Chapter 1 What Is EDI? Electronic Data Interchange Explained for Ecommerce

What is EDI in simple terms?

EDI is an agreement between two companies about the exact shape of the documents they send each other, so that software on both ends can read them. The agreement covers which documents, which version of the standard, which fields are mandatory, and how the file travels.

An email attachment is electronic. It is not EDI, because nothing guarantees the receiving system can parse it. The structure is what makes EDI useful.

How does EDI work?

An EDI transaction takes data out of one system, reformats it into the structure your trading partner requires, transmits it, and processes whatever comes back.

A supplier-fulfilled ecommerce order moves like this:

1. A customer buys on your storefront or marketplace.
2. Your order workflow decides which supplier should fulfill it.
3. That decision becomes a purchase order, sent to the supplier as an EDI 850.
4. The supplier acknowledges the order line by line with an EDI 855.
5. When the goods ship, the supplier sends an EDI 856 carrying the carrier and tracking number.
6. The supplier bills you with an EDI 810.
7. Tracking reaches your customer, and the invoice reaches your finance system.

Each step is a separate document with its own rules. The chain holds together because every follow-up document carries the purchase order number and item identifiers from the original 850. Get one of those wrong and the shipment cannot be matched back to an order.

What is the difference between an EDI standard and a communication protocol?

A standard defines how the data is structured. A protocol defines how the file gets from one company to another. They are separate choices and people confuse them constantly.

ASC X12 is the dominant EDI standard in North America. EDIFACT is the international equivalent, developed under the United Nations. SFTP and AS2 are protocols, not standards.

This distinction has practical consequences. Flxpoint's EDI connections run over SFTP, and we do not support AS2. A supplier who tells you they "have EDI" has told you almost nothing until you know their standard, their version, and their protocol.

Which EDI documents do ecommerce businesses use?

Six transaction sets cover most of what an ecommerce operation needs:

Not every trading partner uses all six. Chapter 3 covers what each one contains and how each one breaks.

What does an EDI ordering system replace?

EDI replaces the repetitive handling of predictable documents. Downloading a supplier stock file and pasting quantities into a channel. Reading an order email and keying it into a supplier portal. Matching a PDF invoice against an order by eye.

It does not replace judgement. Someone still decides which supplier gets the order, what happens when a line is rejected, and whether an invoice discrepancy is worth chasing.

What does EDI not do?

EDI does not make your data correct. A structured file carries a wrong quantity just as reliably as a right one.

It is also not automatically fast. People describe EDI as real time because the alternative was posting paper, but an EDI workflow runs at whatever frequency both sides configure. Our own guidance is hourly for inventory and orders, with daily as the minimum. That is frequent. It is not instantaneous, and any supplier promising real-time EDI is describing their polling interval.

What should you do next?

If you are deciding whether EDI belongs in your operation, read how EDI helps ecommerce businesses. If you already know you need it and want the document-level detail, go to EDI transaction codes.

To see how supplier transactions connect to the rest of your workflow, look at order management.

Frequently asked questions

What does EDI stand for?
EDI stands for Electronic Data Interchange. It describes the structured exchange of business documents between trading partners' systems, in a format both sides have agreed on in advance.

Is EDI the same as an API?
No. EDI organizes exchange around standardized business documents and partner-specific rules. An API exposes a system's data or functions through defined requests. Most ecommerce operations end up running both.

Is EDI outdated?
No. The transport has modernized (internet protocols replaced dedicated networks), but the underlying need has not changed. Large retailers, distributors, and manufacturers still require standardized documents, and that requirement is contractual rather than technical.

Do I need EDI to sell online?
Only if a trading partner requires it. Plenty of ecommerce businesses run entirely on APIs and file feeds. EDI becomes necessary when a supplier or retail partner makes it a condition of doing business, or when manual document handling starts costing more than automating it.

What is an EDI 850?
An EDI 850 is the X12 purchase order transaction. It carries what you are ordering, how many, where it ships, and how fast, and every later document in that order's chain references its purchase order number.