t required to conduct business via EDI, it actually may be a good idea since using EDI can provide a number of tangible benefits for your business and bottom line. 1 EDI AS A REQUIREMENT Your company may have little choice about whether or not to use EDI since it s a requirement of doing business with many larger organizations, especially big retailers, manufacturers and government agencies. So, the most significant advantage for many companies is the ability to grow their business. Larger organizations have often spent significant time and money developing specific requirements for EDI transmissions and many other aspects of sending and receiving information and products, meaning they may charge penalties if you do not comply with these requirements. It s not only important to use EDI, but also to do it well. Although it seems like a huge hurdle, once you are set up to handle EDI effectively it can enhance your company s image as a technically sophisticated enterprise. 2 COST SAVINGS As EDI allows for information to flow automatically (with minimal human interaction and without paper), there are a number of cost saving benefits, including: Reduced overhead costs through reduction of human handling of documents, re-keying information and more Lowered printing and paper costs Heightened customer satisfaction since there are less human errors in entering data Reduced inventories and inventory carrying costs Lower risk for penalties or chargebacks, large retailers with specific EDI requirements will often charge suppliers (trading partners) penalties for errors or for not following guidelines correctly 3 ACCURACY Errors are reduced when using EDI since manual and duplicate data entry is eliminated. With internal integration, orders received via EDI can flow through your entire process exactly the way they were prepared since they were never touched. That means what is ordered is what is shipped and invoiced. That, in turn, means fewer costly errors and better relationships with trading partners. EDI also provides a data trail. Orders, shipments, claims, loan applications, inventory status and other business functions can easily be tracked. Understanding Integration In EDI, integration really means DATA integration. Simply put, data integration means the act of transferring data from its source directly and seamlessly into your back-end business or accounting software. How does integration happen? EDI mapping software provides the mechanism for assigning which data elements from an EDI transaction goes where in a file format your business system can understand. What is the benefit of integration? When data is automatically applied to your business system, you get the greatest advantages of EDI greater efficiency, greater accuracy, and, ultimately, lower costs. 5

6 4 EFFICIENCY Sending information via EDI takes minutes, sometimes only seconds. The information received can be acted on immediately with less manual work, meaning more efficiency for you and your trading partners. Integrating EDI with your internal business or accounting system means the entire workflow can be more streamlined. Incoming transactions can automatically convert to actionable items (i.e. orders or claims) with minimal human intervention. Time savings can be significant, especially when dealing with larger organizations providing multiple transactions in a single EDI transmission. 7 ACTIONABLE MANAGEMENT INFORMATION With the use of EDI, business management also has a source of readily available information to guide decisions. It can all be accessed electronically rather than manually digging through old files and folders looking for paper documents. Electronic data can be more easily compiled making it immediately available for further manipulation and analysis. Data can be mined and specific functions, transactions or trading partners can be assessed for trends, errors or redundancies. In short, historical EDI data becomes a great source of management information. 5 SECURITY The exchange of critical business or personal information can be more secure using EDI since many communications protocols for transferring data include encryption and other security measures, like digital signatures. This is one reason why HIPAA, the U.S. Federal health insurance law of 1996, encourages the widespread use of EDI in the healthcare system. 6 SUPPLY-CHAIN VISIBILITY Thanks to EDI, companies may also be able to share information with their trading partners, like product sales data, inventory status of products or component parts, demand forecasts and more. The trading partners, in turn, can share similar information with their trading partners, and so on, all the way down the supply chain. The sharing of information in this way is referred to as supply chain visibility. It allows suppliers to plan for and respond to swings in demand so they can moderate their own inventory levels and be prepared for large orders before they arrive, meaning EDI can also be an important element of just-in-time production. 6

7 Chapter 3: What s the process of exchanging EDI data? Most EDI-based transactions are the same as those you would traditionally handle manually with paper documents. The only real difference when handled via EDI is that the information is all sent and received in electronic form, as a packet of data formatted according to EDI standards. This section explains the steps in the process. FIVE STEPS IN THE EDI PROCESS 1 2 Sender extracts data from a backend business or accounting system Sender maps that data into the proper EDI format to be transmitted 3 EDI file is translated in preparation for transmission 4 Sender transmits the message the outbound data to the trading partner (the recipient) 5 Recipient translates the inbound data and provides a digital receipt, called a Functional Acknowledgement, back to the sender Three major processes involved in the exchange of EDI data: MAPPING. Involves transforming an EDI document into another format (such as XML, a flat file, a delimited file, etc.) or vice versa TRANSLATION. The process of accepting inbound EDI data, or preparing an outbound file for transmission COMMUNICATIONS. Refers to the transmission of the EDI transaction. SEND EDI DATA TO YOUR TRADING PARTNER Extract Data from Back Office System Map Data to EDI Format Translate EDI Data in Preparation for Transmission Send EDI Data to Trading Partner Process and Reconcile FA RECEIVE EDI DATA FROM YOUR TRADING PARTNER Receive EDI Data from Trading Partner Translate and Validate EDI Data Generate and Send FA to Trading Partner Map EDI Data to Internal Data Format Integrate Data to Back Office System Understanding Functional Acknowledgments Functional acknowledgements (FA) 997 or 999 are the digital receipts for the transmission of EDI data. As opposed to other means of B2B exchanges, the EDI method of business integration follows a specific process and rules by which all data is exchanged. These rules include the process of providing a receipt to your trading partner that confirms that you successful received the EDI data and that it adheres to the EDI standards. FAs further include data related to whether the EDI message was accepted or not. Accepted. The EDI message conforms to all agreed upon EDI standards Accepted with Errors. The EDI message does not meet the EDI standards, but is sufficient to be processed by the trading partner Rejected. The EDI messages does not meet the EDI standards and is not being processed by the trading partner The value of FAs is to confirm receipt and notify the sender that the data was structurally acceptable. 7

8 Three Major Processes Involved in the Exchange of EDI Data 1 MAPPING Prior to sending information via EDI, it most likely resides on a computer or mainframe in a software application. As long as it is possible to import and export files from that application, pertinent information can be extracted and mapped to an EDI transaction. The function of mapping outbound data conceptually involves establishing what information from the business or accounting software (the data source) goes where in an EDI file (the data destination). EDI software allows you to map EDI data and then save that map like a template to use over and over again. This allows you to quickly convert information into the proper EDI format for a given trading partner every time you want to send them an EDI transaction. You can create multiple data maps for particular ASC X12 standards to accommodate each trading partner s unique specifications or data requirements. When inbound data is received, it must also be converted to a format your business or accounting system can understand. Through system integration, the EDI data can be mapped to automatically and seamlessly be loaded into your internal system. Core Functionality of an EDI Translator There are a number of different features that successful EDI translators provide, including: Validation of the EDI document s adherence to the EDI standards as agreed upon with your trading partner. Duplicate document checking to flag a situation where you sent or have received the exact same EDI message more than once. This validation ensures that duplicate documents such as orders or invoices are loaded into your back office systems creating unnecessary work or confusion. Functional acknowledgement (FA) reconciliation is where inbound and outbound documents are matched up with their corresponding FAs to ensure that they have been received by the trading partner. Where documents do not have a corresponding FA, the EDI team should be alerted. 2 TRANSLATION There is software involved in sending and receiving EDI data that runs through a set of actions to verify and send/accept the files. This is especially important since EDI transmissions often come in large batches containing many different trading partners and transactions. When an inbound transmission is received by the EDI software, the file must be broken down (or parsed ) to identify everything it contains and what actions should be taken. EDI translation software will determine what trading partners are included in a transmission, what individual transactions are included, and whether there are any duplicates. The senders of each transaction are validated as legitimate trading partners and the file structure and individual data fields of each are validated as proper according to the EDI standards. If required, an FA is sent to the trading partner. Only then is the data mapped and applied to your internal business system. A similar process occurs for preparing an outbound file for transmission. The translator will prepare the transaction(s) and await receipt of the appropriate acknowledgements. 8

9 3 COMMUNICATIONS The actual transmission, or sending of EDI data, requires a communications connection. There are two types of connections: indirect and direct. Indirect connections with trading partners are done through use of a value added network (VAN). Often referred to as the electronic post office, a VAN is a third-party service that transmits and stores data in the electronic mailbox until it is picked up by the appropriate party. Since the EDI message contains addressing information, the VAN routes the message to the mailbox of the recipient. Direct connections allow you to pass data straight to your trading partner over the Internet via EDIINT, commonly known as applicability standard 2 (AS2) via a virtual private network (VPN), or FTP, sftp or FTPs. Communications Protocols Defined FTP transferring files over a TCP-based network such as the Internet FTPs FTP secure is FTP with support for encryption protocols TLS or SSL sftp SSH-FTP is using FTP with the SSH (secure shell) security protocol AS1 EDIINT standard for sending EDI data encapsulated within MIME messages (SMTP) AS2 EDIINT standard for EDI transmissions over the Internet (HTTP) with SIMIME encryption AS3 EDINT standard for using FTP with SIMIME encryption 9

10 Chapter 4: Four ways to implement and manage EDI There are a number of ways to implement EDI in your organization. You can choose to manage it yourself in house or outsource the entire function. Here are your options. WEB-BASED EDI SOLUTION Best option for small companies that are new to EDI and need to make a quick, inexpensive initial EDI connection. The platform mimics where EDI messages are imported into an inbox and responded to with pre-populated data forms. Quick Inexpensive Great for initial connections MANAGED SERVICES Best option for larger organizations that do not want to invest in additional personnel to manage the day-to-day EDI operation. Managed services is a fully outsourced option that will handle all routine activities, the setting up new trading partners, and providing ongoing support for every party involved. Hands-off EDI operation No need to hire more personnel Allows you to focus more on core business needs INSTALLED SOFTWARE Best option for companies that have a large number of trading partners and high volume of transactions each month that want full control over their EDI operation. Requires an investment in hardware and software, full integration with back-end business and accounting systems, as well as the EDI and IT personnel to manage and support the function. Full control over EDI operation Simple, easy to use interface Support CLOUD-BASED EDI SOLUTION Best option for companies that want to maintain all the flexibility and control that come with an installed software option, but don t want the headaches of managing the IT infrastructure. 1 EDI Source Inc. takes pride in offering a cloud-based solution that allows you to control your EDI operations and not one that is just a marketing pitch for a web solution or outsourcing model like other providers Full control over EDI operation, without IT management Simple, easy to use interface Support 7 Questions to Help Determine Best Solution for You! Take a moment to answer these questions: 1 How many trading partners are you, or will you need to exchange EDI with? What types of transactions do these trading partners require? How often do you expect to receive a transaction from these trading partners? Daily? Weekly? For each trading partner, will you need to send transactions to a single specified location or to individual facilities? Do you intend to integrate the EDI data with your back office systems? Are you able to provide data from your back office system for all of your trading partner needs or will you need a system that will allow you to manually create EDI data? Do you have the resources to manage an ongoing EDI operation inclusive of new trading partner onboarding and operational data management responsibilities? 10

11 Chapter 5: Five Steps to Unleashing the Power of EDI The value of EDI does not stop at the initial connection. In fact, companies can actually transform their business through EDI and achieve operational excellence through internal processes and how they interact with trading partners. Let s explore the steps you should be thinking about to achieve operational excellence. LEVEL 1: CONNECT Usually companies adopt EDI at the directive of a new or existing trading partner. When the goal is to make an initial connection and the volume is low, it s best to employ a web solution. This satisfies the requirements and allows you to do business with the trading partner, but EDI remains a manual process for you. LEVEL 2: AUTOMATE VOLUME As the number of documents increase (more than 100 per month), or you add new trading partners (more than three), companies should then explore the opportunity to automate their B2B exchange. This involves mapping the EDI data to a format that can be integrated into your back-office system giving you the ability to automatically send data from your internal systems as EDI to your trading partners, with little or no human interaction. There s great value in automation, including: Cost savings through the elimination of manual processing. Improved data accuracy since data is transported automatically with no need to re-key. Time savings since the automated data exchange is much faster than manual processing. LEVEL 3: AUTOMATE INTEGRATION RULES Since your data is now being integrated with your back-office systems, you may begin to notice other complications arise. For example, you may find yourself still manually reviewing the EDI data that should just be integrated into your backoffice system. The solution is building business rules right into your data integration process. Here are some examples: Perhaps your ERP package only supports a ship date, but your customers provide you ship by, ship no later than, and expected delivery dates in their EDI messages, which one should you use? Ship-to locations are not yet set up in your ERP causing errors when loading the order. The price the customer included on their order doesn t match the internal price that you have in your ERP, which causes you to either override the trading partner s expectations or undermine your internal price controls. Your customer orders in cases, but your internal shipping system is set up to use each as the unit of measure. Whatever business rules you choose to build into your data integration process will enhance order accuracy and limit unnecessary friction with trading partners. Best of all, it increases efficiencies since you won t need to manually check orders anymore. 11

12 LEVEL 4: EMPOWER COLLABORATION Prior to EDI, the sales team manually handled orders, shipments would be manually loaded by the fulfillment team onto trucks with Bill of Ladings, and invoices would be sent by accounting. It was a manual process, so everyone was intimately familiar with transactions. Now with automation, cross functional teams can lose visibility into the process and limit their ability to advocate for a customer or the trading partner. To keep customers and trading partners happy, and ultimately improve overall supply chain visibility, empower everyone in the organization to re-engage with the most critical business processes by exposing them to EDI data. LEVEL 5: APPLY INTELLIGENT LEVERS Integrating EDI data with back office systems and providing the needed visibility into the process for your business stakeholders, now positions a company to take the final step in leveraging the full potential of EDI data. As EDI is a standard with common data structures, reusable business rules may be leveraged to ensure that not only will the integration of the data be successful, but also that the actual content and context of the data is correct. Interrogating the EDI data for data content issues may illuminate a variety of opportunities to improve trading partner relationships, such as: Is the price on the invoice match the price of the item on the customer s order aligning expectations of what the customer is expecting to pay with the expectation of what accounts receivable is expected to receive? Does the invoice balance with the sum of the items equaling the sum of the total ensuring the mathematical integrity of the document? Are Advanced Ship Notices (856) sent on time or are they consistently late introducing friction into the trading partner relationship or resulting in charge-backs or penalties? EDI documents sent to your trading partners represent milestones within your own internal business processes, so information about these documents can also describe the effectiveness of your different internal teams. In addition to the contextual business rule validation, companies are now able to track trends over time to assess issues in their internal business processes that can be improved to transform business operations. The extent to which the standardized and structured nature of EDI can be utilized can indeed transform your company, elevating the role of EDI from merely a capability of your IT organization to a competitive advantage for your entire business. 12

13 Glossary of EDI Terms ANSI (American National Standards Institute): A voluntarily committee that coordinates standards. Its subcommittee, the ANSI Accredited Standards Committee (ANSI ASC) recommends a standard referred to as ANSI ASC X12 or simply X12. ASN (Advance Ship Notice or Advance Shipping Notification): Notification of forthcoming delivery of product. AS2 (Internet Applicability Statement 2): Specifies how to transport data and the means to connect, deliver, validate and reply to data in a secure and reliable manner. AS2 Software: Software that specifically supports transmissions using the AS2 protocol, such as AS2 Complete from 1 EDI Source. Communications Session: The uninterrupted flow of data from one computer system to the other. Compliance Checking: A process for ensuring that the EDI transmissions comply with the established rules. CSV File (Comma Separated Values File): File format in which the data elements are separated with commas, also known as a Comma Delimited File. Data Element: The smallest unit of EDI information. A data element could be a code, a name, a quantity or any other individual piece of information. Data Mapping: The method by which information in one format is restructured into a different format. EDIFACT (Electronic Data Interchange For Administration, Commerce and Transport): A standard different from X12. It s usually used in European countries and among the automotive industry. EDIINT (EDI over the INTernet): The ability to send EDI data directly over the Internet without the use of a VAN. Electronic Mailbox: Term referring to the place (located within a third party s provider system) where an EDI transmission is stored for pickup or delivery. Fixed Length: Term that describes a data field with an established number of characters. Flat File: A computer file that contains alphanumeric and/or numeric data but not control characters. It s most often used for transferring information from one program to another. Functional Acknowledgement (FA) (997): An EDI transaction set sent from the receiver of the EDI transmission to the sender. The 997 indicates receipt and acceptability of data and allows the receiver to notify the sender if problems have been encountered within the data. FTP (File Transfer Protocol): Standard Internet protocol for transferring files. FTPs (File Transfer Protocol secure): Using FTP with support for encryption protocols TLS or SSL to provide greater security in transferring files. Map: The pattern in which EDI information is to be arranged. ODBC (Open Data Base Connectivity): A standard software interface for injecting and extracting data to and from computer systems, such as business or accounting software applications. Protocol: Rules that determine the format and transmission of data between the sender and the receiver. Segment: A grouping of one or more data elements that appears as a line of information within an individual EDI message. sftp (SSH File Transfer Protocol): Using FTP with the SSH (Secure Shell) security protocol for a higher level of security in transferring files. Trading Partner: The business with which you are exchanging data. Transaction Set: The electronic version of a written document. Translator: A software tool that accepts an EDI transmission and converts the data into another format. GS1-128 (formerly UCC-128): Scannable barcoded label located on the outside of a shipping carton. VAN (Value Added Network): A third-party EDI service provider that supplies a communication link between companies so they may exchange electronic transmissions. X12: A standard of EDI XML (Extensible Markup Language): A simple, very flexible text format originally designed to meet the needs of electronic publishing. 13

14 Common Transaction Sets Manufacturing/Retail 810 Invoice 850 Purchase Order 855 Purchase Order Acknowledgment 856 Advance Ship Notice 864 Text Message Procurement 940 Warehouse Shipping Order 943 Warehouse Stock Transfer Shipment Advice 944 Warehouse Stock Transfer Receipt Advice 945 Warehouse Shipping Advice 947 Warehouse Inventory Adjustment Advice Healthcare 270 Eligibility, Coverage or Benefit Inquiry 271 Eligibility, Coverage or Benefit Information 276 Health Care Claim Status Request 277 Health Care Claim Status Notification 834 Benefit Enrollment and Maintenance 835 Healthcare Claim Payment Advice 837 Healthcare Claim Freight, Trucking and Logistics 204 Motor Carrier Shipment Information 210 Motor Carrier Freight Invoice 211 Motor Carrier Bill of Lading 212 Motor Carrier Delivery Trailer Manifest 214 Transportation Carrier Shipment Status Message Other 753 Request for Routing 754 Routing Instructions 811 Consolidated Service Invoice/Statement 812 Credit/Debit Adjustment 820 Payment Order/Remittance Advice 997 Functional Acknowledgmen Ready to Get Started? Our EDI experts are here to help you not only learn EDI, but also provide the expertise, experience and solutions that will help your business grow. We have a full suite of options ready for you. Whether you choose a web-based, managed, installed or cloud-based EDI solution, we have a product that will exceed expectations. We also provide communication, integration and migration services to help complete your solution. If you have questions about EDI, or you re ready to get started, contact us and we ll walk you through what EDI option is best for you and be your guide through the entire implementation and beyond. In no time at all, EDI will become just a natural part of your business. And through our ongoing training, you can learn as much or as little as you d like about the solution, process and ways to maximize success sales@1edisource.com 1edisource.com 14