DTC and ecommerce founders trying to break into retail, does this sound familiar?
You network with retailers, trying to get an opportunity to pitch to a buyer.
After months, you finally get the opportunity to pitch. You prep your pitch to show why your brand would be perfect for your target retail partner. You have all your metrics, your customer interviews, and your current traction.
The pitch goes great — the buyer loves your brand and wants to list you on their store ASAP. You’re almost there, right?
But then, just before you sign the agreement to go live, the retailer asks you, “Are you EDI compliant?”
With that one question, your heart sinks. It’s the first time you’re hearing of electronic data interchange (EDI) and EDI compliance.
EDI compliance sounds like a fancy term, but it isn’t at all. In this article, we’ll share what it is, how you can become EDI compliant, and some more things you need to know about EDI compliance.
What is EDI compliance?
EDI compliance is the state of completing the requirements to trade with another company using EDI.
Retailers typically use EDI to transact with their trading partners (brands). EDI compliance is the process of brands meeting a retailer’s EDI requirements so that they can trade with them according to their needs.
Convictional prefers to consider the experience that suppliers have when connecting with a buyer for the purposes of trade. EDI compliance is a component of that, but it also includes additional steps that happen before or after EDI and integration related work.
How you can become EDI compliant
EDI is a standard way of engaging in integrating systems together to perform trade. Every EDI relationship starts with an EDI Requirements Document. The requirements document lays out the conditions of becoming EDI compliant with a trading partner. Once the requirements of that document have been fulfilled, then you can perform a testing process to confirm compliance.
Testing in EDI typically involves performing a full series of transactions. A seller might share details about available inventory for purchase with a buyer, which the buyer can then send an order for. The seller can confirm the order and share details about a shipment with the buyer. The buyer can confirm receipt of the goods and then the seller can invoice for those goods. Once an entire cycle has been performed without issues, the buyer indicates the seller is in compliance. Once that state is reached, EDI transactions can start to happen in production.
To become EDI compliant, you’ll typically need to complete the following steps:
- Review the requirements and ensure you have the support of trained specialists
- Implement EDI solutions capable of compliance with your trading partner requirements
- Implement all the EDI documents required, which could include any of the following:
- 810 Invoice - used for a seller to communicate an invoice to a buyer
- 832 Product Catalog - used for a seller to share product catalog details
- 846 Inventory Advice - used to share current inventory availability
- 850 Purchase Order (PO) - a buyer shares what they are purchasing with a seller
- 852 Sales Report - a buyer sharing products sold through them
- 855 PO Confirmation - seller confirms the contents of a PO are available
- 856 Advance Ship Notice (ASN) - a seller shares a shipment against a specific PO
- Perform testing of each of the documents that are required with a successful outcome
Convictional supports EDI but works differently than other providers. We go through the compliance process with buyers in the Convictional network, which makes any seller connecting through any connection method EDI compliance on day one (and for free). This can end up saving the vast majority of the onboarding effort and costs associated with initial EDI implementation.
When you join Convictional to perform EDI, we’ll map our standard format into your own to reduce the amount of effort required on your side. We use schemas to do this, which are a flexible way to support any custom requirements you have for the way data is shared without it impacting the counterparty on the other end of the transaction. Once the schemas are set up, we do a quick test against some test data to make sure everything is working as expected.
Cost of EDI compliance
The cost of participating in an EDI program comes down to a combination of hard costs in dollars paid to an EDI provider and soft costs in time and opportunity costs associated with getting EDI compliant with the program's requirements.
The hard dollar costs involved in EDI compliance range but often involve one time setup fees ranging between $2000 to $4000 and ongoing fees that are $100-300/month (these are not our fees, they are fees charged by conventional EDI providers). These fees will cover the costs needed by the EDI provider to provide EDI compliance initially and maintain it ongoing but it does not include chargebacks.
The total costs of participating in an EDI program vary depending on who the counterparty is. Sometimes, retailers will require sellers to comply with their EDI requirements before a commercial relationship can even be discussed.
Risks of EDI non-compliance
Typically, without EDI compliance, a retailer will not be willing to trade with non compliant brands. As a new and emerging brand, this can hurt your brand awareness, your ability to sell your products to new customers and reduce your customer acquisition costs.
Non-compliance can mean not completing your EDI testing on time. Walmart gives new brands six weeks to complete their EDI testing, outside of which they may be deemed non-compliant and may be removed from Walmart’s vendor program.
Another risk of non-compliance is chargebacks. Chargebacks can end up costing much more than initial EDI compliance because they attempt to cover economic damages due to EDI non-compliance. This could include mislabelled products, inaccurate or late EDI documents, or other commercial issues that can happen routinely in the course of trading with another company.
For example, a retailer might require EDI 846 inventory updates from brands every hour during business operations or 856 advance shipping notices for their dropship orders. If a brand fails to meet these specific requirements, the retailer can claim chargebacks for each infraction.
Chargebacks vary materially but they can range in the hundreds of dollars for small issues up to the tens of thousands of dollars for major ones. Estimating them is uncertain, and sometimes if you have other companies carrying your freight and warehousing your goods, these infractions may be outside your control.
Overall, EDI compliance is typically a hard requirement in order to trade with large retailers.
Trade without the hassle of EDI compliance with Convictional
Convictional exists to reduce the burden of time, energy and cost for brands choosing to sell into major retail channels.
We do this by retrofitting a retailer’s existing EDI system, make ourselves compliant with that system, and then transfer that compliance to suppliers who join our network. This means that by simply installing an app or building an API integration, you can reach an EDI compliant state without fulfilling all the obligations yourself.
It also means if your trading partner changes their EDI requirements, you don’t need to re-certify or update your compliance — Convictional does it for you.