EDI Meaning in Shipping: How EDI Shipping Works + Tips

In the early days of ecommerce business, you had to process some or all of your shipping paperwork by hand. Those manual processes frequently became a bottleneck to growth, increasing shipping times and introducing data entry errors.

As you add electronic systems and automation to your shipping procedures, you need a software solution that ties them all together. An electronic data interchange (EDI) does this, connecting your ecommerce store to your entire supply chain. Without it, you risk being overwhelmed by the chaos of information overload.

Read on to learn more about how EDI shipping works, how to ensure secure transactions, and key documentation requirements you’ll need to move forward.

What is the meaning of EDI in shipping?

EDI in shipping functions like a universal language for business operations. It enables computer systems in different companies to exchange data and business documents like purchase orders and invoices automatically and seamlessly. Unlike simple electronic file sharing, it is a highly structured data transfer process that follows strict international protocols.

In the shipping industry, EDI solutions facilitate the instantaneous sharing of information between the merchant, a third-party logistics provider (3PL), and a carrier. Instead of a warehouse manager manually typing in a tracking number from a carrier’s email, the carrier’s EDI system sends that data directly to the warehouse’s order management system. EDI speeds up the transfer of information and eliminates the risk of human error in a key business function.

By implementing EDI, all parties in a supply chain can see the same data in a standardized electronic format, regardless of what internal software they use. Whether you are a small merchant using an EDI provider for the first time or a multinational corporation with a dedicated EDI network provider, the goal remains the same: business efficiency.

Components of an EDI shipping system

A robust EDI shipping system consists of three integrated components that streamline data management:

• Standardized electronic formats. All documents follow a standard electronic format, which lets the receiving computer know exactly where to find the shipping address, the tracking number, package weight, or other important information. Without these standardized formats, the data processing would require manual mapping for each transaction.

• EDI software and translation. Because your enterprise resource planning (ERP) software might store data in a way that is unique to your business, data translation is required. EDI software acts as a bridge, reconfiguring your internal data for the standardized format of the recipient and then reversing the process when you receive a response. During this process, the software performs data validation—a crucial check that ensures the integrity of the information and follows industry rules before it enters your system.

• A secure transmission network. Data is moved via a secure internet protocol, such as secure file transfer protocol (SFTP) or applicability statement 2 (AS2). These protocols encrypt information for data security, ensuring that sensitive business documents like price lists and purchase orders are inaccessible to unauthorized parties.

By using these components, EDI streamlines the flow of information, leading to significant cost savings. You no longer have to pay staff to correct or re-enter data, and you avoid the expensive penalties that retailers levy on suppliers when they receive shipping notices or orders with errors.

How EDI shipping works

1. Data preparation and export
2. Data translation
3. Data transfer
4. Data validation and integration
5. Acknowledgment 

The EDI process transforms a customer transaction into a streamlined logistical operation without any manual processes. Understanding this flow is key to implementing EDI successfully:

1. Data preparation and export

When a customer or retailer places an order, your order management system or ERP system collects the necessary information. The EDI software extracts the raw data, interfaces with your ERP system to evaluate inventory, and calculates order pricing and estimated shipping costs, all without human intervention.

2. Data translation

If your internal database labels a customer’s shipping address as “Cust_Addr,” while the industry standard is “ShipToAddress,” data translation is required. EDI software automatically maps your internal fields to the standardized electronic format, which ensures that the data exchange is technically compatible with your trading partners.

3. Data transfer

The translated and standardized file is then sent through a data transfer process, which typically occurs over a secure internet protocol connection like AS2 or SFTP. In many cases, an EDI network provider acts as a secure “post office” to ensure the message reaches its destination, adding an extra layer of data security that verifies sender and recipient identities.

4. Data validation and integration

Although your own software validates outgoing files, a recipient’s EDI system performs its own validation once it receives the transmission. It checks the file for data entry errors, missing fields, or invalid SKUs. Once validated, the data is automatically integrated into the buyer’s back-end computer systems. For example, an advance ship notice will automatically update the inventory levels in a warehouse’s order management system before the physical goods even arrive.

5. Acknowledgment

Finally, the recipient’s system sends back an acknowledgment. This confirms that the document was received and understood, closing the integrated communication system loop. This step is important for tracking EDI transactions and ensuring that an order doesn’t get lost in the digital shuffle.

Key documents in EDI shipping

Common EDI documents used in ecommerce logistics serve as digital versions of traditional paperwork. These standardized EDI files are the building blocks of a transparent supply chain, providing the documentation required for EDI compliance. These documents include:

• EDI 850 (purchase orders). This is the foundation of the transaction. Sent by a buyer (like Target or Amazon) to a seller, it initiates the order by specifying SKUs, quantities, prices, and other information necessary for fulfillment. It replaces the need for a sales rep to manually enter the data.

• EDI 855 (purchase order acknowledgment). Sent by the seller to the buyer to confirm that the order can be fulfilled. It alerts the buyer if any items are out of stock or if there are pricing discrepancies before the shipping process begins.

• EDI 856 (advance ship notices). Often called an ASN or advance ship, this is perhaps the most critical document in shipping EDI. It tells the receiver exactly what is in a shipment and when it will arrive. In many cases, a retailer won’t accept a truck at its loading dock unless the advance ship notice was received and validated in its EDI system at least 24 hours in advance.

• EDI 810 (invoice). This document replicates the paper or PDF invoice. The seller sends it to the buyer to trigger data processing for payment. Because it is automated, it significantly reduces the time invoices spend as pending payments in a digital waiting room.

• EDI 940 (warehouse shipping order). Used by a seller to direct a 3PL or warehouse to ship an order. It connects the order to the pick and pack operation in the warehouse via an integrated communication system.

• EDI 997 (functional acknowledgment). A digital receipt is sent back to the sender confirming that an EDI document was received and is technically readable by its system.

• Customs documents. In international shipping and logistics, EDI is used to transmit customs documents directly to government agencies. This ensures EDI compliance and can prevent a shipment from sitting at a border for days while waiting for clearance.

Tips for ensuring secure EDI transactions

Because EDI transactions involve sensitive financial information, data security is a top priority for any shipping business. When you integrate EDI, you must ensure that you have established secure transactions by doing the following:

• Use robust encryption. All EDI transfer actions should use modern encryption standards. This ensures that even if a data file is intercepted, it remains unreadable to anyone without the decryption key.

• Use secure internet protocol. Avoid sending business documents over unencrypted email or basic file transfer protocol (FTP). Protocols like SFTP and AS2 are specifically designed to support secure, automated data transfers that keep your operations running smoothly. 

• Implement data validation rules. Configure your EDI software to reject any EDI files that don’t meet your strict security or formatting rules. This gatekeeping function prevents corrupted data from entering your computer systems.

• Vet your EDI network provider. If you use a third-party EDI provider, ensure they have high data security certifications. They are a critical link in your supply chain, and their security is your security.

• Audit trading partner access. Periodically review which business partners have access to your EDI network. If a relationship ends, immediately terminate their access to your data exchange protocols to prevent unauthorized EDI transactions.

How Shopify handles EDI complexity

Implementing EDI involves codes, protocols, and data translation requirements. Shopify has designed several tools to address the complexities of modern supply chain management, letting you focus on business growth. Here are a few ways Shopify can help:

• Shopify Shipping. For many businesses, Shopify Shipping is the entry point to automation. It connects your store directly with major carriers like UPS, USPS, and DHL. When you print a label, Shopify uses an integrated communication system to send your order data to the carrier instantly. Behind the scenes, the carrier receives the EDI equivalent of your shipment data.

• Carrier integrations. Shopify’s deep carrier integrations can automate the flow of tracking numbers and customer delivery status. This data transfer happens in real-time, bypassing the need for manual data entry.

• ShipStation integration. As your business grows, the ShipStation app acts as your EDI provider. It can take on purchase orders from retail giants and push advance ship notices to your warehouse, acting as a real-time translator between your Shopify store and the EDI shipping system of your trading partners.