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Electronic data interchange (EDI) is the structured transmission of data between organizations by electronic means.

It is used to transfer electronic documents or business data from one computer system to another computer system, i.e. from one trading partner to another trading partner without human intervention. It is more than mere e-mail; for instance, organizations might replace bills of lading and even cheques with appropriate EDI messages. It also refers specifically to a family of standards, e.g. UN/EDIFACT, ANSI X12. The National Institute of Standards and Technology in a 1996 publication [1] defines electronic data interchange as "the computer-to-computer interchange of strictly formatted messages that represent documents other than monetary instruments. EDI implies a sequence of messages between two parties, either of whom may serve as originator or recipient. The formatted data representing the documents may be transmitted from originator to recipient via telecommunications or physically transported on electronic storage media.". It goes on further to say that "In EDI, the usual processing of received messages is by computer only. Human intervention in the processing of a received message is typically intended only for error conditions, for quality review, and for special situations. For example, the transmission of binary or textual data is not EDI as defined here unless the data are treated as one or more data elements of an EDI message and are not normally intended for human interpretation as part of online data processing."
[1]

EDI can be formally defined as 'The transfer of structured data, by agreed message standards, from one computer system to another without human intervention'. Most other definitions used are variations on this theme. Even in this era of technologies such as XML web services, the Internet and the World Wide Web, EDI may be the data format used by the vast majority of electronic commerce transactions in the world.

[edit]Standards EDI is considered to be a technical representation of a business conversation between two entities, either internal or external. Note that there is a perception that "EDI" constitutes the entire electronic data interchange paradigm, including the transmission, message flow, document format, and software used to interpret the documents. EDI is considered to describe the rigorously standardized format of electronic documents. EDI is very useful in supply chain. The EDI standards were designed to be independent of communication and software technologies. EDI can be transmitted using any methodology agreed to by the sender and recipient. This includes a variety

of technologies, including modem (asynchronous, and bisynchronous), FTP, E-mail, HTTP, AS1, AS2, etc. It is important to differentiate between the EDI documents and the methods for transmitting them. When they compared the bisynchronous protocol 2400 bit/s modems,CLEO devices, and value-added networks used to transmit EDI documents to transmitting via the Internet, some people equated the nonInternet technologies with EDI and predicted erroneously that EDI itself would be replaced along with the non-Internet technologies. These non-internet transmission methods are being replaced by Internet Protocols such as FTP, telnet, and E-mail, but the EDI documents themselves still remain. As more trading partners use the Internet for transmission, standards have emerged. In 2002, the IETF published RFC 3335, offering a standardized, secure method of transferring EDI data via e-mail. On July 12, 2005, an IETF working group ratified RFC4130 for MIME-based HTTP EDIINT (aka. AS2) transfers, and is preparing a similar RFC for FTP transfers (aka. AS3). While some EDI transmission has moved to these newer protocols, the providers of the value-added networks remain active. EDI documents generally contain the same information that would normally be found in a paper document used for the same organizational function. For example an EDI 940 ship-from-warehouse order is used by a manufacturer to tell a warehouse to ship product to a retailer. It typically has a ship to address, bill to address, a list of product numbers (usually a UPC code) and quantities. It may have other information if the parties agree to include it. However, EDI is not confined to just business data related to trade but encompasses all fields such as medicine (e.g., patient records and laboratory results), transport (e.g., container and modal information), engineering and construction, etc. In some cases, EDI will be used to create a new business information flow (that was not a paper flow before). This is the case in the Advanced Shipment Notification (856) which was designed to inform the receiver of a shipment, the goods to be received and how the goods are packaged. There are four major sets of EDI standards:  The UN-recommended UN/EDIFACT is the only international standard and is predominant outside of North America.   The US standard ANSI ASC X12 (X12) is predominant in North America. The TRADACOMS standard developed by the ANA (Article Numbering Association) is predominant in the UK retail industry.  The ODETTE standard used within the European automotive industry

All of these standards first appeared in the early to mid 1980s. The standards prescribe the formats, character sets, and data elements used in the exchange of business documents and forms. The complete X12 Document List includes all major business documents, including purchase orders (called

"ORDERS" in UN/EDIFACT and an "850" in X12) and invoices (called "INVOIC" in UN/EDIFACT and an "810" in X12). The EDI standard says which pieces of information are mandatory for a particular document, which pieces are optional and give the rules for the structure of the document. The standards are like building codes. Just as two kitchens can be built "to code" but look completely different, two EDI documents can follow the same standard and contain different sets of information. For example a food company may indicate a product's expiration date while a clothing manufacturer would choose to send color and size information.

[edit]Specifications Organizations that send or receive documents between each other are referred to as "trading partners" in EDI terminology. The trading partners agree on the specific information to be transmitted and how it should be used. This is done in human readable specifications (also called Message Implementation Guidelines). While the standards are analogous to building codes, the specifications are analogous to blue prints. (The specification may also be called a mapping but the term mapping is typically reserved for specific machine readable instructions given to the translation software.) Larger trading "hubs" have existing Message Implementation Guidelines which mirror their business processes for processing EDI and they are usually unwilling to modify their EDI business practices to meet the needs of their trading partners. Often in a large company these EDI guidelines will be written to be generic enough to be used by different branches or divisions and therefore will contain information not needed for a particular business document exchange. For other large companies, they may create separate EDI guidelines for each branch/division. [edit]Transmission Trading partners are free to use any method for the transmission of documents. In the past one of the more popular methods was the usage of a bisync modem to communicate through a value added network (VAN). Some organizations have used direct modem to modem connections and bulletin board systems (BBS), and recently there has been a move towards using some of the many Internet protocols for transmission, but most EDI is still transmitted using a VAN. In the healthcare industry, a VAN is referred to as a "clearinghouse". [edit]Value-added

networks

In the most basic form, a VAN (value-added network) acts as a regional post office. They receive transactions, examine the 'from' and the 'to' information, and route the transaction to the final recipient. VANs provide a number of additional services, e.g. retransmitting documents, providing third party audit

information, acting as a gateway for different transmission methods, and handling telecommunications support. Because of these and other services VANs provide, businesses frequently use a VAN even when both trading partners are using Internet-based protocols. Healthcare clearinghouses perform many of the same functions as a VAN, but have additional legal restrictions that govern protected healthcare information. VANs also provide an advantage with certificate replacement in AS2 transmissions. Because each node in a traditionally business-related AS2 transmission usually involves a security certificate, routing a large number of partners through a VAN can make certificate replacement much easier. Value Added Networks   Value Added Networks are the go-between in EDI communications. The VAN is responsible for routing, storing and delivering EDI messages. They also provide delivery reports  Depending on the VAN type, messages may need extra envelopes or may be routed using intelligent *VANs which are able to read the EDI message itself.  VANs may be operated by various entities

Telecom companies   Industry group consortiums A large company interacting with its suppliers/vendors

[edit]Internet/AS2 Until recently, the Internet transmission was handled by nonstandard methods between trading partners usually involving FTP or email attachments. There are also standards for embedding EDI documents into XML. Many organizations are migrating to this protocol to reduce costs. For example, Wal-Mart is now requiring its trading partners to switch to the AS2 protocol (Wal-Mart EDI Requirement). AS2 (Applicability Statement 2) is the draft specification standard by which vendor applications communicate EDI or other business-to-business data (such as XML) over the Internet using HTTP, a standard used by the World Wide Web. AS2 provides security for the transport payload through digital signatures and data encryption, and ensures reliable, non-repudiable delivery through the use of receipts. [edit]EDI

via the Internet (Web EDI)

The Internet, as with VAN providers, uses its own communications protocols to ensure that EDI documents are transmitted securely. The most popular protocols are File Transfer Protocol Secure (FTPS), Hyper Text Transfer Protocol Secure (HTTPS), and AS2. The Internet has provided a means for any company, no matter how small or where they are located in the world, to become part of a major supply chain initiative hosted by a global retailer or manufacturing

company. Many companies around the world have shifted production of labour intensive parts to low-cost, emerging regions such as Brazil, Russia, India, China, and Eastern Europe. Web-based EDI, or webEDI, allows a company to interact with its suppliers in these regions without the worry of implementing a complex EDI infrastructure. In its simplest form, webEDI enables small to medium-sized businesses to receive, turn around, create and manage electronic documents using just a web browser. This service seamlessly transforms your data into EDI format and transmits it to your trading partner. Simple pre-populated forms enable businesses to communicate and comply with their trading partners' requirements using built-in business rules. Using a friendly web-based interface, EDI transactions can be received, edited and sent as easily as an email. You will also be able to receive EDI documents and send EDI invoices and shipping documents with no software to install. All you require is an Internet connection. WebEDI has the added advantages that it is accessible anywhere in the world and you do not need a dedicated IT person to manage any software installation. Even though VANs offer a very secure and reliable service to companies wishing to trade electronically, the Internet is making EDI more available to all. This is especially important in the emerging markets where IT awareness and infrastructure are very limited. WebEDI is traditionally based on the "hub and spoke'"model, with major trading partners or Application Service Providers (ASPs) being the hubs and smaller partners being the spokes.   Hubs or ASPs implement EDI using email or virtual mailboxes Trading partners can send EDI messages directly to a web-enabled EDI messaging site, via the hub. EDI messages are simply sent using a web browser  Systems that are currently being developed will enable EDI messages to be displayed in a web browser and directed via open standard XML, directly into the user's accounts system  WebEDI-based users can interact with VANs without incurring the costs of setting up a dedicated VAN connection [edit]Interpreting

data

Often missing from the EDI specifications (referred to as EDI Implementation Guidelines) are real world descriptions of how the information should be interpreted by the business receiving it. For example, suppose candy is packaged in a large box that contains 5 display boxes and each display box contains 24 boxes of candy packaged for the consumer. If an EDI document says to ship 10 boxes of candy it may not be clear whether to ship 10 consumer packaged boxes, 240 consumer packaged boxes or 1200

consumer packaged boxes. It is not enough for two parties to agree to use a particular qualifier indicating case, pack, box or each; they must also agree on what that particular qualifier means. EDI translation software provides the interface between internal systems and the EDI format sent/received. For an "inbound" document the EDI solution will receive the file (either via a Value Added Network or directly using protocols such as FTP or AS2), take the received EDI file (commonly referred to as a "mailbag"), validate that the trading partner who is sending the file is a valid trading partner, that the structure of the file meets the EDI standards and that the individual fields of information conforms to the agreed upon standards. Typically the translator will either create a file of either fixed length, variable length or XML tagged format or "print" the received EDI document (for non-integrated EDI environments). The next step is to convert/transform the file that the translator creates into a format that can be imported into a company's back-end business systems or ERP. This can be accomplished by using a custom program, an integrated proprietary "mapper" or to use an integrated standards based graphical "mapper" using a standard data transformation language such as XSLT. The final step is to import the transformed file (or database) into the company's back-end enterprise resource planning (ERP). For an "outbound" document the process for integrated EDI is to export a file (or read a database) from a company's back-end ERP, transform the file to the appropriate format for the translator. The translation software will then "validate" the EDI file sent to ensure that it meets the standard agreed upon by the trading partners, convert the file into "EDI" format (adding in the appropriate identifiers and control structures) and send the file to the trading partner (using the appropriate communications protocol). Another critical component of any EDI translation software is a complete "audit" of all the steps to move business documents between trading partners. The audit ensures that any transaction (which in reality is a business document) can be tracked to ensure that they are not lost. In case of a retailer sending a Purchase Order to a supplier, if the Purchase Order is "lost" anywhere in the business process, the effect is devastating to both businesses. To the supplier, they do not fulfill the order as they have not received it thereby losing business and damaging the business relationship with their retail client. For the retailer, they have a stock outage and the effect is lost sales, reduced customer service and ultimately lower profits. In EDI terminology "inbound" and "outbound" refer to the direction of transmission of an EDI document in relation to a particular system, not the direction of merchandise, money or other things represented by the document. For example, an EDI document that tells a warehouse to perform an outbound shipment is an inbound document in relation to the warehouse computer system. It is an outbound document in relation to the manufacturer or dealer that transmitted the document. [edit]Advantages

of using EDI over paper systems

EDI and other similar technologies save a company money by providing an alternative to, or replacing information flows that require a great deal of human interaction and materials such as paper documents, meetings, faxes, etc. Even when paper documents are maintained in parallel with EDI exchange, e.g. printed shipping manifests, electronic exchange and the use of data from that exchange reduces the handling costs of sorting, distributing, organizing, and searching paper documents. EDI and similar technologies allow a company to take advantage of the benefits of storing and manipulating data electronically without the cost of manual entry. Another advantage of EDI is reduced errors, such as shipping and billing errors, because EDI eliminates the need to rekey documents on the destination side. One very important advantage of EDI over paper documents is the speed in which the trading partner receives and incorporates the information into their system thus greatly reducing cycle times. For this reason, EDI can be an important component of just-in-time production systems. According to the 2008 Aberdeen report "A Comparison of Supplier Enablement around the World", only 34% of purchase orders are transmitted electronically in North America. In EMEA, 36% of orders are transmitted electronically and in APAC, 41% of orders are transmitted electronically. They also report that the average paper requisition to order costs a company $37.45 in North America, $42.90 in EMEA and $23.90 in APAC. With an EDI requisition to order costs are reduced to $23.83 in North America, $34.05 in EMEA and $14.78 in APAC. [edit]Barriers

to implementation

There are a few barriers to adopting electronic data interchange. One of the most significant barriers is the accompanying business process change. Existing business processes built around slow paper handling may not be suited for EDI and would require changes to accommodate automated processing of business documents. For example, a business may receive the bulk of their goods by 1 or 2 day shipping and all of their invoices by mail. The existing process may therefore assume that goods are typically received before the invoice. With EDI, the invoice will typically be sent when the goods ship and will therefore require a process that handles large numbers of invoices whose corresponding goods have not yet been received. Another significant barrier is the cost in time and money in the initial set-up. The preliminary expenses and time that arise from the implementation, customization and training can be costly and therefore may discourage some businesses. The key is to determine what method of integration is right for the company which will determine the cost of implementation. For a business that only receives one P.O. per year from a client, fully integrated EDI may not make economic sense. In this case, businesses may implement inexpensive "rip and read" solutions or use outsourced EDI solutions provided by EDI "Service Bureaus". For other businesses, the implementation of an integrated EDI solution may be necessary as increases in

trading volumes brought on by EDI force them to re-implement their order processing business processes. The key hindrance to a successful implementation of EDI is the perception many businesses have of the nature of EDI. Many view EDI from the technical perspective that EDI is a data format; it would be more accurate to take the business view that EDI is a system for exchanging business documents with external entities, and integrating the data from those documents into the company's internal systems. Successful implementations of EDI take into account the effect externally generated information will have on their internal systems and validate the business information received. For example, allowing a supplier to update a retailer's Accounts Payables system without appropriate checks and balances would be a recipe for disaster. Businesses new to the implementation of EDI should take pains to avoid such pitfalls. Increased efficiency and cost savings drive the adoption of EDI for most trading partners. But even if a company would not choose to use EDI on their own, pressures from larger trading partners (called hubs) often force smaller trading partners to use EDI. An example of this is Wal-Mart`s insistence on using EDI with all of its trading partners; any partner not willing to use EDI with Wal-Mart will not be able to do business with the company. [edit]Examples [edit]United

of disadvantages of EDI

States health care systems

The United States health care system consists of thousands of different companies and other entities. In 1996, the Health Insurance Portability and Accountability Act (HIPAA) was enacted. In short, it set down standard transaction sets for specific EDI transactions and mandated electronic support for every insurance company in the United States for these transactions. While the benefits of EDI are numerous and only increase with increased volume, the drawbacks, though not directly related to EDI itself, include managerial problems in the support, maintenance and implementation of EDI transactions. 1. Though an EDI standard exists for health care transactions, the standard allows for variation between implementation, which gives way to the existence of Companion Guides, detailing each
[2] company's variation .

2. Each entity may have a different method of delivery, ranging from dial-up BBS systems[3]; mailing hard media such as a CD-ROM or tape backup; or FTP[4]. Some entities may elect not to support different methods of delivery depending on a trading partner's expected volume. 3. Due to varying implementation on nearly all points of EDI including contact, registration, submission and testing of transactions between different entities in US health care, the existence of EDI clearinghouses has sprung up. An EDI clearinghouse is one entity agreeing to act as a

middle-man between multiple entities and their end-clients, such as between medical providers and insurance companies they accept coverage from. They may act as a value-added network and attempt to conform their different supported entities to one submission standard. One such example is Emdeon. An EDI clearinghouse will not cover all health care entities, though they may cover a large portion, and they may not cover all HIPAA-mandated transactions for all of their supported entities. 4. Because of the above points, one single computer application cannot handle all health care entities. Though this may not be necessary, it can lead to an obvious management headache as a company attempts to register itself with various EDI partners. This all comes at a massive cost in time and management as a company may attempt to support a broad range of transactions with a broad range of entities. This example is an extension of the lack of strict standards across implementations, transactions and methods. In 1992, a survey of Canadian businesses found at least 140 that had adopted some form of EDI, but that many (in the sample) "[had] not benefited from implementing EDI, and that they [had] in fact been disadvantaged by it." [5] BY: Nivedita

Definition
Electronic Data Interchange (EDI) may be most easily understood as the replacement of paper-based purchase orders with electronic equivalents. It is actually much broader in its application than the procurement process, and its impacts are far greater than mere automation. EDI offers the prospect of easy and cheap communication of structured information throughout the corporate community, and is capable of facilitating much closer integration among hitherto remote organisations. A more careful definition of EDI is 'the exchange of documents in standardised electronic form, between organisations, in an automated manner, directly from a computer application in one organisation to an application in another'.

Architecture for EDI


EDI can be compared and contrasted with electronic mail (email). Email enables freeformat, textual messages to be electronically transmitted from one person to another. EDI, on the other hand, supports structured business messages (those which are expressed in hard-copy, pre-printed forms or business documents), and transmits them electronically between computer applications, rather than between people. The essential elements of EDI are:

the use of an electronic transmission medium (originally a value-added network, but increasingly the open, public Internet) rather than the despatch of physical storage media such as magnetic tapes and disks; the use of structured, formatted messages based on agreed standards (such that messages can be translated, interpreted and checked for compliance with an explicit set of rules); relatively fast delivery of electronic documents from sender to receiver (generally implying receipt within hours, or even minutes); and direct communication between applications (rather than merely between computers).

EDI depends on a moderately sophisticated information technology infrastructure. This must include data processing, data management and networking capabilities, to enable the efficient capture of data into electronic form, the processing and retention of data, controlled access to it, and efficient and reliable data transmission between remote sites. A common connection point is needed for all participants, together with a set of electronic mailboxes (so that the organisations' computers are not interrupted by one another), and security and communications management features. It is entirely feasible for organisations to implement EDI directly with one another, but it generally proves advantageous to use a third-party network services provider.

Benefits of EDI
EDI's saves unneccessary re-capture of data. This leads to faster transfer of data, far fewer errors, less time wasted on exception-handling, and hence a more stream-lined business process. Benefits can be achieved in such areas as inventory management, transport and distribution, administration and cash management. EDI offers the prospect of easy and cheap communication of structured information throughout the government community, and between government agencies and their suppliers and clients. EDI can be used to automate existing processes. In addition, the opportunity can be taken to rationalise procedures, and thereby reduce costs, and improve the speed and quality of services. Because EDI necessarily involves business partners, it can be used as a catalyst for gaining efficiencies across organisational boundaries. This strategic potential inherent in EDI is expected to be, in the medium term, even more significant that the short-term cost, speed and quality benefits.

History of EDI

The early applications of what became known as EDI were undertaken in the United States. The idea's origins have an international flavour, however, being traceable back to the 1948 Berlin Airlift, where the task of co-ordinating airfreighted consignments of food and consumables (which arrived with differing manifests, languages and numbers of copies) was addressed by devising a standard manifest. Electronic transmission commenced during the 1960s, initially in the rail and road transport industries. The standardisation of documents was a necessary concomitant to that change. In 1968 the United States Transportation Data Coordinating Committee (TDCC) was formed, to coordinate the development of translation rules among four existing sets of industry-specific standards. A further significant move towards standardisation came with the X12 standards of the American National Standards Institute (ANSI), which gradually extended and replaced those created by the TDCC. At about the same time, the U.K. Department of Customs and Excise, with the assistance of SITPRO (the British Simplification of Trade Procedures Board), was developing its own standards for documents used in international trade, called Tradacoms. These were later extended by the United Nations Economic Commission for Europe (UNECE) into what became known as the GTDI (General-purpose Trade Data Interchange standards), and were gradually accepted by some 2,000 British exporting organisations. Problems created by the trans-Atlantic use of two different (and largely incompatible) sets of standardised documents have been addressed by the formation of a United Nations Joint European and North American working party (UN-JEDI), which began the development of the Electronic Data Interchange for Administration, Commerce and Transport (EDIFACT) document translation standards. A full range of business documents is in the process of being developed. EDI's direct impact is to reduce the amount of data capture and transcription. This generally results in a decreased incidence of errors, less time spent on exceptionhandling, and fewer data-caused delays in the business process. Benefits can be attained in such areas as inventory management, transport and distribution, administration and cash management. By the time of the 1991 EDICA Conference in Sydney, it was claimed that there were 1,500 corporations using EDI in Australia and New Zealand. This would have compared favourably with the populations variously claimed for the U.S. (5,00012,000), but less so with the U.K. (12,000) and Singapore (2,000). The transaction volumes in Australia to date were, moreover, small compared with those countries.

Definitions
y

Trading Partner - The sending and/or receiving party involved in the exchange of EDI transmissions Translator - Software that is used to convert standardized EDI data to a corporate proprietary format and vice versa Transaction Set - The EDI format for a business document, such as an investor report, purchase order or invoice

The use of EDI allows for the following benefits:


y y y y y y y y y Reduced manual data entry Reduced postage and handling costs Reduced labor processing costs Reduced order cycle Increased customer service Improved accuracy of data Reduced lead times Reduced paper handling Reduced inventory carrying costs

COMMUNICATION METHODS. After identifying trading partners, entering into TPAs with them and purchasing the necessary hardware and software, a means of communication must be chosen. EDI can occur point-to-point, where organizations communicate directly with one another over a private network; via the Internet (also known as open EDI); and most commonly, via value-added networks (VANs) provided by third-party value-added-network services. VANs are networks dedicated exclusively to EDI. Not only do they function like telephone lines by allowing for the transfer of information, they also contain storage areas, similar to e-mail boxes, where data sent from one party can be held until it is scheduled to be delivered to the receiver. VANs are able to provide translation services to small organizations that find it too cost prohibitive to do in-house with their own software. Companies may need to join more than one VAN because their partners belong to more than one.

However, by the early 2000s most VANS were able to communicate with one another. In addition to translation, VANs offer a wide variety of other services including data backup, report generation, technical support, training, and the issuance of warnings if data is not properly transmitted between parties. Depending on need, all of the services offered by a VAN may not be required by a particular company. VANs vary in the way they charge companies. Some charge high implementation or setup fees followed by low monthly usage fees, or vice versa. Charges often are made based on the number of documents or characters involved in a given transmission. For example, one EDI provider charged its clients a monthly mailbox fee of $17.50, followed by a charge of 30 cents per 1,024 characters (per kilo character or k/char) transmitted. Additionally, charges can vary depending on participants' phone companies and the time of day when transactions are made. It can be less expensive for companies to make transactions during off-peak or evening hours.

Intro
EDI (Electronic Data Interchange) is simply the means to communicate between companies from one computer to another. For many years companies have been using computers to send business documents instead of mailing paper documents (i.e. most of our pay checks are directly deposited into our bank accounts). This transfer of funds is accomplished by the use of an electronic file being sent form your company to your bank). The problem was that the all efforts employed proprietary or unique formats. The absence of a standard format led to the condition where computers could not longer "talk" to one another without a great deal of effort by programmers. For example, Supplier X could recognize an electronic Purchase Order from Retailer A but not from Retailer B.

1. Introduction
Traditional electronic data interchange (EDI) has been evolving for approximately 25 years and has truly become the paperless environment that is so often talked about. EDI is a complicated mixture of three disciplines: business, data processing, and data communications. This paper examines the concepts from the perspectives of each discipline. Internet standards are excluded from the discussion of communications protocols, since the audience is probably already familiar with SMTP, MIME, and other Internet messaging protocols.

2. What is EDI?
Since EDI is commonly defined as the direct computer-to-computer exchange of standard business forms, it clearly requires a business process. Because the key idea involved is the exchange of documents that allow a business application to take place without human intervention, data processing is clearly necessary for application processing. Data communication is then necessary for the exchange to take place. It is the marrying of these three disciplines that allows the "paperless trading" that comprises EDI technologies. Besides the three career disciplines that are internal to the organization, three other issues are important for EDI trading to take place: standardization of formats, security, and value-added networks (VANs). 2.1 Looking closer at EDI

EDI is commonly defined as the direct computer-to-computer exchange of standard business forms. The key idea involved is the exchange of documents that allow a business application to take place without human intervention. The ability to send business documents between machines simplifies and expedites the business process itself. Many businesses choose EDI as a fast, inexpensive, and safe method of sending purchase orders, requests for quotations, quotations, invoices, payments, and other frequently used business documents. Often today one will see the term EC/electronic data interchange (EC/EDI). This term has evolved from placing EDI under the EC (EC) umbrella, EC being the broad view of electronic trading. EDI is defined as the interprocess (computer application to computer application) communication of business information in a standardized electronic form. EC includes EDI, but recognizes the need for interpersonal (human to human) communications, the transfer of moneys, and the sharing of common databases as additional activities that aid in the efficient conduct of business. By incorporating a wide range of technologies, EC is much broader than EDI. However, the focus of this document in on EDI, not EC. 2.2 Comparing EDI and fax Similarities exist 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. 2.3 Comparing EDI and e-mail Similarities also exist 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.

3. Data processing and EDI


One of the technological fields required to implement EDI is data processing. Data processing allows the EDI operation to take information that is resident in a user application and transform that data into a format that is recognizable to all other user applications that have an interest in using the data. In the EDI environment, data processing will handle both outgoing and incoming data, as depicted in figure 1.

Figure 1: Data Processing and EDI The user-defined files in figure 1 are the flat files that are produced by a business application. These files may or may not be formatted by the user. These are the business files that need to be translated into the X12 format. The translation software in figure 1 is the software that maps the elements of a userdefined file into the ANSI X12 or EDIFACT standard format. This software is available through commercial retailers on various platforms from PCs to mainframes. The mapping of the user-defined data elements into the translation software requires some skill in mapping. The mapping itself requires knowledge of both the translation software and the EDI standards being used so new mapping and processing rules can be set up for the translator. If a new trading partner places no new requirements on the translator, the new trading partner is simply set up under existing mapping rules. However, when the trading partner requires that additional or different data fields be sent, a new mapping scheme needs to be identified and associated with that trading partner (Sokol, 1995).

4. Data communications and EDI


The other technological field that is heavily involved in EDI implementation is data communications. Once the standards have been employed and the required software is in place, the EDI participant still needs to have the ability to communicate with remote trading partners to take advantage of EDI. 4.1 Transport mechanisms move the data Data must be transported across telecommunications lines in order for the trading partners to trade information. Following are some basic concepts that describe mechanisms and methods used in this transport of data:

Direct connect is the term used to indicate that two EDI trading partners trade information directly to each other without a third-party connection service. Direct connects are normally used by large corporations for intracompany EDI transactions and for intercompany transactions with trading partners that have established highvolume rates of exchange of EDI data. Modems are heavily used by EDI practitioners today. Modem-to-modem connections provide a level of security and reliability that long-time practitioners are reluctant to give up. The standard in the industry, as this paper is written, is transmission by binary synchronous modem or "bisync." This method allows for high-speed continuous transmission in which the sending and receiving modems are controlled by clock pulses. The clock pulses regulate the rate and timing of the data flow. Routers, although not the primary transport mechanism for EDI transactions today, have the potential to become the de facto standard of transmission for high-volume traffic. Currently, routers are used mainly over leased lines, requiring expensive setups and ongoing data communications transport costs. 4.2 Communications protocols standardize the data formats EDI transactions can be passed between trading partners using standard transmission protocols. Graphic images, charts, and diagrams must be transmitted using protocols that allow the transfer of binary data. Some of these common standards are SMTP, MIME, X.400, X.435, and X.500. Internet Protocols are excluded from this discussion as the audience is already very familiar with them. X.400 is an electronic messaging standard that was developed by the Consultative Committee on International Telegraph and Telephone, which is tasked with developing standards to enable incompatible networks and computer systems to exchange data. In this standard, an X.400 header precedes the message itself. The header allows the sender of the message to specify information relating to the transmission and delivery and notice requests. The architecture of the X.400 standard calls for an outer envelope that is application independent and is used to route the message. Within the outer envelope lies the content header, again application independent, which is used to deliver the message to the recipient. A message transfer agent (MTA) receives the message, discards the outer envelope, and then reads the header to determine the recipient. The message itself is composed of body parts, each body part being an application-specific message.

X.435 is a standard that further enhances the X.400 standard to make it deal more effectively with EDI transmission requirements. X.435 is the specification for the EDI body part that attaches to the X.400 message. X.500 is an addressing directory containing the names and characteristics of electronic messaging receivers. X.500 facilitates the delivery of X.400 messages, including those that include the X.435 standard. The idea is the production of a global electronic directory and a guide to associated databases so the user can find an e-mail address if it is needed and not known.

5. The business process and EDI


Any business application that can be improved through paperless trading in a fast, efficient environment is a good candidate for EDI. EDI is currently widely used by the airline industry, banking industry, credit card industry, and auto industry. The current push in the EDI world comes from companies who wish to trade with each other electronically--buyers and their suppliers--hence the term "trading partners." 5.1 Applications of EDI The business process examined here to which to apply EDI concepts is the procurement process. This business process was chosen for two reasons. First, within industry itself, new EDI technology is developing fastest in this area. Second, the President has issued an initiative to streamline government procurement through the use of EC. Since the initiative was announced in October 1993, the thrust within the government has been to implement the initiative using EDI technologies. These factors make the procurement process the most relevant business process to examine at this time 5.2 A typical small purchasing application The business application depicted in figure 2 is a simple purchasing application.

and then

Figure 2: Business Application and EDI As shown in figure 2, the procurement process normally begins with the buyer being made aware of a need within the organization to make a purchase. As soon as a need is established and precisely described, the buyer begins the process of selecting the supplier that will be used. Routine items may be purchased using suppliers that have already been contracted with. New items or high-value items may require investigation by the buyer in selecting an appropriate supplier. The buyer will select a preliminary group of suppliers and then employ the methods of competitive bidding, negotiation, or a combination of the two to secure the final supplier. When competitive bidding is used, the buyer issues an RFQ to the suppliers that the buyer might be willing to do business with. Typically, the RFQ will contain the same basic information that will be included on the purchase order. When a supplier receives an RFQ that the supplier has an interest in bidding on, the supplier issues a quotation to the buyer. The quotation will contain pricing information so the buyer can do a price comparison between the suppliers. For instance, an RFQ might be issued for 200 gallons of white, latex-based paint. The supplier who is issuing a quotation may quote a price of $xxx.xx. Once a supplier has been selected, the purchasing department issues a serially numbered purchase order. The purchase order itself becomes a legally binding contract. For this reason the buyer will carefully prepare the purchase order and ensure that the wording is precise and specific. Any drawings, diagrams, or related documentation that is necessary to precisely describe the item being purchased will be incorporated or referenced in the purchase order. Additionally any conditions or sampling plans will be stated precisely. Normally a list of terms and conditions designed to give legal protection to the buyer on various matters prescribed by law are incorporated in, or attached to, all purchase

orders as boilerplate to those orders. These boilerplate terms and conditions cover a wide range of concerns including, contract acceptance, delivery performance and contract termination, shipment rejections, assignment and contracting or the order, patent rights and infringements, warranties, compliance with regulations, and invoicing and payment procedures. Change orders are required when a company makes a change in the contract after a purchase order has been issued. The buyer will issue the change order and, when accepted by the supplier, the change order either supplements or replaces the original purchase order. The original copy of the purchase order constitutes a legal offer to buy. The purchase contract then comes into existence when the contract is performed or when formal acknowledgment of acceptance of the offer is made. Normal business methods suggest that the supplier may not bother to acknowledge the offer if the items are immediately shipped to the buyer. When the items are not immediately shipped, then the supplier should send the acknowledgment back to the buyer. The supplier may acknowledge the buyer's order accepting the buyer's terms and conditions, or may acknowledge and incorporate the supplier's own terms and conditions in the acknowledgment. If the seller's terms are different than the buyer's, the law allows them to be incorporated into the contract as long as they do not alter the buyer's intent or unless the buyer files a written objection to the inclusion of new terms and conditions. In general, terms and conditions that are in conflict between buyer and seller are excluded from the contract, leaving the settlement to negotiation or suit. For this reason it is imperative that the buyer beware of the terms and conditions in the order acceptance.

6. Marriage of the three disciplines


EDI involves three very different and distinct disciplines. First, there has to be a business process. If the business process would be improved by being accomplished more quickly and with increased efficiency, then the business process is a candidate for EDI. The business process is the domain of the business functional area. Second, once the business process has been identified, data processing technologies have to be applied to the business process so that the process can be handled using computers. Some type of standard must come into play in the automation process so that paper documents that are the output of the business process can be put into a format that is interchangeable between computers. The automation of the business process is the

domain of the data processing discipline. Third, the standardized business form must be transmitted from and received by computers, using data communications technologies. The data communications aspect of EDI is the domain of the data communications discipline. The marriage of these disciplines allows for the "paperless trading" that comprises EDI technologies. As EDI technologies evolve, the terminology changes. 6.1 Paper document flow The traditional document flow for purchasing transactions starts with data entry by the purchaser to create a paper document to send by mail to trading partners. Once the trading partners receive the data, they keystroke the information received into a local application and then perform more data entry by entering a response into a local application. The resultant paper document is then mailed to the purchaser. The procedure is both time consuming and labor intensive because data from both trading partners has to be entered twice, once at the point of creation and once at the point of entry to the foreign system. In addition, the originator must await a paper response sent by mail. 6.2 EDI flow EDI data is key in only one time, at the original point of entry. The data is then translated into a standard format electronically and sent to the trading partner electronically. At the receiving end, the data fields are mapped into local applications, and the only data entry required is for new data that may be needed to respond to the data received. Time for transmission is also very fast in comparison to postal mail. Even on a slow modem connection, the time is considerably shorter than through the postal service.

7. Standards
Although communications and document standards are both critical, document standards are the heart of EDI (Kimberly, 1991). 7.1 The role of standards Standards are a necessary part of EDI. Every business has application files that are used to manipulate their data in ways that are familiar to the business. The problem is that most businesses, though using the same types of data, do not use the same

application programs or hardware and software platforms. If businesses are to be able to communicate their data to one another, they must have a common ground to meet on to allow the exchange of the information. Standards are the solutions to this problem. All business that conform to specific standards can share data in the formats delineated by those standards. 7.2 ANSI ASC X12 The American National Standards Institute's Accredited Standards Committee X12 (ANSI ASC X12) is the accepted standard for EDI transactions in the United States. The ANSI ASC X12 committee has the mandate to develop variable-length data formats for standard business transactions. The committee was accredited in 1980, and the X12 standard has been evolving ever since. One of the requirements placed on the committee was and is to keep the standard open to interindustry applications. This requirement makes the standard more complex than an industry-specific standard, but the advantages easily overcome the disadvantage of complexity. With a single standard, a business has multiple functionality and only has to use one standard for each business function. 7.3 EDIFACT The International Standards Organization (ISO), an organization within the United Nations, has developed the EDI standard that is used in Europe. The Electronic Document Interchange for Administration, Commerce, and Transportation (EDIFACT) is the UN standard that the whole world has agreed to eventually adopt. The actual implementation of EDIFACT within the U.S. has been moving at a snail's pace. The standard appears to currently be taking the same route that metric standards have taken. Everyone agrees that EDIFACT is the international standard, but tried and true X12 standards are not abandoned in favor of EDIFACT. 7.4 Other document standards Other document standards are in existence, most notably HL7, which is used by the hospital systems and is ANSI approved.

8. Security
One of the major roles that is provided by the data communications technology is the ability to apply security to EDI transactions so that the transactions will not be tampered with or observed, depending on the level of security needed. The security modules that are discussed in this section are depicted in figure 3.

Figure 3: Data Communications Security 8.1 Confidentiality Confidentiality requires that all communications between parties are restricted to the parties involved in the transaction. This confidentiality is an essential component in user privacy, as well as in protection of proprietary information and as a deterrent to theft of information services. Confidentiality is concerned with the unauthorized viewing of confidential or proprietary data that one or both of the trading partners does not want known by others. Confidentiality is provided by encryption. Encryption is the scrambling of data so that it indecipherable to anyone except the intended recipient. Encryption prevents snoopers, hackers, and other prying eyes from viewing data that is transmitted over telecommunications channels. There are two

basic encryption schemes, private-key and public-key encryption. Encryption, in general, is cumbersome and expensive. Private-key encryption requires that both sending and receiving parties have the same private-encryption keys. The sender encrypts the data using his key. The receiver then decrypts the message using his identical key. There are several disadvantages to private-key encryption. In order to remain secure, the keys must be changed periodically and the users must be in synch as to the actual keys being used. Public-key encryption is gaining wide spread acceptance as the preferred encryption technology. With public-key encryption, a message recipient generates a matched set of keys, one public key and one private key. The recipient broadcasts the public key to all senders or to a public location where the key can be easily retrieved. Any sender who needs to send the receiver an encrypted message uses the recipient's public key to encrypt the message. The private key, which is held in private by the recipient is the only key that can decipher messages encrypted with the matched public key. This schema requires that the private key cannot be generated from the public key. Public key technology is the direction encryption technology is currently headed. With the advent of X.500, databases will be built to store public keys and enhance the technology significantly. 8.2 Authentication Both parties should feel comfortable that they are communicating with the party with whom they think they are doing business. A normal means of providing authentication is through the use of passwords. The latest technology to provide authentication is through the use of digital certificates that function much like ID cards. The digital certificate has multiple functions, including browser authentication. 8.3 Data Integrity Data sent as part of a transaction should not be modifiable in transit. Similarly, it should not be possible to modify data in storage. Data integrity is a guarantee that what was sent by the sender is actually what is received by the receiver. This is necessary if there is a need to ensure that the data has not been changed either inadvertently or maliciously. However, authentication schemes do not hide data from prying eyes.

Providing data integrity is generally cumbersome and not used unless one of the trading partners requires it. The normal mechanism for acquiring data integrity is for the sender to run an algorithm against the data that is being transmitted and to transmit the result of the algorithm separately from the transmission. Upon receipt of the transmission, the receiver runs the identical algorithm and then compares the results. If the results are identical, then data has not been modified. 8.4 Nonrepudiation Neither party should be able to deny having participated in a transaction after the fact. The current technology ensures this through the use of digital signatures. Electronic signatures are the computerized version of the signature function. Signatures are needed in some business applications for authorization purposes. For example, a contracting officer may have a specified spending limit, say $25,000. If that contracting officer decides to place an order for $30,000, the seller may not have the authority to fill the order because the signature of the contracting officer's supervisor is needed on all orders over $25,000. The authorization limits normally will have been agreed upon through a trading partner agreement. A digital signature algorithm can be used to generate digital signatures. The digital signature itself is used to detect unauthorized modification to data and to authenticate the identity of the signature. The digital signature is also useful to the recipient as a nonrepudiation device whereby the recipient can prove to a third party that the signature was in fact generated by the signatory. Thus the signatory cannot repudiate the signature at a later date.

9. Value-added networks
As seen in the previous discussions, setting up to use EDI involves considerable expense. For small businesses and businesses that do low volumes between each other the cost is not always worth the efficiencies achieved. Commercial Value-added networks (VANs) make the burdens of the communications complexities easy by offering their communications services to prospective EDI users (Bort and Bielfeldt, 1996). 9.1 Connectivity VANs establish communications paths between their customers and with other VANs. By using these services a business does not have to worry about the myriad of communications complexities from having trading partners using different hardware,

software, and transport mechanisms. The typical buyer-VAN-seller connection is depicted in figure 4.

Figure 4: Value-Added Network Connection Likewise, EDI software is not inexpensive. A business with an X12 translator still needs personnel on board that understand X12 and can use the software effectively. Value-added services offer the traditional VAN services and add to that the translation services required to create an X12 file. These services allow the typical business to enter the EDI arena at minimal cost and maximum efficiency. 9.2 Delivery Mailbox software is the most important feature offered by VANs. The electronic mailbox is used for both store-and-retrieve and store-and-forward operations. In both cases, the sender of the EDI message transmits the electronic message to the VAN on its own time schedule. The VAN then acts on the message depending on whether the service is store-and-retrieve or store-and-forward. Store-and-retrieve service allows the VAN to store the message in the receiver's mail box. The receiver then retrieves its messages based upon the needs and schedules of the receiver. This service enables the sender and receiver to communicate, but at different times of the day, instead of simultaneously.

Store-and-forward service allows the VAN to forward messages to the receiver when the business need is not for immediate or event-driven notification. Event-driven mailbox services can be handled by forwarding of the message to the receiver or by immediate notification from the VAN to the receiver that a message has been stored that meets the prearranged criteria for event-driven notification. 9.3 Security Generally, a VAN provides security at several levels for its mailbox customers. Access control is normally provided by a login and password sequence. Messages are screened for the individual customer to ensure that they were sent by authorized trading partners of the customer. This service also checks for message types and formats, and ensures they are acceptable to the customer. Some VANs offer cryptography services. The cryptography is used to authenticate and encrypt messages to ensure confidentiality. This service requires that the encryption be done at the customer site to be of any real value. 9.4 Audit and control One of the features a VAN can offer a customer is a usage accounting data option whereby the VAN reports how much traffic comes to the customer in a given time period. Transmission status reports to clarify status of an individual transaction are also available (Canis, 1995). Many trading partners require acknowledgment for transactions received, and VANs can provide automatic sending of acknowledgments. The VAN can also track the transaction traffic. If specific transactions need to be tracked, the VAN can provide an audit trail of the requested data. 9.5 Value-added services In the typical EDI implementation, both sender and receiver employ the services of a VAN because it eliminates the need to support different communications configurations between themselves and their trading partners. Using VANs also reduces the cost of communications equipment and staff to support the multiple configurations. Still, not all trading partners will use the same VANs. This is not an issue because VANs interconnect regularly with each other. The standard VAN interconnection is through bisynchronous modem connections.

Most VANs offer translation services so that customers do not have the need to purchase or maintain translation software. Normally if these services are used, the customer will supply the formats for the data and the VAN will map the data itself. VANs have the capability to respond to presence of data and can fax or e-mail a notification to the customer if data is in the customer's mailbox.

10. Effects and level of automation


The benefits associated with EDI often cause overblown expectations. EDI, in and of itself, is just another way to format and transfer data. The real use of EDI and the amount of value to be gained from its implementation depend upon whether or not EDI is integrated into the overall data processing effort of the organization. The effects of EDI depend greatly on the level of automation within an organization. If the organization is only using EDI to send data in a format required by a trading partner, the effect is much more limited than if EDI is integrated into the back-end processes of the organization. EDI applications that are fed by back-end processes and the databases that support these processes and then, in turn, feed the EDI data received back into the databases and back-end processes have a huge impact on the total level of automation within the organization. The well-known list of EDI-related benefits--lower costs, higher productivity, and reduced order-cycle times--is attainable. But if the automation level of the organization is not high and is not integrated, the effects of EDI will be lessened considerably.

11. Conclusions and future of EDI


EDI is well established as effective technology got reducing costs and increasing efficiency. EDI technologies are approximately the same age as Internet technologies. In the past, the technologies have been mutually exclusive, but this is rapidly changing. As the two technological communities begin to merge and as the business community sees the advantages of this merger, EDI and the Internet will eventually become ubiquitous. EDI users are already seeing dramatic cost savings by moving their traffic from the traditional VAN services to the Internet. As EDI working groups within the Internet Engineering Task Force create interoperability standards for the use of EDI over the Internet and as security issues are addressed, EDI over the Internet will be part of normal business. The EDI working group already has a charter for an interoperability

standard for process-to-process EDI. Once that standard is in place, real-time EDI over the Internet will replace normal time-delayed, batch-style interactions.