EDI Service vs EDI Platform

There’s no need to sugarcoat it: Implementing and managing EDI solutions can be a serious pain. Many different big-box retailers use their own unique standards, and the learning curve is much steeper, simply because of all the different EDI lingo and consistently changing requirements. Before diving into the minutiae of different acronyms and transaction codes, it is critical to understand some of the more basic concepts, such as EDI platforms vs. EDI services.

In this article, we are going to dive into the differences between an EDI Platform and an EDI Service and why you might need both to operate using EDI. If you are just getting started with EDI, you might want to take a look at our EDI Overview.

Key Takeaways: 

1. The difference between an EDI Platform and an EDI Service is an important distinction
2. Many companies use an EDI VAN as their transfer method to send EDI documents from a vendor to a buyer or vice versa
3. Pros and Cons of using internal resources for EDI vs. using a contracted service to handle EDI operations 

Defining EDI Platform vs EDI Service

To start getting a feel for the differences between EDI platforms and EDI services, consider these definitions:

• EDI platform. EDI platforms are software that enables data exchanges between multiple computers. This provides a way to share documents efficiently between two or more companies. Business documents go through the EDI translator on the sending company’s side to become standardized; then they are shared, and then run back through a translator on the other end to get back into a useful format for the receiving business.
• EDI service. Unlike APIs, EDI solutions are not “set and forget.” They require consistent maintenance, which is where the service aspect comes in. This service may be provided by either an in-house expert or an outsourced company. Because it is impossible to plug and play an EDI platform out of the box, this service is always required in some capacity.

An electronic data interchange (EDI) can be established to reliably share extremely substantial business documents between companies while maintaining a standard format. Still, a simpler type of transaction might provide a helpful analogy for how EDI works. 

Understanding EDI Platform vs EDI Service: An Analogy 

As an example, compare EDI to the checkout process at a grocery store. In this scenario, the cash register is the platform. The grocer has to buy the register first, which may also include a service or setup fee, but then it is in place and ready to process transactions. Unfortunately, letting the cash register sit at the front of the store unattended is not going to do anyone any good. You still need a cashier. 

This is where the service comes into play. There may be a cashier who can operate the register manually (somewhat like having an in-house EDI expert to provide the necessary service). Alternatively, there may be a single person who uses a bit more specialized software to oversee multiple self-checkout lanes at the same time. At a grocery store, this person is still an internal employee, but this portion of the analogy is more like an outsourced EDI service because it requires less of the company’s oversight and fewer person-hours to complete the same amount of work.

There are people or companies with the know-how to make cash registers and install them, and there are cashiers who can operate the registers. The company that sells a cash register is not going to come to the store and operate it, too. Nor will the average cashier be able to design and build a new register. Armed with this high-level understanding, it is time to dive back into more technical details and learn about a component of the EDI platform known as VAN.

What is an EDI VAN?

A value-added network (VAN) is a hosted solution (i.e., an external server) that provides organizations with secure ways to send data. Most electronic data interchanges still run through EDI VANs. Companies connect to the EDI VAN, which handles the data exchange and facilitates the process of transferring EDI documents between business partners. The VAN is capable of verifying the recipient’s identity, validating the message, and providing a full audit trail of the information exchanged. The data interchange is able to automate several steps once the VAN and EDI platform is set up, which leads us to our next topic: Do you really need an EDI Service?

Do I Need an EDI Service?

There is a non-profit organization called the American National Standards Institute (ANSI) to determine EDI standards for North America. In theory, then, the process of using an EDI should be relatively turnkey. Unfortunately, few companies stick to ANSI standards, and most big-box retailers develop their own systems. Large enterprises might make dozens of changes to the EDI each day, while steep learning curves and old technologies make it hard to keep up.

Outsourced EDI vs In-House EDI Expert

The need for EDI service in some capacity is unavoidable because even the best EDI platform cannot manage itself. There are pros and cons to both types of service (internal and outsourced), but maintaining data interchanges in either way will cut into the bottom line. Understandably, then, the decision often comes down to cost:

• The price of outsourced EDI services varies widely, depending on volume and other factors, but it is not at all unusual for companies to pay $30,000 per year for a single EDI connection. As the company forms additional partnerships with other big-box retailers that require EDI connections, the cost of the service will get incrementally more expensive. There may be some bulk discounts that reduce the costs of additional data exchanges, but they are not especially significant in most cases.
• The average EDI specialist commands a salary of $77,000, though the salaries vary widely, depending on how demanding the specific role is. At this point, it becomes important to note that the cost to the business is more than an employee’s salary. With benefits, employment taxes, and other expenses factored in, each employee typically costs 1.25 to 1.4 times the base salary. Therefore, the average EDI specialist costs a company somewhere in the ballpark of $100,000 per year, plus any spend for the technology required to get started.

It can be difficult to choose the best type of EDI service for your business The decision often comes down to volume; For low volume, outsourcing EDI services might be less expensive than hiring a full-time employee. For businesses with a higher volume of EDI connections, it probably makes sense to hire a dedicated expert. As a business owner, it would be beneficial to sit down and list out the pros and cons for your unique business situation and where you expect to be in one year, three years, and five years. 

Choosing an EDI Platform and Service

If you have a business partner that requires EDI, some level of EDI service will always be necessary, whether internal or outsourced, but the best way to minimize the cost of either is to start with the appropriate platform (i.e., the software that enables the data exchange). 

Flexible EDI modules and custom tools make it easier for the employee or service provider to eliminate manual work and oversee complicated exchanges with ease. In other words, the appropriate platform might not eliminate the need for the service side of things, but it does make everything easier to manage. Examples of helpful tools include the following:

• Pre-mapped data sets and intuitive custom mapping tools
• Integration with sales channels, finance systems, and ERP systems, and more
• Machine learning and task automation
• Built-in data analytics

The right platform is one that does the job effectively while making service less costly and more efficient. The first step is to figure out the best platform for your EDI implementation, which will reduce the burden on the service provider, ultimately reducing costs for the business. 

These decisions may be difficult to make for those without significant EDI experience, but booking demos and exploring options upfront will help eliminate confusion down the road. Take the time to make the right choice the first time, and then spend less time and money solving problems later.