EDI for Dropshipping: How to Automate Retailer and Supplier Compliance

Dropshipping is the process where a retailer doesn't keep the items it sells in stock. Rather, they rely on third-party distributors to fulfill customer orders. This method of direct-to-consumer (DTC) order fulfillment has become a major portion of the retail market, with millions of customers every day eagerly awaiting the arrival of their latest online request.

Electronic data interchange (EDI) makes much of this possible by connecting retailers, distributors, warehouses, and customers worldwide. Without a reliable EDI solution, those same orders could take weeks or even months, as millions of paper documents moved through manual validation and fulfillment steps.

This article explores dropshipping and explains how EDI is an essential part of the process, from the customer's purchase decision to order fulfillment.

Why EDI Matters for Dropshipping

EDI is widely used for exchanging retail and logistics data. Through standardized electronic document exchange, dropshippers can share order and inventory information instantly with trading partners. Critical business documents move between systems automatically, keeping everyone in the supply chain on the same page. 

For dropshipping businesses, EDI ensures partner compliance and customer satisfaction. Electronic data exchange enables order management and ERP systems to coordinate seamlessly with suppliers and logistics providers. 

How EDI Works for Dropshipping

In the most direct dropshipping scenario, the process looks like this:

1. A customer places an order.

2. The software for the dropshipping business generates the purchase order and passes it to the wholesaler. 

3. The wholesaler then sends a shipping request to their logistics provider to deliver the ordered item to the customer's shipping address. 

4. The customer receives their delivery and posts a review online.

Throughout the process, each party sends an acknowledgment that they have received the respective document and are moving to the next step.

Major retailers like Walmart, Target, and Amazon move immense volumes of goods, requiring EDI to keep their large supply chain apparatus running smoothly. They demand that suppliers connect through EDI and follow strict compliance specifications unique to each retailer. Without EDI, dropshippers are forced to manage orders and inventory manually through emails or spreadsheets — an error-prone process that often leads to delays, miscommunication, and costly chargebacks.

Key Benefits of EDI for Dropshippers

EDI makes a tremendous difference for dropshipping retail businesses — perhaps more than for any other retail model. Orderful makes it even easier, giving dropshippers distinct advantages in the retail market, including:

1. Order management automation: A modern EDI platform eliminates manual data entry by automating EDI 850 purchase orders from the retailer’s system to the wholesaler or distributor.

2. Inventory management: EDI updates inventory data in real time, enabling distributors and warehouses to give dropshippers an accurate view of their current stock levels. 

3. Streamlined revenue processing: EDI documents, such as 810 invoices and 820 payment notifications, enable retailer business systems to update payment exchange information in real time.

4. Compliance automation: Modern EDI systems like Orderful are compliance-ready for many trading partners. By meeting retailer requirements automatically, dropshippers can reduce costly chargebacks and avoid shipment rejections.

An API-first platform like Orderful makes the process seamless for e-commerce retailers that use dropshipping. With hundreds of pre-built partner connections and validation tools, a modern EDI solution offers a distinct competitive advantage.

Manual Dropshipping vs. EDI-Enabled Dropshipping 

How Web EDI Simplifies Dropshipping EDI

Traditional EDI platforms reside within on-premises infrastructure. Integrating with an enterprise resource planning (ERP) system frequently takes a knowledgeable technology team to complete. Similarly, onboarding each new trading partner often requires custom configurations that demand a high level of internal IT involvement. A web EDI solution eliminates much of that complexity.

Web EDI is a browser-based system on the cloud that lets users manage transactions online without complex installations, making it the ideal solution for small businesses. There's no ERP required, just internet and login credentials. Orderful's web-based EDI tool offers easy setup, with retailer requirements pre-configured, so onboarding takes a matter of days — not weeks or months — making web EDI ideal for handling dropshipping transactions efficiently. 

EDI Transaction Sets Common in Dropshipping

Electronic data interchange relies on standardized file formats to exchange information consistently and accurately. In North America, the format standard is ANSI X-12. EDI uses the EDIFACT format internationally. We've outlined the most commonly used EDI document files that dropshippers in the U.S. depend on.

Purchase Orders (EDI 850)

The EDI 850 purchase order (PO) file contains details about the customer's order, such as the unique PO number, order date, quantities, and prices. In a dropshipping workflow, the customer's online order generates the 850 file in the dropshipping system, which is then sent to the supplier for order fulfillment.

Invoices (EDI 810)

The EDI 810 invoice file references key information from the purchase order, including quantities and prices, along with the total amount due to the supplier. In a dropshipping process, the supplier typically sends the invoice file to the retailer, who has already charged the customer the marked-up price. 

Advanced Shipping Notices (EDI 856)

The EDI 856 shipping notice file informs the retailer that the supplier or 3PL is ready to ship the order. The 856 file contains critical shipment information, such as carrier name, shipping date, estimated delivery, and tracking numbers that the customer and dropshipper can both refer to for viewing the shipping status of the order. The file may also include carton or pallet IDs for larger B2B shipments.

Payment Order (EDI 820)

Once the dropshipper has received confirmation of shipment from the supplier or logistics provider, they send payment and generate an EDI 820 payment remittance, which is transmitted to the supplier, closing the transaction loop. The 820 file contains payment details like payer and payee information, total payment amount, and the invoice number being paid.

How to Choose the Best EDI Solution for Dropshipping

The right EDI software will take much of the guesswork and burden out of order fulfillment, letting you focus on more critical strategic initiatives. When searching for the best EDI provider for your business, here are some key factors to keep in mind.

• Pricing: You want to know what you'll be paying up front. Simple, transparent pricing makes modern EDI budget-friendly, especially for small and mid-sized dropshippers just starting out.

• Coverage: You should be able to connect with your trading partners — whether you're connecting to two or 2,000. A modern web EDI platform lets you connect quickly to whichever suppliers and logistics partners you need to. 

• Ease of use: Small and mid-sized dropshippers shouldn’t need an IT team just to manage basic EDI functions. Modern EDI gives you user-friendly tools that empower you to take care of business.

• Visibility: When you need to know where an order is in the supply chain, the EDI tools of today let you see the status of every order and shipment in real time.

There are many types of EDI solutions available. Managed services handle everything for you but often come at a higher cost. ERP-based EDI systems are fully integrated but require heavy IT involvement. Web EDI is cloud-based, affordable, and requires no ERP — a fast, cost-effective path to compliance for growing dropshippers.

How Orderful Supports Dropshippers

Whether you're new to the dropshipping game or a seasoned e-commerce pro, the Orderful API-first EDI platform has the tools and connections to simplify and automate your EDI workflows. 

• Prebuilt retailer compliance templates: Orderful includes pre-configured templates for major retailers, allowing dropshippers to meet each partner’s specific EDI requirements instantly. 

• Real-time validation: With real-time validation, Orderful checks each transaction as it’s sent or received to ensure it meets both EDI standards and partner specifications. Issues can be corrected before they cause payment delays or chargebacks.

• Fast onboarding: Walmart and Target use EDI to exchange orders with approved dropship vendors. Businesses partnering with these and other retailers can onboard to their EDI systems in a matter of days using Orderful’s prebuilt connections and automation tools.

Next Steps for Dropshipping Businesses

Compliance is key to successful dropshipping workflows, and Orderful has everything a new retailer needs right out of the box to begin meeting trading partner requirements. To ensure partner compliance:

• Identify retailer requirements: Every trading partner will have different conditions and expectations for meeting their standards. Be sure you understand each partner’s expectations before onboarding begins.

• Choose a web EDI solution for faster implementation: Web EDI platforms like Orderful already have compliance built in for hundreds of potential trading partners. Along with validation tools, this ensures much quicker onboarding than with traditional EDI tools.

• Scale as needed: Orderful integrates with many ERP and business systems, including NetSuite and QuickBooks. Combined with seamless partner onboarding, this positions you to expand your dropshipping business as gradually or as quickly as your order volume demands.

Whether you're new to dropshipping and looking for your first EDI platform or a veteran retailer in the market for a simpler way of doing things, speak to an EDI expert or book a demo today. Discover how Orderful can help you do EDI the right way every step of the way.

FAQs About Dropshipping EDI

What is EDI in dropshipping?

EDI in dropshipping is the electronic exchange of retail and logistics documents that keep orders, shipments, and inventory updated in real time.

Do I need an ERP to use EDI for dropshipping?

You do not need an ERP to use EDI for dropshipping. A web based EDI platform like Orderful lets you manage transactions with only a browser login.

What are the most common EDI transactions in dropshipping?

The most common EDI transactions in dropshipping are the EDI 850 purchase order, EDI 856 shipping notice, EDI 810 invoice, and EDI 820 payment remittance.

How can EDI reduce dropshipping chargebacks?

EDI reduces dropshipping chargebacks by enforcing retailer specifications, validating every file in real time, and preventing data errors before they reach your partners.

What is the fastest way to get EDI compliant as a dropshipper?

The fastest way to get EDI compliant as a dropshipper is to use a web EDI tool with prebuilt retailer requirements and automated validation.

What is the best EDI solution for dropshipping?

The best EDI solution for dropshipping is one that offers fast onboarding, built in retailer compliance, and real time validation. Orderful is the top choice for dropshippers because it includes prebuilt retailer templates, an API first platform, and instant error checking that helps prevent chargebacks and delays.