What is an EDI VAN and How Does it Work?

When starting to sell goods through a big-box retailer or do business with any large supply chain partner, complying with EDI standards for logistics is often the price of admission. 

An EDI VAN, or value-added network, is a third-party, private network service that acts as a go-between, consolidating and moving EDI data between businesses. A VAN is especially effective when there are multiple trading partners using a variety of file transfer protocols. It makes the large-scale transfer of data more efficient and secure. Despite the fact that there are arguably more advanced methods of communication available, EDI VAN is still used by many of the big names in logistics. 

VANs are often compared to the postal service, gathering mail (data) from all over the place, and delivering it to appropriate addresses (trading partners). But VANs actually go a few steps further than just a delivery service, such as encrypting and authenticating data for security purposes. Also, once a connection is established, file transfers happen automatically. Using the post office example, imagine every time you write a letter to Grandma, the postman knows where to send it without the address on the envelope every time.

Key takeaways:

1. VANs are still widely used despite newer, cloud-based technology.
2. In addition to transferring data between trading partners, VANs can provide a number of additional features.
3. Pros and cons of using VANs for EDI communication.
4. Whether or not to use a VAN is typically decided by the retail trading partner in the supply chain (e.g Walmart, Home Depot, etc.) 

How EDI VANs Came to Be—And Why They’re Still Used

Like EDI protocols, VANs were introduced in the 1960s, when Internet connectivity was something new. It’s hard to imagine, but online commerce as we know it did not exist. Access to online data was not available in the palm of our hands as it is today. VAN technology was a reliable, accessible way for businesses to share complex EDI data. 

While EDI VANs were—and still are—capable of moving massive amounts of information for purchase orders, invoices, shipping notices, and the like, they do typically rely on servers and older technology. It is not unreasonable to assume that modern-day connectivity and cloud computing would make VAN networks a thing of the past. Indeed, in many cases, EDI has been replaced with a cloud-based API (application programming interface). But many long-established companies still lean on EDI VANs to coordinate their supply chain. And if a business wants to partner with one of them, they will have to follow suit.

Can You Use EDI Without a VAN?

A business could, in theory, set up direct EDI point-to-point connections with other businesses using EDI. They would soon discover, however, that it is not practical or cost-effective unless they have only one trading partner to communicate with.

The more trading partners, the more direct connections the business will need. Add to that the fact that there are a number of different file transfer options such as AS2, FTP, SFTP, and FTPS that the companies may use, and a VAN becomes even more necessary. A VAN organizes the tangle of connections and allows all of the different file transfer “languages” to understand one another. 

What Can a VAN Provide?

The most basic EDI VAN can be little more than a secure mailbox. Users may have to batch their data and initiate the transfer, as well as manually retrieve incoming information. Most VANs, however, add on other useful services.

Some typical EDI VAN services are:

• Alerts and notifications 
• Data encryption for security
• Automatic routing to appropriate recipients
• Inspection to verify error-free data
• Authentication of sender’s identity
• Return receipt verifications
• Support for various data formats and protocols
• An audit trail to track and record all transactions
• Data backup and recovery
• Compliance documentation
• Management information and reporting

Depending on an EDI VAN network’s fee structure, some features might be included while others might be offered at an extra fee.   

The Case Against EDI VANs

As we already mentioned, VANs are considered by many to be outdated. Newer technologies exist that can accomplish even more. APIs, in particular, move the operations from servers to the cloud. This alone can solve some of the issues that companies can have with a traditional VAN network.

The following are some areas where an EDI VAN can fall short:

• Cost. VANs tend to be expensive. In addition to an initial enrollment fee, there are monthly costs and even throughput pricing based on the number of characters transmitted.
• Security. EDI VANs are considered to be very secure. Unfortunately, however, a VAN network’s servers can provide a vulnerable access point to a company’s data that they have no control over.
• Visibility. Keeping up with trading partners requires real-time data that VANs can’t provide as well as cloud-based systems can. Exchanging batched data can create a lag, making it difficult to respond quickly to changes and errors.
• Onboarding. Scaling to add new trading partners along the supply chain can be complicated and slow.
• Outages. Relying on the VAN network’s servers and hardware can lead to a loss of revenue if they go offline for any length of time. Orders won’t be fulfilled, which could cause fines and chargebacks, and SLA (service level agreement) fines.
• Flexibility. All of the above can mean a lack of control—over how data is seen, secured, and managed.

Stay With an EDI VAN or Switch to an Alternative?

It might be possible to avoid some of the concerns listed above by using an alternative to EDI VAN. A company might opt for an API and move to the cloud. Or, they might get the best of both worlds by using a hybrid network that combines EDI and API on one platform. 

Ultimately, though, business leaders might find that the decision is out of their hands. Simply put, if the company’s most important trading partners use an EDI VAN, they must go along for the ride.