Electronic Data Interchange (EDI) has been a trusted method for businesses to exchange documents digitally for decades. But as automation and cloud-based solutions evolve, companies are rethinking their approach. What is EDI in business today, and is it still the best option? Or is there a smarter way to manage transactions and ensure seamless data exchange?
In this article, we’ll define EDI, explain how it works and explore why many companies are now moving beyond traditional EDI systems to embrace more flexible, scalable and automated solutions.
What is EDI and how does the EDI process work?
EDI (Electronic Data Interchange) is a technology that enables businesses to exchange documents such as invoices, purchase orders and shipping notices electronically in a standardized format. For this exchange to happen, both parties in a transaction need EDI software in place and to agree on the EDI standards and communication protocols to use. With infrastructure in place, businesses enable system-to-system communication, which has huge benefits compared to slower, paper-based processes.
A brief history of EDI
EDI’s roots go back to the 1960s, when it was introduced in the U.S. transportation sector to enable more efficient communication between railroads, airlines and trucking companies. Edward A. Guilbert, often called the "father of EDI," played a key role in standardizing this process, drawing from his logistics experience during the Berlin Airlift in the 1940s.
In the early days, EDI relied on telephone and telegraph lines to transmit data. Starting in the late 1970s, this method was replaced by modems, which were more efficient but still required constant monitoring to ensure files were sent and received correctly.
By the early 1990s, EDI had become a cornerstone of advanced supply chain management, helping corporations automate transactions. EDI systems were often proprietary, meaning each company had its own unique setup, which required specialized technical knowledge to operate and manage. While it increased in popularity amongst larger corporations with dedicated on-premises infrastructure, adoption amongst smaller businesses remained limited.
“Traditional EDI systems present challenges that are prompting companies to explore more advanced solutions.”
How does an EDI system work?
A typical EDI transaction follows these steps:
- Data collection
A company generates a business document (e.g., an invoice) in its internal system. This data can come from various sources, including ERP systems, spreadsheets, or manual entry.
- Translation into an EDI format
The document is converted into a standardized EDI format (such as EDIFACTor ANSI X12) using EDI translation software.
- Transmission
The structured document is transmitted to the recipient via:
a. A direct EDI connection
b. A Value-Added Network (VAN)
c. A cloud-based EDI business service provider - Processing and integration
The recipient's system receives and processes the document automatically, ensuring seamless data exchange.
While EDI has played a fundamental role in digitalizing business transactions. Many industries — including retail, manufacturing, logistics and healthcare — have relied on EDI technology for over 30 years. But while EDI in business remains relevant, traditional EDI systems present challenges that are prompting companies to explore more advanced solutions.
What are the challenges of traditional EDI?
Despite its benefits, traditional electronic document interchange comes with notable challenges that make it complex and costly.
High setup and maintenance costs
Owning an in-house EDI system requires significant financial resources, technical expertise and ongoing IT support dedicated to EDI. The growing volumes of data and data flaws also result in additional costs. And each new trading partner often requires a separate setup, making scalability difficult.
Lack of flexibility
Traditional EDI relies on rigid standards that don't integrate well with modern, cloud-based platforms. As businesses shift to API-driven solutions, older EDI models show limitations. They struggle with new document types, and face challenges integrating with contemporary ERP systems. Compliance updates are manual and time-consuming, while scalability issues hinder handling increased volumes. Additionally, older EDI systems lack real-time visibility and are often tied to on-premise infrastructure, limiting remote access and updates.
Ongoing compliance management
Keeping up with evolving e-invoicing regulations and tax compliance requirements requires constant updates and adjustments.
Limited partner readiness
EDI implementation requires coordination between trading partners. However, not all partners are ready or equipped to support EDI, leading to delays, additional costs and incomplete automation.
Restricted connectivity
Many EDI systems operate as isolated, point-to-point connections, making it challenging to efficiently connect with multiple business partners. Unlike open networks, where a single connection enables communication with all participants, traditional EDI often requires custom integrations for each partner.
As global trade becomes more digital and regulatory demands increase, businesses are looking for alternatives that offer greater automation, compliance and scalability.
“Truly open networks strive for seamless interoperability with EDI providers.”
How has EDI evolved to address these challenges?
To overcome these limitations, EDI has evolved in several ways:
Network-based EDI solutions
Instead of relying on point-to-point connections, modern EDI providers have introduced network-based models that allow businesses to connect with multiple partners through a single integration.
Cloud-based EDI
Many companies now use SaaS (Software-as-a-Service) or PaaS (Platform-as-a-Service) EDI solutions, reducing the need for costly on-premise infrastructure and offering a lower barrier to entry.
API integration
Some EDI providers are incorporating APIs alongside traditional EDI formats, enabling real-time data exchange and greater flexibility.
However, despite these advancements, EDI still operates within the constraints of legacy infrastructure. Many businesses are now considering open network solutions that offer even greater scalability and interoperability.
EDI vs. open network solutions
While modern EDI has improved, it still comes with limitations compared to fully open, cloud-based networks.
Legacy methodology still present. EDI features 1-to-1 mapping instead of the 1-to-many solution of an open network.
Limited interoperability. Truly open networks strive for seamless interoperability with EDI providers, while EDI providers typically try to keep a closed network or put conditions on interoperability. Open networks allow businesses to connect with multiple partners without custom integrations, while EDI still presents hurdles.
Standardization: Open networks emphasize standardized formats and protocols, which simplify data exchange and reduce the need for custom integrations.
While modern EDI offers a greater degree of automation and scalability, it still requires custom setups and ongoing maintenance. Open network solutions, like Pagero’s cloud-based platform, provide greater flexibility, compliance automation and seamless global connectivity.
How has Pagero evolved EDI?
Pagero recognized the limitations of traditional electronic data interchange (EDI) early on and developed a next-generation solution: a cloud-based, 1-to-many electronic data exchange network that eliminates many of the challenges associated with EDI technology.
One connection to all partners
Instead of managing multiple EDI connections, companies can connect once to Pagero’s open cloud-based network and reach all their trading partners effortlessly.
Automated compliance
Pagero’s solution automatically adapts to local and international regulations, reducing the burden of compliance updates.
Seamless ERP integration
Pagero integrates with all major ERP systems, allowing businesses to automate invoice and order handling without the need for costly custom integrations.
Real-time data visibility
Unlike traditional EDI processing, which often lacks transparency, Pagero provides real-time tracking, validation and analytics for business transactions.
It's time to embrace a modern alternative to EDI
EDI played a crucial role in the digitalization of business transactions, but in today’s highly regulated, fast-moving global market, inherent scalability and openness is now a must.
Pagero’s cloud-based network offers a smarter, more efficient way to manage business transactions — connecting companies seamlessly, automating regulatory compliance and eliminating the inefficiencies of legacy systems.
This text was originally published 13 November 2020 and last updated 5 May 2025.
