The Essential Guide to EDI for B2B Companies

If you're a supplier, distributor, or manufacturer selling to retailers, you've probably heard "you need EDI" at some point. Maybe a buyer at Walmart or Target told you it's mandatory. Maybe your largest customer just sent you a document full of cryptic codes and segment delimiters. Either way, you're here because EDI matters to your business — and you want to understand it without drowning in jargon.

This guide covers everything you need to know: what EDI is, why it exists, how it works, and which transaction types you'll actually encounter in commerce. Think of it as your starting point — we'll link to deeper dives on each topic along the way.

What is EDI?

EDI (Electronic Data Interchange) is a standardized way for businesses to exchange documents electronically — purchase orders, invoices, shipping notices, inventory updates, and more. Instead of emailing a PDF or faxing a paper form, EDI transmits structured, machine-readable data between two systems automatically.

The key word is standardized. Unlike an email that a human reads, an EDI document follows a rigid format that both the sender's and receiver's systems agree on. This means a purchase order from Walmart looks structurally the same as one from Target or Kroger — the data is in the same places, labeled the same way — so your system can process it without human intervention.

Why does EDI exist?

EDI has been around since the 1970s, originally developed to speed up supply chain operations in transportation and retail. The problem it solved then is the same one it solves now: manual data entry is slow, expensive, and error-prone.

When a retailer sends hundreds of purchase orders a day to hundreds of suppliers, and each supplier keys those orders into their own system by hand, errors pile up. Wrong quantities, wrong addresses, mistyped SKUs. EDI eliminates that by letting computers talk directly to computers in a language both sides understand.

The X12 Standard

In North America, most EDI follows the ANSI X12 standard, maintained by the Accredited Standards Committee (ASC). X12 defines hundreds of "transaction sets" — document types, each identified by a three-digit number. The ones you'll encounter in commerce are a small subset of this, and we'll cover those below.

Outside North America, EDIFACT (maintained by the UN) is the dominant standard, particularly in Europe. The concepts are the same — only the formatting rules differ.

How EDI Works

At a high level, EDI follows this flow:

1. A business event happens — a retailer places an order, a supplier ships goods, an invoice is due
2. The sender's system generates an EDI document — structured according to the agreed-upon format
3. The document is transmitted — via AS2, SFTP, or a Value-Added Network (VAN)
4. The receiver's system parses the document — extracting the data into their ERP, OMS, or other system
5. An acknowledgment is sent back — confirming the document was received and is valid

No humans need to touch the data at any step. That's the point.

Transmission Methods

AS2 (Applicability Statement 2) is the most common method for large retailers. It's a direct, encrypted, point-to-point connection between two systems. Walmart, Target, and Amazon all support AS2. No middleman, no per-transaction fees.

VAN (Value-Added Network) is a third-party network that acts as a postal service for EDI documents. You send your documents to the VAN, and the VAN routes them to the right trading partner. VANs charge monthly fees plus per-transaction costs, but they simplify managing connections with many partners.

SFTP (Secure File Transfer Protocol) is a simpler approach where EDI files are uploaded/downloaded from a secure server. Less common for major retailers but still used by some mid-market trading partners.

The EDI Transaction Types That Matter in Commerce

You don't need to memorize all 300+ X12 transaction sets. In B2B commerce, the following are the ones that drive your day-to-day operations.

The Order-to-Cash Cycle

These five transaction types form the backbone of every retail supply chain relationship:

| Transaction | Name | Direction | What It Does | |-------------|------|-----------|--------------| | 850 | Purchase Order | Retailer → Supplier | The order itself — what the retailer wants to buy, quantities, prices, ship-to addresses | | 855 | PO Acknowledgment | Supplier → Retailer | Confirms the supplier received the PO and can (or can't) fulfill it | | 856 | Advance Ship Notice (ASN) | Supplier → Retailer | Tells the retailer exactly what was shipped, how it's packed, and when to expect it | | 810 | Invoice | Supplier → Retailer | The bill — must match the PO and ASN for payment to process | | 820 | Payment Order/Remittance | Retailer → Supplier | Payment details and remittance advice |

If you're just getting started with EDI, these are the transactions you'll implement first. Most retailers require at least the 850, 856, and 810 before you can go live.

Deep dives: What is EDI 850? | What is EDI 856? | What is EDI 810?

Acknowledgments

| Transaction | Name | Direction | What It Does | |-------------|------|-----------|--------------| | 997 | Functional Acknowledgment | Either direction | Confirms that an EDI document was received and is syntactically valid — like a read receipt |

The 997 is simple but critical. Most retailers track how quickly you send 997 acknowledgments and penalize slow responses. Walmart, for example, expects a 997 within 24 hours of receiving any EDI document.

Inventory and Catalog

| Transaction | Name | Direction | What It Does | |-------------|------|-----------|--------------| | 846 | Inventory Inquiry/Advice | Either direction | Shares current inventory levels so partners can plan ordering and avoid stockouts | | 832 | Price/Sales Catalog | Supplier → Retailer | Product catalog with pricing, pack sizes, and item details |

These become important as your trading relationships mature. Retailers increasingly want real-time or daily inventory feeds (846) so their replenishment systems can order proactively rather than reactively.

Deep dive: What is EDI 846?

Warehouse and Logistics

| Transaction | Name | Direction | What It Does | |-------------|------|-----------|--------------| | 940 | Warehouse Shipping Order | Company → Warehouse | Tells a 3PL or warehouse to ship specific inventory | | 945 | Warehouse Shipping Advice | Warehouse → Company | Confirms what the warehouse actually shipped | | 204 | Motor Carrier Load Tender | Shipper → Carrier | Books a freight shipment | | 214 | Shipment Status | Carrier → Shipper | Tracking updates from the carrier |

You'll encounter these if you work with third-party logistics providers (3PLs) or manage your own freight operations.

Returns and Adjustments

| Transaction | Name | Direction | What It Does | |-------------|------|-----------|--------------| | 860 | PO Change Request | Retailer → Supplier | Modifies an existing purchase order (quantity changes, date changes, cancellations) | | 812 | Credit/Debit Adjustment | Either direction | Post-invoice corrections — credits, debits, allowances |

When Will You Encounter EDI?

Most companies encounter EDI for the first time in one of these scenarios:

1. A major retailer requires it. Walmart, Target, Kroger, Home Depot, Costco, and Amazon Vendor Central all mandate EDI. If you want shelf space, you need EDI capability. This is the most common trigger.

2. Your order volume outgrows manual processing. Even without a retailer mandate, once you're processing 10+ purchase orders a day across multiple customers, manual entry becomes a bottleneck. EDI (or EDI-like automation) eliminates that bottleneck.

3. A distributor or wholesale partner requests it. Large distributors often require EDI from their suppliers, even if they're not retail giants. It's how they keep their warehouses running efficiently.

4. You're expanding into new sales channels. Moving from D2C into wholesale, or from regional to national distribution, often means adding EDI capability.

Common Challenges

Complexity

EDI documents look intimidating. An 850 purchase order is a wall of segment codes, qualifiers, and delimiters. It takes specialized knowledge to read, let alone implement and maintain. This is the biggest barrier for small and mid-size companies.

Cost

Traditional EDI solutions — a VAN subscription, mapping software, and integration consulting — can cost $10,000 to $50,000 to set up, plus ongoing monthly fees. For a company doing $2M in revenue, that's a significant investment.

Every Partner is Different

While EDI is "standardized," every retailer has their own implementation guide with specific requirements. Walmart wants data in certain fields that Target ignores, and vice versa. You need to test and certify with each trading partner individually.

Maintenance

EDI isn't set-and-forget. Retailers update their requirements. Products change. New partners come online. Someone needs to monitor for transmission failures, parsing errors, and compliance issues.

Modern Approaches to EDI

The good news: EDI doesn't have to mean six-figure implementations and dedicated IT staff anymore. Modern platforms handle the complexity for you.

OrderSync automates the entire EDI workflow — receiving purchase orders, matching products and customers, validating pricing, and syncing to your ERP or order management system. It handles EDI alongside PDFs, CSVs, and email orders, so you have one system regardless of how your customers send orders.

Key benefits of a modern approach:

• No per-transaction fees — predictable monthly pricing
• Automatic parsing — EDI documents converted to readable formats instantly
• Smart matching — product codes and customer data mapped automatically
• Multi-format support — EDI, PDF, CSV, and email in one platform
• Real-time validation — errors caught before they become chargebacks

Getting Started

If a retailer just told you "you need EDI":

1. Request their EDI implementation guide — it lists exactly which transaction sets they require and how to connect
2. Choose a platform or provider to handle the technical side
3. Complete testing (usually 2-6 weeks depending on the retailer)
4. Go live and monitor your first production orders closely

If you're exploring EDI to improve operations:

1. Audit your current order flow — how many orders per week, what formats, how much manual entry
2. Calculate the cost of manual processing (time, errors, chargebacks)
3. Evaluate modern platforms that handle multiple formats, not just EDI

Either way, start with the free EDI Inspector tool to see what's inside an EDI document. It's the fastest way to demystify the format.

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Continue learning:

• What is EDI 850? Purchase Orders
• What is EDI 856? Advance Ship Notices
• What is EDI 810? Electronic Invoices
• What is EDI 846? Inventory Inquiry/Advice
• EDI vs API: Which is Right for Your Business?
• Walmart EDI Requirements
• Target EDI Requirements
• Free EDI Inspector Tool