Electronic data interchange (EDI) is a way for two companies to exchange business documents, such as purchase orders, shipping notices and invoices, as files in a fixed electronic format that both companies' software can read without a person. The formats were set in the 1970s and 1980s, before the web. Large retail chains, carmakers and logistics companies still require their suppliers to use them.
Each type of document has a number and a fixed layout. There are two main families of standards. ANSI X12 is used mostly in the United States. EDIFACT, a United Nations standard, is used mostly in Europe and Asia. In X12, a purchase order is document 850, an advance ship notice is document 856, and an invoice is document 810. Every field has a fixed position and a fixed code. So a computer can read a purchase order and create a sales order without anyone typing it.
For instance, take a garment exporter in Tiruppur that supplies T-shirts to a large retail chain in the United States. The chain does not email its orders. It sends an EDI 850 purchase order for 6,000 T-shirts at $3.20 each, to be shipped by 15 March. The exporter's EDI software receives the file through managed file transfer, and turns it into a sales order in the exporter's ERP. Within a day, the software sends back document 997, an acknowledgement that confirms the order was received. When the cartons leave the factory, it sends an 856 advance ship notice. This lists every carton and the barcode on it, so that the chain's warehouse can scan the cartons as they arrive. Then it sends an 810 invoice for $19,200. If a document is late or wrong, the chain can deduct a penalty from its payment. This penalty is called a chargeback.
So for an Indian exporter, EDI is often a condition of selling to a foreign retail chain at all. Inside India, EDI is used between carmakers and their parts suppliers, and by ports and customs. The sizes, colours and barcodes in these documents often come from product information management (PIM) software. Some industries exchange orders through a shared industry supply exchange, instead of setting up EDI with each partner separately. Newer partners often connect through APIs on an integration platform instead of EDI files.