ELECTRONIC DATA INTERCHANGE

Electronic data interchange (EDI) is an electronic communication method that

provides standards for exchanging data via any electronic means. By adhering to

the same standard, two different companies, even in two different countries, can

electronically exchange documents (such as purchase orders, invoices, shipping

notices, and many others). EDI has existed for more than 30 years, and there are

many EDI standards (including X12, EDIFACT, ODETTE, etc.).

EDI includes the direct transmission of data between locations; transmission using

an intermediary such as a communication network; and the exchange of

computer tapes, disks, or other digital storage devices. In many cases, content-

related error checking and some degree of processing of the information are also

involved. EDI differs from electronic mail in that an actual transaction is

transmitted electronically, rather than a simple message consisting primarily of

text.

In other words we can say Electronic Data Interchange (EDI) is the computer-to-

computer exchange of business documents in a standard electronic

format between business partners.

Terms of definition

Computer-to-computer– EDI replaces postal mail, fax and email. While email is

also an electronic approach, the documents exchanged via email must still be

handled by people rather than computers. Having people involved slows down the processing of the documents and also introduces errors. Instead, EDI

documents can flow straight through to the appropriate application on the

receiver’s computer (e.g., the Order Management System) and processing can

begin immediately.

Business documents – These are any of the documents that are typically

exchanged between businesses. The most common documents exchanged via EDI

are purchase orders, invoices and advance ship notices. But there are many, many

others such as bill of lading, customs documents, inventory documents, shipping

status documents and payment documents.

Standard format– Because EDI documents must be processed by computers rather than humans, a standard format must be used so that the computer will

be able to read and understand the documents. A standard format describes what

each piece of information is and in what format (e.g., integer, decimal, mmddyy).

Without a standard format, each company would send documents using its

company-specific format and, much as an English-speaking person probably doesn’t understand Japanese, the receiver’s computer system doesn’t

understand the company-specific format of the sender’s format.

NOTE: There are several EDI standards in use today, including ANSI, EDIFACT,

TRADACOMS and ebXML. And, for each standard there are many different

versions, e.g., ANSI 5010 or EDIFACT version D12, Release A. When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard

and version.

Business partners – The exchange of EDI documents is typically between two

different companies, referred to as business partners or trading partners. For

example, Company A may buy goods from Company B. Company A sends orders to Company B. Company A and Company B are business partners.

COMPARING EDI AND FAX

Between EDI and fax in that both use telephones lines and both can travel from computer to computer (Sawabini, 1995). There are distinct differences however. Fax is primarily paper based and requires a human interface. Fax receipts are not generally acceptable to applications. Fax machines accept nonstandard data formats, and anything that can be scanned can be faxed, whereas EDI requires standard message formats between trading partners.

COMPARING EDI AND E-MAIL

Between e-mail and EDI. Both travel from computer to computer and both use an electronic mailbox. However, three of the four differences listed for EDI vs. fax also apply to EDI vs. e-mail: e-mail message format is not standard, e-mail requires human interface, and e-mail is not acceptable to applications.

EVOLUTION OF EDI

For more than 20 years, companies have been using Electronic Data Interchange (EDI) to transmit structured business documents like orders or invoices electronically. As opposed to paper-based communication, EDI is designed to make communication between different systems possible without media discontinuities.

PRE-1980’S BEFORE THERE WAS EDI

Prior to the mid-1980s, electronic computer file exchange was realistic only for a long companies with mainframe computer and knowledgeable IT staff. It only made economic sense to exchange file electronically if you have large trading partners with high volume of data. Data transmission lines are expensive, which made reel-to-reel tapes the most practical medium. The structure of the files being exchanged was determined by one or both parties, with no standards as a guide.

MID-1980S- EDI ATTRACTS ATTENSION

The first EDI standard emerged in the early of 1980s. The advent of personal computer (PC) made EDI a possibility for companies of any size. The first EDI translation software vender and Value Added Network begins services to help large companies bring their smaller supplies onto EDI. The start-up cost for suppliers easily reached $10,000 or more. Most ending up doing “rip and read” EDI, which entailed receiving a document electronically, printing it on a paper, and re-keying it into their business applications. To send a document back to a customer, the data would then be keyed into EDI translation software. This process turned EDI into a glorified fax machine.

EARLY TO MID-1990s

Largest companies who had integrated EDI with their business application from the outset were growing weary of the “rip and read” habit of smaller companies. As the number of transactions made by small companies increased, the surface of EDI also increased and new vendors offering software and services began to emerge.

LATE 1990s – THE INTERNET CHANGE EVERYTHING

EDI was no longer viewed as the only technology for doing business electronically. It was perceived as overly complicated and costly for small companies. The internet and the dot-com era spawned hundreds of new companies that were developing revolutionary applications for the internet. The reality was that the

companies who invested heavily in EDI were not allow to throw away their investments and start all over again because of XML. It made possible for companies to achieve 100% adoption of E-commerce with their trading partners.

The significant development in the late 1990s were

1> The realization of integrating EDI into business application was a necessity 2> The development of HIPPA EDI standard.

Early 2000s – EDI thrives once again The internet helped take EDI to a new level, much as the PC did in 1980s. Initiatives such as a WEB-EDI and integrating EDI make significant gain. The developers of the most popular business applications also recognized the importance of allowing EDI. TODAY – STILL MORE TO COME The EDI technology developed in past two decades have made it possible to conduct business in ways that couldn’t have been imagined in prior to the 1980s. The internet have the greatest impact, making it possible for a company of any size to do a business anywhere in the world

BENEFITS OF EDI

Time delays - Delays are caused primarily by two factors. Paper documents may

take days to transport from one location to another. In addition, manual

processing delays are caused by the need to key, file, retrieve, and compare data.

Labor costs - EDI systems, manual processing is required for data keying,

document storing and retrieving, sorting, matching, reconciling, envelope

stuffing, stamping, signing, etc. While automated equipment can help with some

of these processes, most managers will agree that labor costs for document

processing represents a significant proportion of their overhead. In general,

labor-based processes are much more expensive than non-labor-intensive

operations involving computers and telecommunications.

Errors - Because information is keyed multiple times and documents are

transported, stored, and retrieved by people, non-EDI systems tend to be error

prone.

Uncertainty- Uncertainty exists in two areas. First, paper transportation and other

manual processing delays mean that the time the document is received is

uncertain. Once a transaction is sent, the sender does not know when the

transaction will be received nor when it will be processed. Second, the sender

does not even know whether the transaction has been received at all nor whether

the receiver agrees with what was sent in the transaction.

High Inventories - Because of time delays and uncertainties in non EDI processing,

inventories are often higher than necessary. Lead times with paper processing are

long. In a manufacturing firm, it may be virtually impossible to achieve a just-in-

time inventory system with the time delays inherent in non-EDI processing

systems.

Information Access - EDI permits user access to a vast amount of detailed

transaction data—in a non-EDI environment this is possible only with great effort

and time delay. Because EDI data is already in computer-retrievable form, it is

subject to automated processing and analysis. Such information helps one

retailer, for example, monitor sales of toys by model, color, and customer zip

code. This enables the retailer to respond very quickly to changes in consumer

taste.

WORKING OF EDI

Step 1: Prepare the documents to be sent

The first step is to collect and organize the data. For example, instead of printing a purchase order, your system creates an electronic file with the necessary

information to build an EDI document. The sources of data and the methods

available to generate the electronic documents can include:

Human data entry via screens

Exporting PC-based data from spreadsheets or databases Reformatted electronic reports into data files

Enhancing existing applications to automatically create output files that are

ready for translation into an EDI standard

Purchasing application software that has built-in interfaces for EDI files

Step 2: Translate the documents into EDI format

The next step is to feed your electronic data through translator software to convert

your internal data format into the EDI standard format using the appropriate

segments and data elements. You can purchase EDI translation software that you

manage and maintain on your premises. This requires specialized mapping

expertise in order to define how your internal data is to be mapped (i.e. correlated)

to the EDI data. Translation software is available to suit just about any computing

environment and budget, from large systems that handle thousands of transactions daily to PC-based software that need only process a few hundred transactions per

week.

Alternatively, you can use the translation services of an EDI service provider. In that

case, you send your data to the provider, who handles translation to and from the

EDI format on your behalf.

Step 3: Connect and Transmit your EDI documents to your business partner

Once your business documents are translated to the appropriate EDI format they

are ready to be transmitted to your business partner. You must decide how you will

connect to each of your partners to perform that transmission. There are several

ways, the most common of which include 1) to connect directly using AS2 or another secure internet protocol, 2) connect to an EDI Network provider (also

referred to as a VAN provider) using your preferred communications protocol and

rely on the network provider to connect to your business partners using whatever

communications protocol your partners prefer, or 3) a combination of both,

depending on the particular partner and the volume of transactions you expect to exchange.

EDI STANDARDS

There are two main standards that define EDI 1>ANSI ASC X12

2> EDIFACT

ANSI ASC X12

The ANSI ASC EDI standard defines the data structure and content for business transactions transmitted between computer applications. The data is grouped to represent all the information required for a particular business function, such as a purchase order.

ASC X12 specifies business forms by defining standard data elements with dictionaries that specify name, length of data field, description, data type, and meaning.

Full X12 standard consists of:

o x12.3 Data element dictionary o x12.5 Interchange structure-the envelope o x12.6 Application control structure-the formal description of the EDI

architecture o x12.22 Directory of lists of related data elements-e.g. multiple lines of

address

UN/EDIFACT

United Nations Rules for Electronic Data Interchange For Administration,

Commerce and Transport (UN/EDIFACT) is a set of internationally agreed upon

standards, directories and guidelines for the electronic interchange of structured

data that relate, in particular, to trade in goods and services.

EDIFACT consists of data elements (a value), segments (a logical group of data elements), and messages (a collection of segments relating to a business function), and rules for combining them.

Each data element has attributes such as

coded tag or identifier(code dictionary) title plain text description format (length and datatype or class) year of insertion in Directory (previous issue in parenthesis)

The full standards consists of:

Data element directory (ISO 7372) Segment dictionary Message dictionary Syntax which defines a hierarchical structure with implicit data element

identification, flexible length data structures and mandatory or conditional status of data elements and segments.

COSTS ANALYSIS OF EDI

Costs EDI = Hardware Costs + Software Costs + Training Costs +

Maintenance Costs + Personnel Costs + Outside Support Costs +

Membership Costs + Communications Costs

The ‘Communication Costs’ involved in the above formula are comprised of two

major components as shown in the following:

Communications Costs = Communication Setup Costs + Communication Recurring

Costs

The ‘Communication Setup Costs’ differ from one organisation to another,

depending on the third party service providers involved. There are a number of

costs involved in the

‘Communication Recurring Costs’ which are formulated in the following.

Communication Recurring Costs = Login Costs + Connection Costs +

Transmission Costs + Subscription Costs

ELECTRONIC TRADING NETWORK

An electronic communication network (ECN) is a financial term describing a type

of computerized forum or network that facilitates the trading of financial

products outside of traditional stock exchanges.

EDI COMPONENTS

EDI processing is the most efficient method of transferring business documents.

There are four component of EDI.

Data Standards

What Standards Address. Whether following ANSI ASC X12 or EDIFACT, the standards define the structure of data within various documents. A single EDI transmission may include one or more documents, such as invoices, insurance claims, etc.

Trading Partners

In the EDI Gateway, the trading partner is defined as any address in Oracle Applications. This allows the conversion of location codes between the sender's defined code in their application to the receiver's defined code in their Oracle Application and vice versa.

Translation Software

EDI translation software provides the interface between internal systems and the EDI format sent/received.

Value Added Networks (VANs)

A Value Added Network (VAN) is a service provider that transmits your EDI data to their destinations. Value Added Networks simplify the communication process by reducing the number of parties that you have to communicate with. VANs insert themselves between trading partners. They typically operate as a mailbox scenario where a company would send a transaction to a VAN and the VAN would then place the transaction in the mailbox of the receiver. The receiver would then contact the VAN to pick up and send its transactions. It is similar to e-mail, but rather than being

unstructured text, it is used for structured standardized data. Easy Link operates a Value Added Network that provides this ‘mailboxing’ type of service and transmits the data using the Internet.

EDI SERVICES

Booking requests Booking confirmations Shipping orders Bills of lading Cargo status Sailing schedules

EDI SOFTWARE

Implementing EDI software behind a company firewall is sometimes the preferred

option. This approach assumes that a company has the correct internal resources

to be able to implement the software and maintain it on an ongoing basis.

Implementing electronic data interchange software will require resources that can

understand how to map between different document types, how to onboard or

connect to business partners and possibly provide integration to other business

applications such as accounting packages or ERP software.

Once the software has been installed, IT resources will be required to maintain it

on an ongoing basis. This will include upgrading the software environment when

required.

Many companies, especially smaller-sized businesses, may not have the internal IT

resources to manage their own EDI environment and for this reason they will

choose to use hosted- or Software-as-a-Service-based EDI offerings instead.

BUSINESS APPROACH OF EDI

EDI provides a technical infrastructure upon which such re-engineering of the organisation can be supported. An appropriate model for EDI-based business re-engineering is the Enterprise-wide Information Management (EwIM) model. EwIM considers firms from two perspectives - the business activities carried out by the enterprise, together with the technology which supports these business activities – and classifies the planning activities undertaken in both these domains:

business domain planning, which itself falls into two categories:

• Portfolio planning to assist in the allocation of resources and • Business strategy planning (after Porter), which attempts to use the line of

Business as a basis for strategic thrusts into the marketplace

Technology domain planning, essentially based on architecture/ infrastructure. EwIM permits a synergistic approach to the links between these two foci and leads to the development of an action plan enabling a contingency-based attitude to the planning process.

The additional dimension which EDI adds to this model is the facility to link business systems in a seamless fashion. The internationally-agreed standards for document translation (which are EDI's single most important factor) provide the consistent link between applications systems no matter how or from whom derived Although EDI itself offers little that is new in a technological sense (the majority of EDI schemes use comparatively old-fashioned batch technology), the ability to link input/output from a variety of application systems provides the underpinning needed for a revised view of the organisation's information

needs. There is no longer a requirement to design information systems on the basis of paper-based information flows.

THE BUSINESS FUTURE OF EDI

Electronic Data Interchange (EDI)—in existence for 25 years—is the stable

component of conducting electronic commerce (EC) on the Internet. Technology

has experienced tremendous growth during this time, making EDI an essential

tool for businesses in today’s global marketplace. Two significant factors

contributed to this success: the Internet and standardization.

EDI is contributing not just to inter-industry growth, but to increased trade between countries. Until EDI became prevalent, many organizations involved in international business were not able to electronically communicate critical business documents such as advance ship notices or custom forms. Today these transactions take place routinely and seamlessly, helping increase productivity while reducing costs and administrative tasks.

The future of EDI is clear. Now that electronic commerce on the Internet is predicted to grow to a multibillion dollar industry by the year 2000, EDI and the X12 standards will become the mainstay for this growth. The emergence of X12 served to increase EDI compatibility with Internet protocols. As a result, EDI is increasingly accessible through this network. With simply a computer and an on-line browser, businesses can link into secure EDI networks for a minimal investment. By engaging in EDI through the Internet, small and medium-sized firms can compete for business on a level playing field with large organizations; expand their market globally; and improve relationships with their current trading partners.

EDI SECURITY