What’s EDI Order Processing? How EDI Ordering Systems Automate Supply Chains

Smooth, reliable order processing keeps your business moving — and your customers happy. But as order volumes grow, so do the risks: delays, errors, and miscommunication between systems and partners.

Electronic Data Interchange (EDI) helps solve these problems by automating how you send and receive orders, invoices, and shipping details. It replaces slow, manual processes with fast, structured data exchange — improving accuracy and keeping your supply chain on track.

In this guide, we’ll explain how EDI order processing works, the benefits it offers businesses that need to move quickly, scale efficiently, and deliver consistently, and how to find the EDI provider that's right for you.

What’s EDI Order Processing? EDI Order Meaning

EDI order processing automates the exchange of key business documents — like purchase orders, shipping notices, invoices, and order acknowledgments — between trading partners. It uses standardized formats such as ANSI X12 or EDIFACT, allowing systems to communicate directly without manual input.

By replacing tasks like data entry, mailing, and faxing, EDI reduces errors, improves inventory tracking, and enables companies to fulfill orders faster.

How Does EDI Order Processing Work?

EDI order entry follows a standard series of steps, with each stage handled through a specific transaction type — from sending a purchase order to completing payment. Here’s how the process typically goes:

1. Creating a Purchase Order (EDI 850)

The buyer starts by entering a purchase order in their enterprise resource planning (ERP) system. This includes basic order information: item descriptions, quantities, pricing, and shipping details. EDI translation software then converts the purchase order into an EDI 850 document, the standard format for placing or updating a purchase order electronically between trading partners. The system sends that file to the supplier using a secure protocol like AS2 or a value-added network (VAN).

2. Acknowledging a Purchase Order (EDI 855)

After receiving the 850, the supplier reviews it and sends back an EDI 855 (Purchase Order Acknowledgement). This transaction confirms whether they’ve accepted the order, rejected it, or need to make changes. 

3. Order Processing and Warehouse Instructions (EDI 940)

Once the supplier confirms the order, they begin preparing the shipment. If a third-party warehouse is involved, the supplier sends an EDI 940 (Warehouse Shipping Order). This document provides detailed packing and shipping instructions—such as which items to send, how to handle them, and the preferred shipping method. 

4. Advanced Shipping Notice (EDI 856)

Before shipping the order, the supplier issues an EDI 856 (Advance Shipping Notice). It includes details about the shipment: contents, tracking numbers, references, and estimated arrival time. The buyer uses this information to plan for receiving and inventory management.

5. Invoicing (EDI 810)

After they ship the goods, the supplier creates an EDI 810 (Invoice) and sends it to the buyer. The buyer’s accounts payable team reviews and compares the invoice to the original purchase order and shipping notice, validating it to confirm everything is correct.

6. Payment Processing and Acknowledgement (EDI 820 and EDI 997)

If everything checks out, the buyer schedules the payment. They may send an EDI 820 (Remittance Advice) to confirm the payment details and complete the transaction. Most EDI systems also send an EDI 997 (Functional Acknowledgment) to confirm document receipt. These confirmations help both sides avoid communication gaps and quickly troubleshoot any issues if necessary. 

7 Key Benefits of EDI Order Processing

EDI helps businesses manage orders without relying on paper, email, or manual entry. Instead of passing documents back and forth by hand, systems send them directly automatically and in a format both sides understand. And when applied to order processing, that can make a real difference. 

Below are seven practical benefits companies often see when they use EDI to process orders:

1. Improved Efficiency and Accuracy

Manual data entry is prone to errors: miskeyed numbers, missing fields, or misrouted documents. EDI significantly reduces these risks by automating the exchange of structured data. Information travels directly between systems, decreasing processing time and improving the accuracy of each transaction.

2. Decreased Costs

By eliminating the need for physical documents, EDI helps organizations lower printing, mailing, and storage costs. It also reduces labor costs by minimizing repetitive tasks like order entry, invoice processing, and error correction. These savings add up significantly as transaction volumes grow.

3. Better Supply Chain and Inventory Visibility

EDI systems often operate in real time, updating order statuses, inventory levels, and shipment details as events occur. This level of visibility enables businesses to monitor performance more effectively, anticipate supply issues, and make informed purchasing decisions. Improved insight helps prevent both stockouts and overstocking.

4. Enhanced Customer Satisfaction 

Faster processing times and more accurate transactions contribute to better service. EDI helps businesses meet delivery deadlines, reduce order errors, and provide customers with timely updates.

5. Increased Scalability

As businesses grow, the volume and complexity of transactions increase. EDI systems are designed to scale alongside that growth. They can handle larger workloads without requiring proportional increases in staffing or manual oversight, making them well-suited for organizations with long-term plans.

6. Improved Supplier Relationships

Standardized communication reduces friction between trading partners. EDI helps suppliers and buyers stay aligned on order details, timelines, and expectations, which reduces miscommunication and improves collaboration. With time, this often leads to more stable, reliable partnerships.

7. Resource Reallocation Capabilities

When routine tasks are automated, internal teams have more time to focus on higher-value activities, such as supplier negotiation, demand forecasting, and process improvement. EDI frees up time and reduces operational roadblocks, allowing staff to contribute more strategically.

How to Choose the Right EDI Order Processing System

The right EDI system for order processing should support your current workflows, help you meet trading partner requirements, and grow with your business. Here are a few key things to look at as you evaluate your options:

1. How Well It Fits With Your Current Systems

Before anything else, make sure the EDI solution works with the systems you already use — like your ERP and customer relationship management (CRM) systems and accounting software. Some platforms connect through APIs or offer prebuilt integrations that make setup easier. Be sure to also check that the system supports standard document formats so you don’t run into issues (or extra costs) trying to work with your trading partners.

2. Its Ability to Scale as You Grow

Your transaction volume may be manageable now, but what about a year from now? Or five? A good EDI system should be able to handle increased demand without slowing things down. Cloud-based platforms are often better for flexibility, especially if your volume fluctuates. On the other hand, if your business operates in a heavily regulated industry, an on-premise solution might make more sense.

3. The Level of Support It Offers

Things go wrong. Systems break. Deadlines loom. That’s why strong customer support matters. Look for providers that offer 24/7 assistance, clear service-level agreements, training materials, and actual EDI experts ready to help when challenges arise. 

4. What It Helps You Achieve

The right EDI platform won’t just move documents — it should also help you work faster and smarter. That might mean fewer manual steps in your order cycle, better visibility into performance, or access to analytics that guide decision-making. When comparing options, think about not just the features the platform offers but also what those features actually do for your team day-to-day.

5. How It Adapts to Change

Your supply chain isn’t static. New partners, new products, unexpected disruptions — they all come with the territory. A strong EDI platform makes it easier to respond. That means fast partner onboarding, a user interface your team can navigate without friction, and systems that keep running even when the market gets unpredictable.

Talk to an EDI Expert

If your business is managing orders at scale, EDI isn’t a perk — it’s a must. A modern, cloud-based EDI system can simplify your workflows, reduce manual tasks, and help you stay aligned with customers and partners.

Curious how EDI could work for your team? Connect with an EDI expert today to learn how cloud-based EDI can transform your approach to order processing and more.