Landing a deal with a large retailer like Walmart, Target, or Home Depot is the ultimate emotional high for a supplier. It represents brand validation, a massive scale-up in volume, and a significant milestone in your company’s growth. However, for many executives, that celebration is cut short by the sudden mention of a term they may have never heard of: Electronic Data Interchange (EDI).
For brands that have been primarily Direct-to-Consumer (DTC), the sudden requirement for EDI often arrives as a shock as it shifts the business from a flexible, customer-focused model to a rigid, computer-controlled environment governed by strict retailer rules. Often, what was meant to be a celebratory time of business expansion transforms into a period of intense operational friction.
Most suppliers are caught off guard by the technical complexity of these requirements and the aggressive timelines for implementation and strict mandates for compliance. Not to mention, EDI can be very confusing to understand in the first place. It often feels like it’s in a different language, and in some ways, it is. Next, we’ll dive into how EDI functions as the common language of documents in the retail sector.
Understanding EDI as the Language of Retail
EDI, or Electronic Data Interchange, is a way for businesses to send important documents directly from one computer system to another. Instead of employees emailing, faxing, or mailing paperwork, the information is shared automatically in a format both companies can understand.
You can think of EDI as the common language used in retail. Just like two people need to speak the same language to communicate clearly, retailers and suppliers use EDI to make sure information like product numbers, quantities, prices, and shipping details are understood the same way by both sides. Each type of EDI document represents a different step in the business relationship, such as placing an order, sending an invoice, or confirming a shipment.
A Note on How EDI Documents Are Sent
Sending an EDI document is different from sending an email attachment or PDF. It is an automated exchange between your business system and a retailer’s system.
First, your company creates a document, such as an invoice or purchase order. Then, EDI software converts that document into a standard format the retailer can read. After that, the document is sent securely over the internet to the retailer’s system.
The type of EDI setup a company uses usually depends on its size:
Small and medium-sized businesses often use web-based services like SPS Commerce, where employees enter information online and the service handles the sending process.
Larger companies usually connect EDI software directly to their own systems so documents can be sent automatically with little manual work.
Some businesses use services called Value-Added Networks (VANs), which act like secure digital mail carriers between companies.
Once the system is set up, EDI can send information quickly, accurately, and with very little human involvement.
EDI as a Document Workflow
Rather than thinking of EDI as a piece of software, it's more helpful to view it as a digital communication workflow between retailer and brand, where each step is critical. This workflow is the process that begins with a retailer order and eventually ends with cash in the supplying brand’s pockets. First, we’ll give an overview of the whole process, and then dive into each specific step.
Inventory Update (EDI 846) — Send your current stock levels to the retailer (or acts a request from the retailer for an update on inventory (optional step, mainly for eCommerce).
The Order (EDI 850 or 875) — Retailer sends you a Purchase Order with items, quantities, prices, and delivery location.
The Shipment Alert (EDI 856) — You send an Advance Ship Notice with exact details of what's on the truck before it leaves your warehouse.
The Bill (EDI 810) — You send an Invoice after goods ship; retailer verifies it matches the original order and shipment details before paying.
Real-World Example: A CPG Company Selling to Walmart
Now, we’ll dive into a practical example of how EDI works in action. Imagine you're a mid-sized CPG (Consumer Packaged Goods) company that makes organic snack bars, and you've just landed a deal to supply them to Walmart stores across the region.
Note: This example is only used for illustrative purposes, and brands should make sure to stay up to date with Walmart’s specific rules in their supplier portal.
Step 1: The Inventory Update (EDI 846)
On Monday morning, anxious to make sure you don’t accidentally oversell, you send Walmart an Inventory Advice showing you currently have 50,000 cases of your Chocolate Chip snack bars in stock and 35,000 cases of your Berry Blast bars. This tells Walmart's system exactly what's available so their online and store ordering systems don't oversell what you can actually deliver.
Step 2: The Product Order (EDI 850)
That same Monday afternoon, Walmart's ordering system automatically sends you a Purchase Order (EDI 850). It says: "Send us 10,000 cases of Chocolate Chip snack bars and 8,000 cases of Berry Blast. Unit cost is $2.50 per case. Deliver to our distribution center in Memphis by Friday."
Your system receives this order automatically, so no human had to read an email or manually enter numbers into a spreadsheet.
Step 3: The Handshakes (EDI 997 & 855)
Within seconds, your system sends back two messages:
First, a Technical Acknowledgment (EDI 997) fires back to Walmart's system saying, "Message received. No errors detected." This is the computer equivalent of saying, "I got your email and it didn't come through garbled."
Second, your team reviews the order and sends a Purchase Order Acknowledgment (EDI 855) confirming you can fulfill it exactly as requested. You can send this because you have plenty of inventory, the price is correct, and you can hit the Friday delivery date.
If you couldn't (say you only had 7,000 cases of Berry Blast available), you’d flag that in this acknowledgment so Walmart could source the remaining 1,000 cases from another supplier instead of finding out later when the truck arrives short. This document allows you to report issues with the order and let them know how many you can ship.
Step 3A: The Official Revision (EDI 860 - Purchase Order Change)
Once you notify Walmart of the shortage, they may send back an EDI 860. This document officially revises the original purchase order to match the quantities you are actually able to ship. This audit trail ensures that everyone is working from the same set of numbers.
Step 4: The Shipment Alert (EDI 856)
It's now Wednesday. Your warehouse has packed everything, and the truck is about to leave your facility. Before it does, your warehouse management system generates an Advance Ship Notice (EDI 856) that details exactly what's on the truck:
10,000 cases of Chocolate Chip in 200 pallets (pallet IDs: CP-001 through CP-200)
8,000 cases of Berry Blast in 160 pallets (pallet IDs: BB-001 through BB-160)
Each pallet has a barcode
Tracking number for the shipment
Estimated arrival time at the Memphis distribution center: Friday at 2 PM
This document is critical. When the truck arrives at Walmart's dock, their receiving team scans the barcodes and matches them exactly to this ASN. If the ASN said 200 pallets but only 195 arrive, Walmart immediately knows 5 are missing. If the ASN is missing or late, Walmart's system might reject the entire shipment, costing you a chargeback or deduction (a financial penalty deducted from your payment).
Related Reading: Walmart Deduction Codes Explained Guide
Step 5: The Bill (EDI 810)
Friday evening, after you've confirmed the truck has arrived and been unloaded, your accounting system generates an Invoice (EDI 810):
10,000 cases × $2.50 = $25,000
8,000 cases × $2.50 = $20,000
Total: $45,000
Invoice date: Friday
Payment terms: Net 30 (due 30 days from invoice date)
Walmart's accounts payable system receives this invoice and automatically checks it against three things:
The original Purchase Order (EDI 850) — Does the quantity and price match what was ordered?
The Shipment Notice (EDI 856) — Did we actually receive what was invoiced?
The Invoice (EDI 810) — Are the math and numbers correct?
This matching process takes seconds and happens automatically. If everything aligns perfectly, Walmart's system schedules payment for 30 days out. If there's a discrepancy (even a difference of one case) the payment gets held until someone manually investigates and resolves it.
Why This Matters
In this entire scenario, not a single email was sent, no one manually re-entered data, and no invoice was lost in someone's inbox. From the moment Walmart placed the order to the moment you received payment, the process was automated, accurate, and auditable. That's the power of EDI.
Understanding the Core EDI Documents
At first, EDI documents can feel like a confusing list of numbers and acronyms. In reality, each document has a very specific job that create a chain of communication. The chart below breaks down the most important retail EDI documents, what they contain, and why they matter.
EDI Document | What It Does | What It Typically Contains | Why It Matters |
EDI 850:Purchase Order | Starts the retail transaction by telling the supplier what the retailer wants to buy. | Purchase order number, item numbers, quantities, pricing, delivery location, requested delivery date, packaging instructions, payment terms. | The 850 is the foundation for the entire transaction. Retailers send it through EDI instead of email because systems can exchange the information automatically without manual data entry. |
EDI 997: Functional Acknowledgment | Confirms the supplier’s system successfully received the EDI document. | Technical receipt confirmation and validation status. | Acts as a technical handshake between systems. It confirms the file arrived and passed formatting checks, butdoes not confirm the supplier can fulfill the order. |
EDI 855: Purchase Order Acknowledgment | Tells the retailer what the supplier can actually fulfill. | Approved quantities, pricing confirmation, delivery dates, shortages, substitutions, or backorders. | Surfaces fulfillment problems early before the shipment leaves the warehouse. Helps retailers adjust inventory plans before shelves go empty. |
EDI 856: Advance Ship Notice (ASN) | Tells the retailer exactly what is arriving before the shipment reaches the distribution center. | Tracking numbers, carrier information, pallet and carton detail, SSCC-18 barcode numbers, item-level quantities, estimated arrival time. | Often considered the most important operational document in retail EDI. Retailers rely on ASN accuracy for receiving, labor planning, inventory management, and OTIF compliance. Late or inaccurate ASNs are one of the biggest causes of chargebacks. |
EDI 810: Invoice | Requestspayment after products have shipped. | Invoice number, PO reference, shipment references, quantities, pricing, freight charges, payment terms, total amount due. | Retailers validate the 810 against both the 850 and 856 in a “three-way match.” Errors between documents often lead to payment delays or deductions. |
EDI 846: Inventory Inquiry / Advice | Shares current inventory availability between supplier and retailer. | Available inventory quantities and stock status updates. | Common in eCommerce and replenishment environments where retailers need visibility into supplier inventory levels. |
Suppliers do not need to master every EDI document immediately, but understanding the role each one plays makes retailer onboarding much easier and helps teams troubleshoot issues faster when problems occur.
Ready to Go Live With Your First Retailer?
SPS Commerce handles EDI technical complexities for brands. Get set up in weeks with built-in compliance checks that catch mistakes before they cost you chargebacks. Contact us today.
