What Is EDI and Why Does It Exist?
EDI stands for Electronic Data Interchange. It's a standardized format for exchanging business documents—purchase orders, invoices, shipping notices—between companies electronically.
Here's the thing: EDI has been around since the 1970s. It predates the internet, email, and everything we think of as modern technology. That's why it can feel archaic and confusing. But it persists because it works reliably at scale.
When a major retailer processes thousands of purchase orders daily from hundreds of suppliers, they need a standardized, automated way to handle those documents. That's EDI. It removes manual data entry, reduces errors, and enables the kind of just-in-time inventory management that modern retail depends on.
If you're selling to mid-size or large retailers, you'll need EDI. There's no way around it.
The EDI Transactions That Matter for CPG
EDI includes dozens of transaction types, but as a CPG supplier, you'll typically work with just a handful.
850 - Purchase Order
The 850 is how retailers send you purchase orders electronically. It includes:
- Ship-to location (which DC or store)
- Items ordered (by UPC or retailer SKU)
- Quantities per item
- Required delivery dates
- Pricing (usually for confirmation)
When you receive an 850, your system should parse it and create a sales order automatically—no manual data entry.
855 - Purchase Order Acknowledgment
The 855 confirms you received the PO and can fulfill it. It tells the retailer:
- You accept the order as-is, or
- You're making changes (different quantities, ship dates, etc.)
Not all retailers require 855s, but sending them is good practice.
856 - Advance Ship Notice (ASN)
The 856 is critical and the source of many chargebacks if done incorrectly. It tells the retailer:
- Exactly what's in the shipment (items, quantities)
- How it's packed (cases per pallet, units per case)
- Carton and pallet identifiers (SSCC-18 barcodes)
- Carrier and tracking information
- Expected delivery date
The ASN must be transmitted before the carrier picks up the shipment. This is a hard rule. Late ASNs trigger chargebacks because the retailer's receiving systems depend on them.
810 - Invoice
The 810 is your electronic invoice. It includes:
- PO reference number
- Items shipped and quantities
- Pricing and extended amounts
- Payment terms
- Bill-to information
Many retailers require that your 810 matches your 856 exactly. Discrepancies can delay payment or trigger deductions.
997 - Functional Acknowledgment
The 997 is a technical acknowledgment that your trading partner received your EDI transmission and it was syntactically valid. It doesn't mean they accepted the content—just that the file arrived and was readable.
How EDI Actually Works
Let's demystify the technical side.
The Connection Path
EDI documents flow through several layers:
- Your system (ERP, order management, WMS) generates data
- EDI software/service translates it into EDI format
- Communication network (VAN or AS2) transmits to trading partner
- Their system receives and processes the document
Most CPG brands use an EDI provider or VAN (Value Added Network) rather than building this infrastructure themselves.
Translation Explained
Your internal data doesn't look anything like EDI format. An EDI "translator" converts between them:
Your order data:
- Customer: Target
- Ship to: DC Minneapolis
- Item: Protein Bars 12-pack
- Quantity: 500 cases
EDI 856 format (simplified):
BSN*00*0001*20240115*1200~
HL*1**S~
TD5*O*2*UPSG~
REF*BM*TGT123456~
DTM*011*20240117~
HL*2*1*O~
PRF*4500012345~
HL*3*2*I~
LIN**UP*012345678901~
SN1**500*CA~
You don't need to understand this format—that's what EDI providers are for—but knowing it exists helps you understand why setup takes time.
VANs and AS2
Documents need a delivery mechanism:
VAN (Value Added Network): A third-party mailbox system. You send documents to your VAN, they deliver to your trading partner's VAN. Most common approach for smaller suppliers.
AS2 (Applicability Statement 2): Direct, encrypted, point-to-point connection. Faster and cheaper per transaction, but requires more technical setup. Often required by large retailers like Walmart.
Getting Set Up with EDI
If you're launching with a new retail partner that requires EDI, here's the process.
Step 1: Understand Requirements
Get your trading partner's EDI requirements:
- Which transactions are required (850, 856, 810, others)?
- What communication method (VAN, AS2)?
- What are their specific formatting requirements?
- Do they have a testing process before go-live?
Most retailers provide an "EDI Implementation Guide" or "Trading Partner Spec" that documents everything.
Step 2: Choose an EDI Provider
Unless you're doing massive volume, you'll use an EDI provider. Options include:
Full-service EDI providers (SPS Commerce, TrueCommerce, Cleo):
- Handle translation, transmission, and support
- Often offer web portals for smaller volume
- Typically $100-300/month plus per-transaction fees
Web-based EDI portals:
- Good for low volume (<50 transactions/month)
- User enters data manually or uploads files
- Lower setup cost, higher per-transaction effort
ERP-integrated EDI:
- If you use NetSuite, SAP, or similar, EDI modules may be available
- More seamless but requires ERP customization
For most growing CPG brands, a full-service provider like SPS Commerce is the best balance of capability and cost.
Step 3: Map Your Data
Work with your EDI provider to map your internal data to EDI formats:
- Your item numbers to retailer item numbers
- Your location codes to retailer ship-to codes
- Your pricing and units of measure
This mapping is one-time setup per trading partner but requires accuracy.
Step 4: Test Transactions
Every retailer requires testing before go-live:
- Send test 850s and verify you receive them correctly
- Send test 856s and 810s to validate formatting
- Process test transactions end-to-end
Testing typically takes 2-4 weeks. Don't try to rush it—errors in production trigger chargebacks.
Step 5: Go Live and Monitor
Once certified, you're live. But ongoing monitoring matters:
- Set up alerts for failed transmissions
- Review 997 acknowledgments for rejections
- Track ASN timing relative to pickup
Many chargebacks stem from EDI issues that went unnoticed until the deduction appeared.
Common EDI Mistakes to Avoid
Sending Late ASNs
The ASN must transmit before carrier pickup. If you're manually triggering ASNs, build a process that makes this impossible to forget. Better yet, automate it so ASNs generate when shipping confirms.
Mismatched Quantities
If your ASN says 500 cases but the invoice says 480, you'll have problems. Ensure your systems keep these in sync, especially when partial shipments occur.
Incorrect Identifiers
Using the wrong UPC, retailer SKU, or location code causes orders to not match. During setup, validate every identifier against your trading partner's master data.
Ignoring 997s
A rejected 997 means your document wasn't received properly. If you're not monitoring these, you won't know about failures until chargebacks arrive.
EDI Costs and ROI
Let's talk money.
Setup costs:
- EDI provider setup: $1,000-3,000
- Trading partner testing: $500-1,500 per retailer
- Internal time: 20-40 hours
Ongoing costs:
- Monthly service: $100-300
- Per-transaction fees: $0.10-0.50
Total first-year cost for a new EDI-enabled CPG brand: $3,000-8,000
The ROI: Without EDI, you can't sell to most major retailers. The alternative—manual order processing—doesn't scale and isn't accepted by large trading partners. EDI is a cost of doing business in retail, not an optional investment.
Key Takeaways
- EDI is the standard way retailers exchange documents with suppliers—if you're selling to major retail, you need it
- Focus on the key transactions: 850 (PO), 856 (ASN), 810 (Invoice)
- Use an EDI provider unless you have significant technical resources
- Allow 4-8 weeks for setup and testing per new trading partner
- Monitor transmissions actively—EDI errors cause chargebacks
Frequently Asked Questions
Do all retailers require EDI?
Most mid-size and large retailers require EDI. Small independent retailers or specialty stores often don't. If your buyer says EDI is optional, clarify what "optional" means—sometimes it means acceptable alternatives exist, sometimes it means they'll just penalize you for not using it.
How long does EDI setup take?
Expect 4-8 weeks from kickoff to go-live for a new trading partner. This includes: choosing a provider (if needed), mapping data, configuring connections, and completing testing. Don't assume you can rush this when a PO is due.
Can I do EDI myself without a provider?
Technically yes, but practically no for most CPG brands. Building and maintaining EDI infrastructure requires specialized knowledge and ongoing attention. Unless you're doing very high volume, the cost of a provider is worth it.
What happens if my EDI goes down?
If you can't transmit EDI documents, you can't ship—or you ship without ASNs and take chargebacks. Choose a provider with good reliability and support. Have escalation contacts documented for emergencies.
How do I add a new retailer to my EDI setup?
Adding a retailer requires: getting their EDI specs, configuring your provider for the new trading partner, mapping identifiers, testing transactions, and getting certified. Cost is typically $500-1,500 and takes 2-4 weeks per retailer.