In this article, learn about:
What is EDI?
What is API?
How do they work in the retail industry?
The vast majority of CPG organizations utilize B2B integrations in their business with retailers and other trading partners. To be an effective trading partner in the modern retail industry requires processing large volumes of data in a timely manner.
There are many ways that companies go about processing and sharing this data with their partners. The EDI vs. API debate stems from there being different, broad approaches to information exchange.
First, let’s start by defining business-to-business integrations as the integration, automation, and optimization of business processes between two entities (in the case of the retail industry, oftentimes a supplier and a retailer).
In this article, we’ll cover two of the most commonly utilized B2B integrations, how they differ, what their strengths are, and which should be utilized in which business operation for the retail industry.
What is EDI (Electronic Data Interchange)?
Electronic Data Interchange is “the direct computer-to-computer exchange of standard formatted business transactions between one or more business partners, known as trading partners. It allows for the exchange of business documentation to happen in a structured, machine-processable format.”
Related Reading: What Is EDI (Electronic Data Interchange)?
EDI facilitates the exchange of electronic documents (such as purchase orders, advance shipment notices, and invoices) without an abundance of human intervention or human-readable (paper or electronic) documents.
How Does EDI Work?
The direct exchange of data between two trading partners requires some kind of intermediary, such as a value-added network (VAN), in order to send and receive necessary data. The transmission process can be broken down into 4 steps:
The sender uses internal computer files to assemble the data necessary for the transaction to begin.
This assembled data file is input to a software module that generates the transaction into the standard EDI format.
The resulting EDI data file is then transmitted, or sent, to the receiving trading partner.
The receiving trading partner inputs the data file into their own software module that translates the EDI format data back into a file format which can be entered into their computer apps.
Because EDI uses batch processing–meaning that whole groups of processing happen at once–as opposed to real-time processing, EDI is often thought of as slower than API. This is technically correct, but it has less to do with API necessarily being a superior form of B2B integration than it has to do with certain industries being beholden to communication processes that are more time-bound than others.
The scope of EDI is fairly small relative to the work that APIs do. In the supply chain world, EDI serves a very specific purpose of creating data representations of the physical materials being pushed down the supply chain.
For example, when a retailer wants more of a product, they will send a purchase order in the form of an EDI 850. Then the supplier will send a bill for those goods in the form of an invoice or EDI 810. When the shipment goes out, the supplier will also send an Advanced Ship Notice or EDI 856 detailing the contents of their shipment.
Why do Businesses Use EDI?
EDI is perhaps the most fundamentally integral type of B2B integration in the retail industry. EDI is an old form of codification, dating back to the 1970s. Because it operates based upon an industry-wide agreed communication standard, EDI has become a prerequisite for doing business with most of the world’s largest retailers.
This has gone a long way to solidifying its status as a key, foundational piece of B2B tech every supplier has to use when doing business with supply chain partners.
Related Reading: EDI for Retail Supply Chains
In the retail industry, EDI keeps all of the business partners involved in the supply chain speaking the same language.
What is API (Application Program Interface)?
An API, in a general sense, is a tool that enables data to move from program to program with less human intervention.
How do APIs work?
In layman’s terms, APIs are established by companies to make specific pieces of their data available to other companies or apps. With an API, apps may talk to or integrate with other apps or request information. APIs are another messaging tool that allows data to be transmitted from one system to another.
Kinds of APIs
When it comes to laying out API based on their structure (i.e. how the APIs communicate with other systems), there are five basic types:
REST: uses JSON or XML and follows HTTP protocols for structured data exchange between systems.
SOAP: a highly secure API that follows XML standards for communication.
GraphQL: a more flexible API that allows for data requests in a single query.
gRPC: a more high-performance API for low-latency communication.
WebSockets: ideal for real time, two-way communication between client and server.
Why do Businesses Use APIs for B2B Integrations?
Whereas EDI has a precise and essential function in retail (and other) industries, APIs are not essential. But they are very useful for improving analytic capabilities by moving a lot of data from point A to point B.
In most cases in the retail industry, APIs and EDI are not exclusive, and businesses have to learn how to create efficiencies by using APIs in tandem with industry-standard EDI document codes.
The Future of EDI and API
Depending on the business needs, most retail industry organizations will need to be conversant in both EDI and API.
A good API will not have to be tinkered with too much, but will do it’s thing without too much intervention. Most suppliers, however, have to be constantly engaged with and focused on EDI given that it is meant to be a representation of the physical materials being exchanged.
Suppliers doing business with retailers will need to be able to work with EDI and with the particular retailer’s EDI quirks. However, EDI may be processed and communicated using a variety of APIs. Most modern EDI solutions are API-driven.
There may be a gradual movement of data processing in the industry towards APIs, but the industry-wide document standards provided by EDI will not be going away anytime soon.
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