Choosing Between On-Premise and Cloud EDI: A Simple Guide for Your Business

Businesses move massive amounts of data. Keeping it organized and error-free isn’t magic or chance — it’s EDI. Electronic Data Interchange helps companies share information quickly and accurately, keeping supply chains running without endless back-and-forth emails and spreadsheets.

If you’re thinking about using EDI for your business, you’ll likely run into two main options — on-premise EDI and cloud EDI. If you’re unsure which to choose, this guide explains how on-premise EDI works and how it compares to cloud-based tools to help you pick the best setup for your business.

What’s On-Premise EDI?

With on-premise EDI, everything stays in-house. All the data processing, document translation, and day-to-day management happen on a company’s servers. 

Businesses using this setup install the EDI software themselves, manage the hardware, and connect directly with partners. These are some of its key components:

Components of On-Premise EDI:

• On-premise EDI uses physical servers and hardware — the equipment that handles all the EDI transactions inside a company.

• It runs on EDI translation software that automatically converts business documents (like purchase orders or invoices) into a format trading partners’ systems can understand. 

• Companies need an in-house IT team to set up, maintain, manage, and connect the system with their partners.

• The system also needs security measures, like firewalls, data encryption, and password protection. This keeps information safe and blocks unauthorized access.

Key Benefits of On-Premises EDI

These are some of the main benefits of having an on-premise EDI solution for your business:

Full Data Control

With on-premise EDI, businesses have complete data ownership — transactions stay within their internal infrastructure.

Improved Security

Since data does not pass through third-party providers, companies can implement custom security measures to meet company policies or industry regulations.

Optimized for Smaller Companies

For businesses that don’t work with a large number of partners, on-premise EDI can be simpler to manage. With fewer connections to maintain, the system is less complex and typically requires less support than what a larger company might need.

Reduced Recurring Costs

Once you've paid for setup — including software, servers, and any necessary equipment — you don’t have to worry about ongoing subscription fees. This can make on-premise EDI more affordable over time, especially for businesses planning to use the same system for years.

Disadvantages of On-Premises EDI

These are some disadvantages companies may face when implementing an on-premise system.

Higher Implementation Costs

Installing and configuring an on-premise EDI system requires a higher upfront investment in hardware, software, and IT expertise.

Dependent on Manual Data Entry

Some systems require people to manually enter data, which can cause mistakes or slow operations because they rely on human input.

Limited Scalability

To grow or expand an in-house system, you’ll need to buy more equipment and set up more infrastructure, which makes it harder to increase the system’s size or capabilities.

Increased Complexity

Running an in-house system requires skilled people to handle the technical side. It also needs regular maintenance and a team to keep everything running smoothly, which can be time-consuming and costly.

What’s

Outside companies provide cloud-based EDI solutions, so businesses don’t need to have their own equipment on-site. Companies can use these solutions through an online platform that handles data conversion, security, and transaction processing. Cloud EDI software helps businesses automate tasks, which cuts down on manual work and makes everything run more smoothly.

Key Benefits of Cloud-Based EDI

There are some advantages to cloud-based EDI systems. Here are a few to consider:

Increased Cost-Effectiveness

Cloud-based EDI solutions don't require expensive equipment at the business location, lowering initial costs.

Easier to Maintain and Operate

The service providers handle maintenance, updates, and problem fixing, so the company's IT team doesn’t have to.

Scalability Benefits

Businesses can easily expand their EDI system without buying more equipment or software.

Constant Updates

Cloud-based EDI platforms are regularly updated to align with industry rules and improve their work.

Faster Integration Capabilities

With cloud EDI, businesses can quickly connect with new partners without complicated configurations.

Improved Access to Real-Time Analytics

Since cloud EDI works online, businesses can instantly see how transactions are going and track supply chain performance.

Enhanced Efficiency Through Automation

Cloud EDI software automates data entry and transactions, which reduces mistakes and speeds up processes.

Disadvantages of Cloud-Based EDI

While cloud-based systems have clear benefits, there are a few challenges to consider before making a decision:

Higher Dependency on Third-Party Providers

Businesses depend on outside providers to keep the system running, ensure security, and follow industry rules.

Potential Integration Challenges

Connecting cloud-based EDI systems with older systems or proprietary software that the business already uses can be challenging.

Increased Costs of Switching Providers

Switching to a different cloud EDI provider might be expensive, with costs for transferring data, dealing with technical issues, and downtime.

On-Premises vs. Cloud-Based EDI Solutions Compared

Deployment Location

• On-premise EDI: Your company installs and manages the system on-site using its own infrastructure.

• Cloud-based EDI: A third-party provider hosts and maintains the system off-site.

Infrastructure Requirements

• On-premise EDI: Your team sets up and maintains internal servers, networking hardware, and other resources.

• Cloud-based EDI: The provider delivers the infrastructure, so you don’t need to manage hardware in-house.

Scalability 

• On-premise EDI: You scale the system based on the limitations of your existing hardware and IT capacity.

• Cloud-based EDI: You can scale quickly and easily with minimal input from your internal team.

Upfront Costs

• On-premise EDI: Your business covers high initial costs for hardware, software, and setup.

• Cloud-based EDI: You pay lower upfront costs, typically through a subscription or usage-based model.

Security 

• On-premise EDI: Your team controls all security measures, from access policies to data protection protocols.

• Cloud-based EDI: The provider manages security, following its own compliance standards and best practices.

Maintenance Needs

• On-premise EDI: Your IT team handles all maintenance, updates, and troubleshooting.

• Cloud-based EDI: The provider takes care of maintenance so your team can stay focused on other priorities.

Integration 

• On-premise EDI: You develop and implement custom integrations with your internal systems.

• Cloud-based EDI: You usepre-built connectors or APIs that the vendor provides, which speeds up integration.

Updating and Upgrading

• On-premise EDI: Your team installs and tests updates manually.

• Cloud-based EDI: The provider rolls out updates automatically without interrupting your workflow.

Flexibility

• On-premise EDI: You work within a fixed setup that’s harder to reconfigure as needs change.

• Cloud-based EDI: You adjust features and capacity easily as your business evolves.

Service Reliability

• On-premise EDI: Your system’s uptime depends on the reliability of your internal IT infrastructure.

• Cloud-based EDI: The provider maintains system uptime based on its infrastructure and service-level agreements (SLAs).

Factors to Consider When Choosing an EDI Solution

If you’re deciding between EDI solutions, there are some key factors to consider, depending on your business needs:

Flexibility Level

Cloud EDI solutions are more flexible because businesses can easily make changes without managing the technical details. Since the provider handles updates and adjustments, adapting the system as needs change is simpler.

Scalability Needs

Companies that expect to grow may prefer cloud-based EDI because it's easier to expand — you can adjust services with the provider to match your growing needs.

Supply Chain Complexity

Organizations with complicated networks of partners may choose cloud-based EDI for easier connections and integration.

In-House EDI Expertise Availability

Businesses with dedicated IT teams may find on-premise EDI manageable, and those without may opt for hosted EDI services.

Available Budget

And, of course, when choosing an EDI solution, it’s important to factor in both the initial setup costs and the long-term expenses.

Explore Cloud-Based EDI Solutions 

Choosing between on-premise EDI and cloud EDI solutions depends on a company’s infrastructure, budget, and long-term needs. While on-premise EDI offers control and security, cloud-based EDI provides scalability, automation, and ease of maintenance. 

A cloud EDI platform may be the ideal choice for businesses looking to streamline EDI transactions without managing in-house infrastructure. 

Ready to explore cloud-based EDI solutions? Contact Orderful to find the best fit for your business needs.

On-Premise EDI vs. Cloud EDI FAQs

Can I Combine On-Premise EDI with Cloud EDI?

Yes — many companies use a hybrid approach, running part of their EDI system in-house and connecting to a cloud-based system for certain partners or transactions. This setup is common when businesses want to keep sensitive data on-site but still take advantage of the flexibility and scalability of cloud-based EDI for external partners.

For example, a company might handle important financial data with its in-house system but use cloud-based tools for purchase orders and shipping notices. This way, businesses can maintain control while still benefiting from cloud solutions.

How Does EDI Affect Relationships with Supply Chain Partners?

EDI helps create strong relationships with supply chain partners by making transactions run smoothly. It reduces errors, delays, and misunderstandings, so your partners will appreciate the speed and accuracy of your orders, invoices, and shipping notices. 

Many businesses expect EDI to be part of their collaboration, especially in the retail, manufacturing, and logistics industries. Using reliable EDI software — on-site or cloud-based — shows your partners you're committed to efficiency and working well together.

What’s a VAN, and Is It Still Used Today?

A value-added network (VAN) is a private network that securely transfers EDI documents between businesses, acting as a transaction go-between. VANs are still being used, especially by large companies with complex supply chains, but many businesses are now moving to direct connections or cloud-based EDI platforms. These newer methods are often faster and less expensive. However, if your partners still use a VAN, you may need to keep using it for your EDI setup.

What Happens if My EDI System Goes Down?

If your EDI system goes down, it can cause problems in your supply chain — orders might not go through, invoices might be late, and partners might miss important information. Your IT team has to fix the issue for on-premise systems, so it's important to have reliable backup plans and reliable equipment. 

With cloud EDI, the provider usually handles downtime, has backup systems, and offers around-the-clock support. However, it's still a good idea to check the provider's service agreements and recovery times before choosing one.