June 29th, 2021

In a previous blog post, we discussed the importance of Advanced Ship Notices (ASNs) in EDI transactions, especially in the retail industry. Today, we are talking about another crucial EDI document: Purchase Order (PO) or EDI 850.

Purchase orders are the soul of EDI transactions. A purchase order is necessary to get everything started. It’s the trigger that sets the entire EDI transaction in motion. And it plays a critical role throughout the entire fulfillment process, as the information included in an EDI 850 PO is used as a reference to provide clear instructions at each step of the process—from the order confirmation to the invoice, to the delivery.

What Is an EDI 850?

An EDI 850, also referred to as the ANSI X12 Purchase Order Transaction Set (850) or EDI order 850, is an electronic document that the buyer sends to the vendor or supplier to order goods or services. If you are a supplier, you might also refer to an EDI 850 as a sales order—it’s technically the same thing.

A typical EDI message 850 includes the following information:

  • Purchase order (PO) number
  • Purchase order date
  • Requested shipping and/or delivery date
  • Ship-to details
  • Items requested and product item identifiers, such as UPC, SKU, or GTIN
  • Item price and quantities ordered
  • Billing information
  • Payment terms
  • Carrier details
  • Other shipping instructions

The set of standard data that needs to be included in each purchase order is usually defined and agreed upon between the trading partners. When it comes to retail, it is usually big retailers like Walmart who set the requirements for their suppliers.

But, in general, an EDI 850 usually contains the same information that you would find in a paper-based document, except the EDI 850 layout is different. A raw EDI document is not as easy to read for the untrained eye.

Here is an X12 850 example:

EDI X12 850 Example - Purchase Order 

Pop quiz! Is an EDI 875 a purchase order? Scroll down to the bottom to find the answer.

How Do 850 EDI Orders Work?

We all know what happens after a buyer places an order. The vendor sends an invoice to the buyer and ships the items. But how does that translate into EDI lingo?

First, the buyer prepares the order in the ERP or another purchasing system. The order is then converted into an EDI format and transmitted to the trading partner directly via the Internet or, more commonly in the U.S., through a Value-Added Network (VAN).

When the EDI 850 reaches the intended recipient, it gets translated into the format that is compatible with the receiver’s ERP or other internal system.

After receiving the purchase order, the seller validates the specifications and sends a Functional Acknowledgement (EDI 856) to the buyer to confirm that the purchase order has been received, and/or a Purchase Order Acknowledgement (EDI 855) to accept or reject the order.

The buyer can also use a Purchase Order Change Request (EDI 860) to make some changes to the purchase order that has been previously submitted or to accept a change from the seller.

Once the items have been shipped, the seller sends an Advanced Ship Notice (EDI 856) containing all the important shipping details to the buyer. The seller then sends an Invoice (EDI 810) to request payment for the goods.

Again, specific EDI requirements that specify which documents must be exchanged and how are usually agreed upon between the trading partners beforehand and are most often dictated by the retailer (the buyer). For example, some retailers request that the purchase order acknowledgement (EDI 855) is sent within a specific time frame after the purchase order has been received.

Why Is It Important to Use EDI Purchase Orders?

When you are sending paper-based purchase orders via mail, email, or fax, chances are you are spending a lot of time processing the orders and are most likely incurring some costly data entry errors throughout the process.

Paper purchase orders can in fact take up to 10 days from the time the order is prepared to the time it is shipped—even longer when errors occur—while EDI orders are processed immediately, with no errors and at lower costs. On average, a paper-based document can cost anywhere between $25 - $35, compared to only $0.02 - $0.50 for a document exchanged via EDI.

In addition, without EDI, everything from sending the purchase order to finalizing the payment is entirely up to your internal team. All of that manual data entry and processing takes time that could be better spent elsewhere. Automating your purchase order process will allow your team to focus on more important tasks all while accelerating order fulfillment.

When using EDI, both the buyer and the supplier can benefit from faster processing, lower costs, and fewer errors—just to name a few—in addition to enhancing their business relationship.

Pop quiz answer: Yes, an EDI 875 is another type of purchase order. It has the same function as an EDI 850, but it is used specifically for grocery items.