September 23rd, 2021
From a vendor perspective, EDI compliance refers to the ability to send and receive EDI documents according to your customers’ requirements. Virtually every large retailer (think Walmart, Target, Home Depot, and so on) has imposed EDI compliance requirements on their trading partners, so when it comes to document exchange, it’s their way or the highway.
But these retail giants have thousands upon thousands of vendors, each of which are EDI compliant—they wouldn’t be able to do business together otherwise. So, in that case, it must not be too hard to meet their EDI compliance requirements, right? Right. If you know what you’re doing, that is.
EDI Compliance Requirements
If you’re a vendor who’s looking to expand your customer base and “enter the big leagues” so to say, you’ll want to familiarize yourself with the requirements of EDI before jumping head first into a trade agreement with the Walmarts of the world.
From start to finish, here’s everything that goes into being EDI compliant:
Trading Partner Compliance
This depends on who your (potential) customer is. Every retailer has their own way of doing things, so being EDI compliant for Walmart is not the same as being EDI compliant for Target. This is the most important thing to realize when it comes to being EDI compliant, as the number of new and/or existing customers will determine the amount of time and effort required to meet specific EDI compliance requirements. It’s also what will provide you with a good indication of whether you should manage everything in house or outsource EDI operations to a third-party solutions provider like TIE Kinetix.
EDI Document Types, Standards, Formats, & Communication Protocols
When you enter into a trade agreement with a customer that has imposed EDI compliance requirements on their vendors, the contract will contain all the technical information you need to meet their demands. However, it’s good to keep in mind that your customer can change their requirements at any time.
Here’s what your customer will typically lay out for you:
Your customer will give you a list of mandatory document types, also known as EDI transactions, that you will have to be capable of sending or receiving electronically. These document types may include invoices, purchase orders, purchase order acknowledgements, advance shipping notices, and more.
EDI standards define a common document structure so that the data contained within, for example, an invoice, can be understood by the receiving system and processed automatically. ANSI X12 is the most commonly used EDI standard in the U.S. (especially in retail), while the best-known international standard is EDIFACT. Each standard classifies EDI documents according to a specific transaction code so that they can be easily identified.
Here are some common ANSI X12 EDI transaction sets:
- EDI 810 - Invoice
- EDI 820 – EDI Payment
- EDI 850 – Purchase Order
- EDI 855 – Purchase Order Acknowledgment
- EDI 856 – Advance Shipping Notice (ASN)
In addition to the EDI standard that your customer chooses to use (if any—they may also choose to use a proprietary format), the requirements will still differ from one trading partner to the next. This is where things can get a bit tricky, because even when your customer uses a standardized EDI format, they will likely have additional requirements that result in the need to create point-to-point connections for every single document exchanged with every single trading partner.
Your customer will tell you exactly how they structure and label their data so that you can align with their requirements, but it’s still not an easy feat when you’re dealing with tens or even hundreds of trading partners. The work that goes into EDI mapping (the process of creating the point-to-point connections) can add up pretty fast, but it’s absolutely necessary if you want to achieve successful connections and be EDI compliant.
The final piece of the EDI compliance puzzle comes down to the communication protocol, or file transfer method. On top of everything else, adhering to a specific communication protocol requires a connection to the necessary software for the particular method of sending.
For example, Walmart requires all vendors to send EDI documents according to the ANSI X12 standard and via AS2 connection. The purpose of sending EDI documents via a communication channel like AS2 is to provide an extra layer of security around the exchanges. Some other common protocols include AS4, X.400, and SFTP.
What Happens When You Don’t Comply?
Meeting your customers’ EDI compliance requirements is definitely not easy. If you have no clue where to start or if your business is growing and EDI demands are becoming too much for your internal team to manage, mistakes are inevitable. This probably comes as no surprise, but there are consequences for these mistakes—even the minor ones.
These consequences are known as compliance chargebacks, and they’re one of the costs of not being EDI compliant. Your customer will likely issue a compliance chargeback when any number of demands aren’t met. This could be anything from not using the right EDI format to a manual-entry error on an invoice. Either way, large retailers don’t mess around. That’s why it’s important to set yourself up for success and choose a service provider that guarantees you will remain EDI compliant even when trading partner requirements change.
How Can TIE Kinetix Help?
TIE Kinetix is a global partner for your business. We help you to remain EDI compliant no matter your location and no matter who your customers are. With FLOW, you can easily benefit from any-to-any EDI translation—no experience necessary. We work with you to determine the best approach for meeting your customers’ EDI compliance requirements so you can stop worrying about compliance chargebacks and focus on what counts: growing your business.