electronic data interchange ec kieran mathieson decision and information sciences school of business...

Electronic Data Interchange

EC

Kieran MathiesonDecision and Information SciencesSchool of Business Administration

Oakland Universitymathieso@oakland.edu

EC Outline What is EDI? The Business Case for EDI EDI Standards Implementing EDI EDI and the Internet

EC What is EDI? Interprocess (computer application to

computer application) communication of business documents in a standardized electronic form– No rekeying

– Data usually transmitted by networks

– May involve intermediaries

EC What is EDI?

FormatOriginal

Document

FormatOriginal

Document

Firm 1

Firm 2

Network

EC Questions How is the data formatted? What network is used? What are the network specifications?

– Protocol, speed, etc. What if firms participate in many

relationships? Do the firms’ internal systems change? What about security?

EC EDI Necessity: Standards Both sides must use the same formats Standards provide the formatting rules Bunch o’ standards organizations

– ANSI ASC X 12– UN/EDIFACT– UCC– AIAG

They are drawing together

EC EDI Helper: VANs Value added networks mediate EDI

exchanges

Firm

Firm

Firm

Firm

Firm

Firm

Firm

VAN

EC

Association

A Scenario

Firm 1 Firm 2

Bank 1 Bank 2

Firm’s purchasing system generates an order

Order is sent to firm 2Order ack sent to firm 1

Firm’s inventory system checks order - can fill at once

Shipping system generates shipping note

Shipping note sent to firm 1Note ack sent to firm 2

Payment request sent to firm 2’s bank

Ack sent to firm 2

Payment check sent to bank 1

Ack sent to bank 2

Ack sent to bank 1

Firm’s accounts payable system checks request

Confirmation sent to bank 1Ack sent to firm 1

Confirmation sent to bank 2Ack sent to bank 1

Confirmation sent to firm 2Ack sent to bank 2Payment check sent to firm 1

EC The Big Question

Why invest in EDI?

EC The Business Case: Cost

PCWeek, Sept, 1997

EC The Business Case: Cost EDI can reduce

– Time delays• Document transportation

• Manual document processing

– Labor costs• Keying, filing, document matching, …

– Errors– Inventory

• Some inventory held because of processing delays

EC The Business Case: CostProctor & Gamble and H.E. Butt grocery EDI for Grocery Logistics project resulted in the following one-year improvements: Reduction of over 3,000 labor hours - 1,700 in order

processing hours and 1,300 paper administration and data rekeying hours

80% increase in speed of new items delivered to stores, price changes made and promotions implemented

75% decrease in invoice deductions

X 12 General Session MinutesOctober 5, 1998

EC The Business Case: CostThe AIAG estimates that implementing EDI-style interactions via the Internet through four levels of the automotive supply chain would save manufacturers $71 per vehicle.

That's about $1 billion annually industry-wide.

EC The Business Case: Strategy EDI enables new ways of doing

business– JIT– Mass customization

These would be too costly without EDI Could Visa be “Everywhere you want

to be” without EDI?

EC Outline What is EDI? The Business Case for EDI EDI StandardsEDI Standards Implementing EDI EDI and the Internet

EC Standards Two levels

– Communication standards• Network protocols, connection speeds, etc.

• Concerned with getting data from one place to another, not what it means

– Transaction standards• Concerned with what the data means

• “Transaction sets” for many different types of transactions

EC Standards Groups Economy-wide

– Work with many industries– X 12, EDIFACT

Industry-specific– Work with one or a few related industries– UCC, AIAG– Often implement broader standards

• HIAG implements X 12 for healthcare

Proprietary

EC Standards Groups Increasing attention to coordination

between groups– UCC and X 12– X 12 - “alignment” with EDIFACT

Important for international trade Important for cross-industry

relationships

EC Enforceable EDI transactions must have the same

legal force as other transactions– Role for government in EDI

Lack of enforcement is a barrier to doing EDI in some countries

EC Payment Systems EDI for ordering, etc., should be

supported by EFT for payment Bank association agreements, credit

card company payment systems, etc., important to EDI– Agreements between can make payments

as fast as orders

EC Standards Example VICS

– Voluntary Inter-Industry Commerce Standard, used by the general merchandise retail industry

– VICS EDI Retail Users Group formed in 1986 to interpret and expand X12

– Used by over 1,000 companies

http://www.uc-council.org/

EC Sample VICS Transaction Sets163-Transportation Appointment Schedule Information

Used by a transportation carrier and their trading partners to request and accept freight pick-up and delivery appointments.

180-Return Merchandise Authorization and NotificationUsed to return merchandise to the vendor. This transaction set may satisfy request for returns, authorization or disposition of the return, notification of return or notification of consumer return.

204-Motor Carrier Loan TenderUsed to tender a shipment to a carrier and/or forward shipment details to a carrier, consignee or third party. Provides the receiver with detailed Bill of Lading rating and scheduling information pertinent to a shipment.

EC VICS Transaction Example Invoicing (transaction set 810)

ST8100001BIG19981004594000940019980815005001234500REFDP10REFPDF948325N1BY92001…This simple transaction has 19 parts in total

Trans set ID

Trans set control number

Invoice date

Invoice number

PO date

PO number

Why is this so complex?- Because business is complex- The transactions mirror that complexity

EC Transaction Set Sequences Need to know how

transaction sets are used together to complete a business operation

From ActionLINE, the AIAG magazine, Jan/Feb 1999, p. 23

EC Outline What is EDI? The Business Case for EDI EDI Standards Implementing EDIImplementing EDI EDI and the Internet

EC Implementing EDI Main issues:

1. Business relationships

2. Internal transaction systems

3. Translation to standards

4. Secure networks

EC 1. Business Relationships If you receive an order and fulfill it,

will you get paid? If you place an order, will it be shipped

on time? Create agreements before EDI

– Two-party contracts– Intermediary

• E.g., VISA’s merchant accounts

EC 2. Internal Transaction Systems Are your internal transaction processing

systems ready for EDI?– Batch vs. real-time systems

Are your people ready for EDI?– Accountants– Auditors– Shippers– Receivers

Automatic ordering gives some people the heebie jeebies

EC 3. Translation to Standards Translate your internal formats to

standards– Packages readily available– ERP systems often include these features,

or make them available– VANs can help

Joining a standards organization?– Need to get, e.g., a merchant id– Could let VAN handle the details

EC 3. Translation to Standards Translation software from GEIS:

– EDI Application Integrator• UNIX based

• User specifies mappings from internal formats

– EDI*TRANSIT DOS • Similar product for DOS

– Intercept Plus AS/400• Similar product for AS/400

• Over 30,000 installations world-wide

EC 4. Secure Networks Two issues

– Authentication– Encryption

Much EDI happens on private networks– Easier to secure

Internal fraud often more of a threat than message interception– Humans don’t review transactions

EC Outline What is EDI? The Business Case for EDI EDI Standards Implementing EDI EDI and the InternetEDI and the Internet

EC EDI and the Internet Why the interest in the Internet?

– Low cost• Connections to the Internet are cheap

• Bandwidth available on demand

• Internet links used for many purposes

– Pervasive• The Internet is everywhere

• Can create broader markets, with firms of all sizes able to interact

EC But... Security

– Internet traffic can be intercepted Reliability

– No service level guarantees (yet)

EC EDI and the Internet: Scenarios

What is the Internet going to do to EDI?

1. No effect

2. VANs integrate the Internet into their offerings

3. New standards designed for the Internet

EC Scenario 1: No Effect Large trading partners will continue to

use private networks for EDI– Easier to secure– Cost effective with sufficient transaction

volume Private networks still exist, and more

are being developed– ANX

EC Scenario 2: VANs Integrate Why do firms use VANs?

…the report did not find cost to be a significant motivating factor for EDI users to move to the Internet…. Assistance in converting trading partners to EDI, accountability in case of lost transactions, and logging audit trails were cited by users as some of the most sought-after value-added services provided by VANs.

EDI Insider, on a 1996 survey by Input, a consulting firm

EC Scenario 2: VANs Integrate The Internet sends bytes around...

… but VANs provide many other services VANs might use the Internet to offer

cheaper connectivity to small customers Problems

– Security - certificates, tunneling protocols– Reliability - good connections, lower

service level expectations Is this happening?

EC Scenario 2: VANs IntegrateGEIS president and CEO Harvey Seegers confirmed the company is looking into new Web app services aimed at attracting a new kind of EDI customer.

During the past two years, the company’s TradeWeb Internet-EDI transaction service, along with the Trading Process Network for posting EDI-based bid forms on the Web, have attracted 4,000 new corporate customers, a 10 percent increase. Moreover, all of the new customers represent firms that never would have subscribed to the VAN model, Seegers said. In contrast, TradeWeb costs a flat $50 per month.

Internet Week, March 30, 1998

EC Scenario 3: New Standards Several developing Internet-oriented EDI

standards– OBI (Open Buying over the Internet)

• Underwritten by American Express

– The Value-Chain Initiative• From Microsoft

– XML/EDI• From the XML/EDI Group• “Grass-roots organization”• Members include AT&T, Perot

Systems, Motorola, Sprint and NIH

EC XML/EDI “The Power of Five”

– EDI– XML - allows custom tags– Templates - process logic specs

• How to process transactions

– Agents• Execute the templates

– Repository• Definitions of elements

EC XML HTML controls formatting

– What pages look like XML is about data

– What data means– Use HTML-like tag sets to describe

transactions, products, people, ...– Use public “standard” tags, or create your

own

EC XML Example<weather-report><date>March 25, 1998</date> <time>08:00</time><area>

<city>Seattle</city><state>WA</state><region>West Coast</region><country>USA</country>

</area><measurements>

<skies>partly cloudy</skies><temperature>46</temperature>...

</measurements>...

</weather-report>

EC Interpreting XML Document Type Definitions

– Accompany XML documents– Describe rules for particular XML tags– Used to parse XML

XML Schema– Generalized DTDs– Claimed to be better for automatic

processing– More details on how data fits together

ECXML Schema Example

<student studentID="13429"><name>Jane Smith</name><GPA>3.8</GPA>

</student>

<Schema ...><AttributeType name='studentID'

dt:type='string' required='yes'/><ElementType name='name' content='textOnly'><ElementType name='GPA' content='textOnly'

dt:type='float'/><ElementType name='student' content='mixed'>

<attribute type='studentID'/><element type='name'/><element type='GPA'/>

</ElementType>

<ElementType name='class' content='eltOnly'> <element type='student'/>

</ElementType></Schema>

EC Meaning Still need agreement on what data

elements mean– What is a GPA?– What is its range and type? – Does it include grades from courses that

were retaken? Courses taken 20 years ago? Transfer courses?

– XML does not address this Need agreed definitions of elements

– Standard DTDs or XML Schema

EC CommerceNet 500-member ecommerce consortium Proposes the XML-based Common

Business Language (CBL)– Describes product- and service-catalog

software, metadata about business rules and systems, and software for forms and messages

Much of the CBL is drawn from existing EDI dictionaries

CommerceNet wants industry groups to use CBL as a basis for specific DTDs

EC Standard DTDs

From Commerce.Net

EC Where Is This Going? XML-based industry standards are key

– Need equivalent of X12 standards with strong semantic content

They are developing Who knows what the future will hold?

EC Outline What is EDI? The Business Case for EDI EDI Standards Implementing EDI EDI and the Internet