EDI vs. Blockchain—What Does a Dynamic Supply Chain Need for Superior Communication?

Supply chains are fragile.

Global events such as the COVID-19 pandemic and the regional conflicts in various parts of the world have caused massive supply chain disruptions, impacting most industries worldwide.

However, as companies continue to navigate unprecedented challenges more than ever, it becomes imperative for businesses to strengthen their supply chain communication with robust processes that do not break down even when their ecosystem does.

And as you have probably heard, EDI or electronic data interchange is an excellent way to do that.

But is EDI the only technology on the block? What about blockchain, for example, that promises to revolutionize international trade?

In my many years of experience handling questions from customers around supply chain management in Dynamics 365, I have seen how important it has become to move away from traditional forms of business communication (such as paper documents, manual data entry, faxes, or daily emails) and adopt a technologically advanced solution that gives your business a competitive edge.

Therefore, in this blog, I will cover the two contenders that can dynamically revolutionize your supply chain—EDI and Blockchain. Let’s take a look at the pros and cons of both methods and try to understand which might work better for your specific needs.

What is EDI?

EDI or Electronic Data Interchange is an electronic method of exchanging business documents that originated in the 1960s. EDI enables the interchange of essential business data between companies in a standard, computer-readable, and mutually accepted format. It allows trading partners to transmit purchase orders, shipping notices, invoices, receipts, and acknowledgments among each other faster and in a more flexible way, making document interchange easier.

How does EDI work?

EDI works by converting your business documents (also known as EDI messages) into an electronic file. This file is then translated into an EDI format (mutually agreed upon by partners) and sent to the receiving party. To accomplish an end-to-end EDI process, you would need an EDI solution integrated within your ERP. You could choose to directly connect with your partners via an EDI solution or enlist the help of an EDI broker or Value-added network (VAN) to exchange EDI messages. The transmission of the message is typically done via SFTP or AS2.

What kind of documents can be shared via EDI?

Any business document that you share with your trading partners can be shared via EDI. (To the uninitiated, trading partners refer to the business entities that conduct business electronically as per the terms outlined in their Trading Partner Agreement).

Although different industries use EDI for sharing different EDI messages, the most commonly exchanged documents are purchase orders and invoices. Sales orders, order acknowledgments, purchase order change requests, advance shipping notices, shipping orders, sales orders, and order confirmations are some of the other document types exchanged via EDI.

What are the benefits of EDI?

EDI is considered to be the best means of conducting high-volume B2B transactions in today’s global, fast-paced business environment. By automating the interchange of essential documents between businesses, EDI makes your supply chain processes faster, more efficient, more accurate, and more convenient. Some of the broader benefits EDI brings to a supply chain include:

1. Seamless document exchange

Unlike traditional forms of business transactions like fax, post, or email, EDI helps you standardize the document exchange process and enables seamless supply chain communication by means of automation. Data accuracy improves, you need fewer resources to manage data manually, and purchase order or invoice discrepancies become virtually non-existent.

2. Improved data security and compliance

As compliant as you may be with existing data regulatory policies, transferring data manually increases the likelihood of a data breach—especially for data that moves through the supply chain. EDI helps you resolve this issue by allowing you to transfer files and documents securely and quickly, especially if your EDI is integrated within your preferred ERP.

3. Reduced operational costs

Resorting to an electronic form of document exchange like EDI can help you cut down on the expenses of printing, storing, copying, and processing paper-based business documents. Moreover, an EDI solution helps you improve the accuracy of the data exchanged through data validation and exception handling, thereby ensuring that your team does not waste time and money on inaccurate, duplicate, or missing purchase orders or invoices.

4. Improved processing speed

According to this finding on the effect of EDI on accounting transactions, EDI enables faster order processing and allows dealers to submit error-free orders, since EDI document exchange only takes between a few minutes to an hour to be processed end-to-end. This is in comparison to conventional methods of B2B transactions which may take between 3-5 days—from the buyer creating and posting/emailing a purchase order to the supplier receiving and posting/emailing an acknowledgment and then sending out an invoice.

5. Enhanced scalability

By enabling a quicker and more secure file transfer process, EDI helps trading partners transmit a higher volume of data on a daily basis. This not only simplifies the supply chain process and leads to improved efficiency but also helps you scale your business, modernize your infrastructure, and connect and optimize your business processes.

Related: Check out what are the 10 massive benefits your business can reap from an EDI integration

Now that we have defined EDI, let’s take a look at what Blockchain means.

What is Blockchain?

Blockchain is a distributed digital ledger based on a peer-to-peer (P2P) architecture that stores data of any kind. It denotes a system of many individual nodes that communicate with each other. Blockchain records and verifies transactions between different parties. Since the blocks are immutable, it becomes impossible to manipulate or delete a record after it has been added to the blockchain.

Blockchain was officially introduced in 2009 with the release of Bitcoin cryptocurrency. It provides a decentralized and transparent way to record transactions across multiple parties.

How does Blockchain work?

In the Blockchain database, each business transaction is stored in a block that is linked to the previous block, forming a chain of data blocks (hence, the term ‘Blockchain’!). These blocks are added in a sequential order and distributed across a P2P network. The transactions recorded in the Blockchain database are encrypted and tamper-proof—meaning that no one can alter or delete them without consensus from their respective P2P network.

You could choose to go with a public blockchain that operates on a public, open network, or operate a closed database with selected users via a private blockchain.

What kind of documents can be shared via Blockchain?

Blockchain was primarily developed for financial transactions and is prominently used to share and validate digital assets such as cryptocurrency transactions, smart contracts, and trade settlements. However, any kind of transactional record can be shared via Blockchain, such as business contracts, purchase orders, invoices, and legal documents.

Once users upload files to the distributed network of nodes, it is verified, encrypted, and stored on the blockchain network. Access to these files is granted based on predefined access permissions.

What are the benefits of Blockchain?

Blockchain can provide visibility and security for data exchange, as well as enable smart contracts, which are self-executing agreements that can automate business processes. On a broader level, the benefits of blockchain include:

1. Greater transparency

One of the biggest attractions of blockchain is that data stored on its network remains secure, tamper-proof, and transparent. Transactions recorded on the blockchain are time-stamped and linked to previous transactions, enabling users to verify the source and the authenticity of the data. Moreover, data exchanged on a blockchain network is entirely traceable and fully auditable.

2. Instant traceability

Blockchain ensures instant traceability through its decentralized and immutable nature. Each block in the chain contains a unique cryptographic hash of the previous block, linking them in a chain that is extremely difficult to alter. Therefore, any change made by any one party is captured and recorded by all the other nodes, making it easier to trace the data. For example, in the supply chain industry, blockchain can be employed to track the journey of products from manufacturer to consumer. Every step of the process, including production, transportation, and storage, is recorded in a blockchain, enhancing overall traceability.

3. Increased security

Since blockchain enables instant traceability of business or financial transactions, any data recorded on the blockchain becomes part of a permanent and verifiable record, reducing the risk of fraud. Also, unlike traditional centralized systems, where a single point of failure could compromise the entire network, blockchain distributes data across a network of nodes. Each participant in the network holds a copy of the entire blockchain, thus protecting the data from unauthorized access or manipulation.

4. Improved speed

Because of its decentralized and distributed architecture, Blockchain enables direct peer-to-peer transactions and eliminates the need for intermediaries. Not only are exchanges via Blockchain real-time and secure, but the use of smart contracts in transactions enables faster data exchange. Also, there is no need to reconcile multiple ledgers—therefore clearing and settlement can be done faster.

5. Immutability

Blockchain's immutable nature ensures the integrity of transactions—meaning that once data is recorded on the blockchain, it cannot be altered or tampered with. In other words, data becomes part of a permanent and unchangeable record. Blockchain's chain of interlinked blocks makes it impossible for any user to change the data in one block without altering all subsequent blocks (for which he would require consensus from the majority of the network).

What are the differences between EDI and Blockchain?

Although both EDI and Blockchain offer advanced options to streamline supply chain communication, there are several key factors that distinguish these technologies from each other. Let’s take a look at 7 of these differences:

Comparison chart between EDI and Blockchain

EDI vs. Blockchain—which is better for your supply chain?

Between the proven utility of EDI in improving supply chain transactions across industries such as manufacturing, food, e-commerce, retail, healthcare, and pharma, and the growing popularity of Blockchain in the B2B world, it is no wonder that many IT and supply chain managers are confused about which route to choose.

Let’s clear the air by taking an objective look at the advantages and disadvantages of each approach.

1. Integration with the ERP

The disadvantage of using any new software or technology is the amount of customization and development that accompanies its adoption. While Blockchain adoption requires a significant overhaul of your existing systems, you can find EDI solutions that can be embedded within your ERP. Since an integrated EDI solution is built within the ERP, it eliminates the risk and complexity of integrating the solution separately. An integrated EDI solution also uses the ERP’s business logic, and works seamlessly with every upgrade, providing you with a superior user experience. It is, therefore, the better choice for those looking to get started with a document exchange technology with the least amount of effort and in the least amount of time.

2.     Coding efforts

One of the benefits of adopting Blockchain is that the technology supports smart contracts. A smart contract is a self-executing program that automates the actions required in an agreement or contract. Once completed, the transactions are trackable and irreversible. However, you would need to engage the services of a programmer to code smart contracts as per your business requirements.

On the other hand, although EDI solutions do not provide automated, self-executing contracts, it is possible for you to purchase a no-code EDI solution that negates the need for any development. A no-code EDI solution offers long-term operational benefits, as it is not only configurable enough for business users to handle independently but also reduces the involvement of the IT team in day-to-day sales transactions.

3. Ease of use and adoption

In a world where everyone from your customers to your suppliers to your stakeholders expects faster and more efficient service, performing manual transactions and keeping paper-based records are a definite disadvantage. A no-code, integrated EDI solution makes it easy for such companies to tread the path of digitalization by offering an advanced and faster alternative to faxes and emails. Moreover, a reputed EDI solution also offers simple tutorials that guide business users in getting started, thus significantly reducing implementation time.

However, for industries or organizations that have been relying on manual B2B document exchange, switching to Blockchain might be a big leap that their team might not be ready for. Technically, blockchain requires expertise, infrastructure, and standards to implement and maintain—therefore, you may need to invest in training and development. 

4. Trading partner onboarding

An essential part of supply chain management is connecting and communicating with trading partners such as suppliers, distributors, dispensers, or retailers. In order to send and receive quotations, sales/purchase order confirmations, invoices, notices, or acknowledgments, you need to onboard your trading partners by creating their profiles and trading agreements in your supply chain management system.

A configurable EDI solution can simplify this challenging process and even help large enterprises onboard several partners across the globe in a short span of time. Considering the popularity of EDI, there is a high chance that your current trading partners are already on EDI. If that’s the case, choosing EDI would be your best bet.

Blockchain, on the other hand, is a relatively new technology that is more commonly associated with cryptocurrencies. Although the technology is transparent and decentralized and allows all participants in the blockchain network to access the same information, you might face some resistance from trading partners (especially those already on EDI) who are reluctant to share sensitive documents with everyone in your network. Moreover, by adopting Blockchain, you will have to re-initiate the onboarding process for all your trading partners. Therefore, it would be wise to consult all key stakeholders before deciding in favor of Blockchain.

5. Adhering to regulatory requirements

An important point in favor of EDI is compliance. Generally, trading and EDI compliance go hand-in-hand. Companies can ensure that they are compliant with EDI standards by following common standards such as EDIFACT for Europe, ANSI X12 for the United States, Odette, XML, etc., and by implementing an EDI solution that can handle compliance based on the requirements of all your trading partners.

However, the same cannot be said for Blockchain. Depending on the industry and region, Blockchain technology may be subject to evolving regulatory frameworks. There could be regulatory uncertainty regarding data governance, taxation, and liability when using blockchain because many governments and regulators are still figuring out whether certain laws should be updated to properly address Blockchain decentralization.

6. Implementation costs

EDI is considered generally more cost-effective to implement, especially for businesses already accustomed to electronic document exchange.

Even if your team has been accustomed to making Excel sheets and emailing invoices to trading partners previously, you could consider employing the services of a reliable EDI service provider, who will do the heavy lifting for you. Not only will the cost savings from reduced paperwork and manual processes be substantial, but you will also see reduced errors and increased accuracy in your EDI transactions.

If you’re intending to implement Blockchain, however, you need to keep in mind that initial implementation costs for blockchain can be higher due to the need for specialized technology and expertise. According to this article by Forbes, Blockchain’s complexity can lead to errors and inefficiencies in implementation.

Moreover, Blockchain networks can sometimes be slow or inefficient while validating transactions. This is because Blockchain requires a lot of computing power—leading to higher energy consumption and escalated power costs.

7. Data security

Blockchain technology is often praised for its enhanced security due to the cryptographic nature of blockchain transactions and the decentralized nature of the technology. Also, because of its immutable ledger, unauthorized alterations to data become nearly impossible, thus guaranteeing data security.

However, the security of blockchain networks is not without its challenges. There have been instances of security breaches and hacking attacks on blockchain networks, both on private as well as public blockchain databases. Private key hacking and Sybil attacks pose significant security drawbacks to Blockchain.

When it comes to EDI, the recent advancements in protocols used to transmit EDI messages, such as AS2, SFTP, SOAP, SSH, and HTTPS, have added a layer of security to the EDI process. This debunks the common myth that EDI is not safe, as these protocols ensure control and security over data.

Moreover, if the data interchanged via EDI goes through an EDI VAN, only the VAN would be able to read the coded messages. EDI VANs also provide an inherently secure EDI network with a full audit trail into the exchange of EDI messages, thus providing security to users.

Existing EDI or emerging Blockchain: Which technology will suit your industry?

Industries across the globe vary in nature and functional area. However, what’s common among them is that they are heavily dependent on smooth supply chain operations to run efficiently and scale effectively.

Since both EDI and Blockchain offer unique ways to streamline supply chain communication, it’s worth looking at their impact and effectiveness in different industries.

The automobile industry

Ever since the COVID-19 outbreak, the automobile industry has been witnessing fluctuating sales, a shortage of semiconductors, and challenges in transporting spare parts due to the backlog created during the lockdown period.

EDI can help resolve such challenges by automating the document exchange process, offering a historical view of EDI messages from within the Dynamics 365 environment, and ensuring that the sales and payment data are error-free. EDI also excels in large-volume, standardized data exchange, facilitating the smooth flow of information between car manufacturers and suppliers, thus optimizing the order and invoice management processes.

Blockchain, on the other hand, ensures traceability and is ideal for tracking parts and combating counterfeits. However, its current scalability isn't optimal for high-frequency transactions. You could, therefore, consider a hybrid approach, where you leverage EDI's speed and efficiency for core transactions while utilizing Blockchain's security and immutability for critical areas like parts provenance and ownership.

The healthcare industry

Healthcare happens to be one of those industries that struggle with adopting advanced IT solutions.

EDI can be a savior for hospitals and clinics looking to streamline administrative processes by offering a solution that can be easily configured and used by those with limited technical knowledge. Moreover, EDI uses globally accepted standard formats to exchange documents such as insurance claims, claim status, claim processing, billing, benefit eligibility inquiries, health plans, inventory information, and payment data, in accordance with the regulations stipulated by HIPAA.

Alternatively, blockchain can help hospitals be more transparent by tracking history. It can also combat counterfeiting and can empower patients to access their own medical data. However, Blockchain does not help healthcare companies comply with regulatory requirements, which can lead to patient information being compromised.

The food industry

No industry is as prone to changing consumer preferences and labor shortages as the food industry. With food being a 10-trillion-dollar industry (with an expected CAGR of 6.53% between 2024 and 2028), companies must adapt to ever-changing demands and emerging trends by adopting the path of digitalization.

EDI is definitely one way to do that.

EDI excels in established, pre-defined transactions like purchase orders, invoices, product activity data, delivery/return base records, product transfer, and resale reports ensuring fast, standardized data exchange. Moreover, food manufacturing organizations can customize EDI messages by including data such as product type (vegan, gluten-free, etc.) or product shelf life to ensure a quick and up-to-date produce-to-supply chain. EDI can be used for food delivery applications to manage orders and receipts and can be easily integrated with the company’s or the customer’s platform. To cap it all, EDI also supports global standards such as EDIFACT (Europe), ANSI X12 (United States), fixed text, and XML, helping food companies to be compliant with regulatory requirements.

The food industry can leverage Blockchain for its decentralized nature, transparency, and auditability. Blockchain helps food companies gain full visibility into the sourcing and handling of food products, thereby helping them to quickly identify and address any contamination issues. However, its complexity and scalability challenges can be daunting for smaller companies struggling to find a foothold in this competitive market.

The manufacturing industry

The reason why a streamlined supply chain is key for manufacturing companies is because they need to work with a wide variety of trading partners—from suppliers and vendors to distributors, retailers, logistics partners, and end customers. Not only do these companies need to be fast and agile but they should also be able to respond to trading partner concerns and resolve them promptly.

An EDI solution (especially one that’s already been integrated with your Dynamics 365 ERP) can help manufacturing companies onboard trading partners and exchange critical documents faster. A no-code EDI solution can also help companies resolve errors in purchase orders or shipping notices without delay and without relying on their IT team for help. Moreover, EDI helps manufacturers exchange inter-company orders, enable automatic ordering, and process a large volume of orders in near real-time, without leaving their D365 environment.

When it comes to Blockchain, manufacturers can ensure that every transaction is immutably recorded and visible to authorized parties. This helps in tracking materials, verifying orders, and managing recalls. Blockchain's decentralized ledger can help enhance trust and reduce the risk of fraud with complex supplier networks as well. However, manufacturers may find it challenging to scale and integrate with existing systems when using Blockchain. Also, if a manufacturer has suppliers and distributors spread across the globe, it becomes challenging to establish consensus protocols with Blockchain. According to Blockchain taxation guidelines, a consensus mechanism in a Blockchain helps validate a transaction and mark it as authentic (with at least 51% of trading partners required to arrive at a consensus).

The eCommerce and retail industry

With the onset of globalization, retailers today are dependent on e-commerce sites, online stores, mobile applications, and social commerce to sell effectively. They need to, therefore, invest in a suite of embedded applications that can help them synchronize data across sites, ensure product details are recorded and updated in real-time, and ensure shipping and delivery data is on time and accurate.

EDI can help retailers keep pace with the dynamic needs of e-commerce by ensuring that orders and deliveries are aligned with the needs of their customers. EDI not only offers a wide range of document types that help retailers share advanced shipping notices, invoice requests, or payment confirmations to their customers but also supports 3PL warehousing and VMI processes to ensure an efficient order-to-cash and/or purchase-to-pay business model.

Due to its ability to provide tamper-proof record-keeping, Blockchain helps retailers with secure, verifiable tracking of physical goods and supports e-commerce sites in managing complex loyalty programs. Also, by providing a transparent and traceable supply chain, Blockchain can boost customer trust and combat issues like counterfeit goods.

However, since EDI remains the most cost-effective and reliable solution for routine, high-volume data exchange, the ideal scenario might involve integrating both technologies—EDI for streamlined transactions and blockchain for enhanced transparency—to help create a truly future-proof retail ecosystem.

Can Blockchain be integrated with EDI?

Blockchain can be used as a complementary layer to existing EDI systems, where blockchain can store and verify EDI transactions. Since Blockchain can handle the entire data exchange process without any intermediaries, it can be integrated with EDI to remove brokers/VANs from the picture. It can also be used as a platform for EDI applications.

Will Blockchain replace EDI in the future?

While EDI has proven itself to be the foundation of digital transformation in the supply chain of any business, blockchain can serve multi-enterprise business networks.

However, when data needs to be transferred from one enterprise to another or from an enterprise to a blockchain, EDI is needed. Unlike blockchain which needs you to ensure the data is in the right format, EDI is capable of taking data from siloed applications and converting them to the required format before it is exchanged. Companies with different trading partners using varying document formats rely on the flexibility of EDI, as different blockchains (such as Ethereum, Hyperledger Besu, and R3 Corda) are all incompatible with each other. Moreover, blockchains process significantly lower amounts of transactions than EDI, due to these records getting stored on a single, decentralized, public ledger.

How to choose the best supply chain communication tool

At the end of the day, the ideal choice for an evolving, dynamic supply chain will depend on your specific business needs, industry requirements, and the level of transformation you seek. Although blockchain can never replace EDI, it has the potential to complement EDI in strengthening supply chain communication in the future.

If you want to leverage the numerous benefits of EDI for a fully digitalized supply chain, STAEDEAN offers our customers EDI Studio — a no-code EDI-handling solution pre-built into Dynamics 365 Finance & Supply Chain Management that can help you automate EDI processes, handle errors independently, and completely eliminate the complexity and risk of integrating EDI within Dynamics 365.

With our EDI solution, you can opt out of a lengthy 6-12 month integration project, and instead, onboard trading partners and exchange your first set of EDI documents in just 4 weeks!

Interested in learning how you can get up and running with EDI in less than a month? Watch our on-demand webinar Rapid EDI Deployment Within D365 F&SCM today!