EDI 101 White Paper What every company needs to know about EDI

www.2chadsfulfillment.com 6330 Washington St Ste 8 Denver, CO 80216 (303) 757-6500 EDI 101 White Paper What every company needs to know about EDI White Paper 2Chads Fulfillment www.2chadsfulfillment.com

Contents Introduction 2 2Chads Solution 2 Implementation 2 EDI Definition 3 Specifications 3 Value-Added Networks 3 Transmitting Data 4 EDI Transfer Auditing 5 Barriers to Entry 5 Summary 6 EDI Glossary of Terms 6 Introduction Merchants are being put under a great deal of pressure by the big distributors (i.e. Wal-Mart, Amazon, Best Buy, Rite Aid, etc) to implement EDI transactions. There is a lot of confusion about what an EDI transaction is. This white paper is meant to help explain EDI and some of the technical terms associated to the flagship standard. Selecting a fulfillment partner that is well versed in EDI transaction requirements will help your organization to immediately obtain the skill-sets necessary to meet the stringent EDI standards required by distributors. Chances are that you ve are working with a fulfillment partner or are in-sourcing the fulfillment operation. Either way, you need a fulfillment partner/team that is as committed as you are to making your business successful. Through the last 16 years in the business, we know that this can often be a difficult task. There are many considerations when selecting a fulfillment partner or re-evaluating your current fulfillment operation. This white paper will help give you a high-level understanding of EDI. If you would like to discuss EDI or any other topic related to fulfillment, any one of our experts at 2Chads would love to entertain the conversation. We re an e-mail or phone call away! You ll see that we are a different bread of company in the ever evolving fulfillment vertical and it starts by offering you this free white paper on EDI. There are a variety of differences that separate one third-party partner for the next and we are ready and willing to help you quickly and efficiently get through the tasks required for taking your order fulfillment efforts to the next level so you can sell more products to consumers or retailers at lower cost. At 2Chads, we take the responsibility of delivery accuracy and efficiency to heart, knowing that our clients success depends upon our execution and continual optimization of our operations. We instill this thought with every team member as a part of our culture Give the client your thought, energy and effort as if it were your own business, because when the client succeeds, we succeed! 2Chads Solution 2Chads has perfected the art of fulfillment orchestrating the systematic flow of merchandise throughout the world by leveraging our worldwide integrated network and always keeping the complex needs of our customers large and small at the top of our priority list. We keep things in sync, on time, and your business running smoothly. We believe we have the best fulfillment solution in the marketplace but we know that ultimately, you will be the judge. At 2Chads, we take the responsibility of delivery accuracy and efficiency to heart, knowing that our clients success depends upon our execution and continual optimization of our operations. We instill this thought with every team member as a part of our culture Give the client your thought, energy and effort as if it were your own business, because when the client succeeds, we succeed! Implementation Call us at 720-862-3529 or e-mail us at implementation@2chadsfulfillment.com to take advantage of our FREE one-hour consultation. White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 2 of 10

EDI Definition The acronym EDI stands for Electronic Data Interchange. At its most basic definition, EDI is computer-tocomputer communication of business documents in a standardized format between two companies. When you do business via EDI, you send business documents directly from one computer to another, the documents are in a machine-readable format, the exchange is limited to documents, and the document exchange is governed by a family of specific standards. Again, EDI enables the computer system from one company to talk to the computer system of another company and digitally exchange data. Because this digital exchange of data is facilitated using computers, most, if not all of the associated business processes can be automated so they occur with little or no manual data entry. This enables companies to electronically exchange business documents like purchase orders and invoices. Although EDI has a technical-sounding name, it is fundamentally a business initiative that has been developed and improved upon since being formally introduced in 1996. EDI was pioneered by the leaders from the retail and transportation industries in an effort to increase accuracy and efficiency with the long-term objective of significant cost savings. EDI also represents a major step in creating a paperless office. By replacing paper documents, such as purchase orders or invoices, with their EDI equivalent (a computer-readable EDI document), four key benefits are realized: 1) Accuracy is increased with reduction of human breakdowns required for submitting transactions to a thirdparty. 2) Time for delivery is decreased as a result of the electronic transmission of forms which eliminate delays inherent in conventional forms of communication. 3) Customer service process is automated. 4) Bottom-line costs are reduced for the trading partners. Specifications In EDI terminology, organizations that send or receive documents between each other are referred to as "trading partners." Trading partners agree on the specific information to be transmitted and how it should be used. This is done in human readable specifications. While the standards are comparable to building codes, the specifications are parallel to blue prints. Larger trading "hubs" have existing Message Implementation Guidelines which mirror their business processes for processing EDI and they are usually unwilling to modify their EDI business practices to meet the needs of their trading partners. Often in a large company these EDI guidelines will be written to be generic enough to be used by different branches or divisions and therefore will contain information not needed for a particular business document exchange. For other large companies, they may create separate EDI guidelines for each branch/division. Value-Added Networks In the most basic form, a VAN (value-added network) acts as a regional post office. They receive transactions, examine the 'from' and the 'to' information, and route the transaction to the final recipient. VANs provide a number of additional services, (i.e. retransmitting documents, providing third party audit information, acting as a gateway for different transmission methods, and handling telecommunications support). Because of these and other services VANs provide, businesses frequently use a VAN even when both trading partners are using Internet-based White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 3 of 10

protocols. Healthcare clearinghouses perform many of the same functions as a VAN, but have additional legal restrictions that govern VANs also provide an advantage with certificate replacement in AS2 transmissions. Because each node in a traditionally business-related AS2 transmission usually involves a security certificate, routing a large number of partners through a VAN can make certificate replacement much easier. - Value-added networks are the go-between in EDI communications. - The VAN is responsible for routing, storing and delivering EDI messages. They also provide delivery reports. - Depending on the VAN type, messages may need extra envelopes or may be routed using intelligent *VANs which are able to read the EDI message itself. - VANs may be operated by various entities: o telecom companies; o industry group consortia; o a large company interacting with its suppliers/vendors. Transmitting Data EDI translation software provides the interface between internal systems and the EDI format sent/received. For an "inbound" document the EDI solution will go through the following steps. 1. Receive the file (either via a Value Added Network or directly using protocols such as FTP or AS2). 2. Validate that the sender is a valid trading partner. 3. Verify that the file meets the EDI format standard, and that the individual fields of information conform to the agreed upon standards. 4. Import file into the database. 5. Process file. For an "outbound" document the process for integrated EDI will go through the following steps. White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 4 of 10

1. Export a file (or read a database) from a company's back-end ERP 2. Transform the file to the appropriate format for the translator. 3. The translation software will then verify the format of the EDI file to ensure that it meets the standard agreed upon by the trading partners 4. Convert the file into "EDI" format (adding in the appropriate identifiers and control structures) and send the file to the trading partner (using the appropriate communications protocol). 5. Send file to the receiving party. EDI Transfer Auditing Another critical component of any EDI translation software is a complete "audit" of all the steps to move business documents between trading partners. The audit ensures that any transaction (which in reality is a business document) can be tracked to ensure that they are not lost. In case of a retailer sending a Purchase Order to a supplier, if the Purchase Order is "lost" anywhere in the business process, the effect is devastating to both businesses. To the supplier, they do not fulfill the order as they have not received it thereby losing business and damaging the business relationship with their retail client. For the retailer, they have a stock outage and the effect is lost sales, reduced customer service and ultimately lower profits. In EDI terminology "inbound" and "outbound" refer to the direction of transmission of an EDI document in relation to a particular system, not the direction of merchandise, money or other things represented by the document. For example, an EDI document that tells a warehouse to perform an outbound shipment is an inbound document in relation to the warehouse computer system. It is an outbound document in relation to the manufacturer or dealer that transmitted the document. Barriers to Entry There are a couple of high-level barriers to adopting electronic data interchange. Business process change. Existing business processes built around paper handling may not be suited for EDI and may require changes to accommodate automated processing of business documents. For example, a business may receive the bulk of their goods by 1 or 2 day shipping and all of their invoices by mail. The existing process may therefore assume that goods are typically received before the invoice. With EDI, the invoice will typically be sent when the goods ship and will therefore require a process that handles large numbers of invoices whose corresponding goods have not yet been received. White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 5 of 10

Cost in time and money for the initial set-up. The preliminary expenses and time that arise from the implementation, customization and training can be costly. It is important to select the correct level of integration to match the business requirement. For a business with relatively few transactions with EDIbased partners, it may make sense for businesses to implement inexpensive "rip and read" solutions, where the EDI format is printed out in human-readable form and people, rather than computers, respond to the transaction. Another alternative is outsourced EDI solutions provided by EDI "Service Bureaus". For other businesses, the implementation of an integrated EDI solution may be necessary as increases in trading volumes brought on by EDI force them to re-implement their order processing business processes. Ultimately, your business will need to determine if the benefits gained from adopting an EDI standard is worth the time and cost involved. Summary Many businesses view EDI from the technical perspective that EDI is a data format; it would be more accurate to take the business view that EDI is a system for exchanging business documents with external entities, and integrating the data from those documents into the company's internal systems. Successful implementations of EDI take into account the effect externally generated information will have on their internal systems and validate the business information received. For example, allowing a supplier to update a retailer's Accounts Payable system without appropriate checks and balances would put the company at significant risk. Businesses new to the implementation of EDI must understand the underlying business process and apply proper judgment. EDI Glossary of Terms Term ANSI Definition Acronym for American National Standards Institute, which is the organization that acts as coordinator and clearing house for information on national standards, including EDI. ANSI ASC X12 Also referred to simply as ANSI X12 or the X12 format, ANSI ASC X12 is the most common EDI standard used in North America. API Acronym for Application Program Interface, which is middleware provided by a software publisher that enables software created by other software publishers to integrate with their application. AS1 AS1 (Applicability Statement 1) is a specification for transporting data securely and reliably over the Internet using Simple Mail Transfer Protocol (SMTP) as the communications protocol. SMTP is the de facto standard for exchanging e-mail transmissions across the White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 6 of 10

Internet. Security is achieved by using digital certificates and encryption. AS2 AS2 (Applicability Statement 2) is a specification for transporting data securely and reliably over the Internet using Hypertext Transfer Protocol (HTTP) as the communications protocol. Security is achieved by using digital certificates and encryption. AS3 AS3 (Applicability Statement 3) is a specification for transporting data securely and reliably over the Inernet using File Transfer Protocol (FTP) as the communications protocol. Security is achieved by using digital certificates and encryption. ASC Acronym for Accredited Standards Committee, which is a team that has been chartered by ANSI to develop a specific set of standards. ASN An Advanced Ship Notice, or ASN, is also known as the 856 transaction in EDI parlance. ASNs indicate when a shipment was sent, the carrier used to ship it, and how it was packed. Barcode A barcode (also bar code) is a machine-readable representation of information. Originally barcodes stored data in the widths and spacings of printed parallel lines, but today they also come in patterns of dots, concentric circles, and text codes hidden within images. Barcodes can be read by optical scanners called barcode readers. BOM Bill of materials (BOM) is the term used to describe the "parts list" of components needed to complete an end-item for sale. BSP A Business System Plug-in (BSP) is a TrueCommerce software module that "maps" or arranges the data structure of EDI transactions so that they may be imported into and exported out of an accounting software application in an automated fashion. Connectivity The ability to make and maintain a connection between two or more points in a telecommunications system. The typical mechanism for establishing connectivity in an EDI system is a Value Added Network (VAN). White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 7 of 10

CSV file The comma-separated values (CSV) file format is a file type that stores tabular data using the comma symbol to distinguish between different values. Data Element The smallest unit of information in an EDI transaction set, such as quantity or ZIP code. Data elements combine to make data segments. Data Segment EDI A line of information in an EDI message. Electronic Data Interchange(EDI) is a set of standards for structuring information that is to be electronically exchanged between businesses via application-to-application communication. The term EDI refers to the implementation and operation of systems and processes for creating, transmitting, and receiving EDI documents that emulate business transactions such as purchase orders and invoices. EDI has been in use for nearly three decades and is the data format used for the vast majority of the world's business-to-business electronic commerce transactions. DUNS Number A nine-digit number assigned and maintained by Dun & Bradstreet to identify unique business establishments. DUNS numbers are assigned worldwide and include US, Canadian and international organizations. EAN A European Article Number (EAN) is a barcoding standard which is a superset of the original 12-digit Universal Product Code (UPC) system developed in North America. EDIFACT United Nations/Electronic Data Interchange For Administration, Commerce, and Transport (UN/EDIFACT or EDIFACT) is the international EDI standard developed under the United Nations. EPP An Electronic Partner Plug-in (EPP) is a TrueCommerce software module that "maps" or arranges the data structure of EDI transactions as required to automate exchanging data with a trading partner's EDI system. The EPP "tells" the TrueCommerce system which transactions are supported by a particular trading partner, how the data should be formatted, and what data is required on transactions that are sent to the trading partner. Each EPP is for a specific trading partner and includes the data mappings for all transactions that are required by that trading partner. White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 8 of 10

ELP The Electronic Label Plug-in (ELP) is a TrueCommerce software module that automates printing barcode labels. FTP File Transfer Protocol (FTP) is a common way to move files between computers over the Internet. Anonymous FTP gives users access (without an ID and password) to areas on a remote system that contain public files. Functional Acknowledgement A Functional Acknowledgement (also referred to as a 997 transaction) confirms that an EDI transaction has been received by a trading partner and indicates the time and date of receipt. Integration Integration refers to the process of exchanging data between to different applications in an automated fashion (with little or no manual intervention). SCAC Standard Carrier Alpha Codes (SCAC) are unique four-letter codes that identify transportation carriers SDK A Software Developers Kit (SDK) is middleware provided by a software publisher that enables software created by other software publishers to integrate with their application. TC.Net TC.Net is the TrueCommerce network that provides connectivity between EDI trading partners. Trading partner This term refers to companies with whom you are exchanging EDI documents. Transaction Set A transaction set is the EDI term for a business document. Each transaction set has a standard three-digit numerical code that identifies it. The four most common transaction sets are: 850: Purchase Order (PO), 855: Purchase Order Acknowledgement (POA), 856: Advance Ship Notice (ASN), and 810: Invoice IMPORTANT NOTE: Your first two EDI transaction sets must be Purchase Orders and Purchase Order Acknowledgements. White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 9 of 10

Future transaction sets are your choice. Translation The act of converting a business document to and from the EDI standard. UPC Universal Product Code (UPC) is the most common barcode format used in North America. VAN Stands for Value Added Network, or third party service provider. A VAN takes EDI documents, and moves them into mailboxes. EDI Mailbox Translation Software This is the place where EDI documents are sent to and received from, via electronic transmission between computers. Each retail trading partner and merchant maintains its own EDI Mailbox. Depending on your volume of sales, your trading partners will send you EDI orders on a daily or weekly basis. It is up to you and each trading partner to decide when you will connect to your mailbox and process orders from that trading partner. To access the mailbox, you connect to a VAN, or to a network managed by an EDI Provider. The program that takes an EDI standardized X12 document and converts, or translates it, into a format that your Order Processing computer can recognize. White Paper 2Chads Fulfillment www.2chadsfulfillment.com Page 10 of 10