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Electronic Data Interchange
A key element of B2B
Electronic Data Interchange
A key element of B2B

Learning Objective
Define EDI
Look at the advantages of EDI
Look at the EDI standards
Overview of EDI working
Electronic Data Interchange
Traditional Electronic Data Interchange (EDI) can be defined as:
The electronic movement of specially formatted standard business
documents (orders, bills & confirmations) between business partners,
(regular, repeat, high volume transactions)

The transfer of structured data, by agreed
message standards, from one computer system
to another, by electronic means.
International Data Exchange Association (IDEA)
[Whiteley e-commerce, strategy Technology and applications]
EDI is the computer-to-computer exchange of
standardized business documents, such as
purchase orders, product information and invoices
or EFT
Electronic Data Interchange
Electronic Data Interchange is the computer-to-computer
exchange of routine business data between trading partners in
standard data formats. This definition contains 3 key concepts
about EDI:
Computer-to-computer: EDI in its most efficient form flows directly
out of a senders computer system directly into a receivers computer
system without any human intervention; however, it is not always
possible for EDI to flow in this most efficient manner.
Routing business data: EDI is used for routine business documents
like Purchase Orders and Invoices. It is not used for non-routine
business documents like complicated contracts or information meant
for humans to read and analyze.
Standard data formats: A standard definition of the location and
structure of the data is provided. Unstructured text is not EDI.

A typical manual process looks like this, with lots of paper
and people involvement:
The EDI process looks like this no paper, no people involved
What is not EDI:

EDI is not a programming language: EDI documents are standardized
in a machine-readable format intended to be processed by an EDI
Not Email: EDI is used for computer-to-computer exchange of
transmissions without any human involvement.
Not a custom FTP file: Sending a proprietary format flat file via FTP to a
vendor is also not EDI.
EDI is not new: EDI usage and standards development have been
growing and maturing for about 30 years now.
EDI is not rocket science: It is very important to learn the basics. As you
go through the process, you will find that once you have a little
experience in EDI, any issues encountered can be quickly resolved due to
the standards based nature of it.
Not just for large companies: EDI is not limited to large enterprise
organizations like GM, or Wal-Mart. EDI is accessible and is widely used
by small and medium-sized businesses that benefit from the cost savings
and workflow advantages of EDI.
Components of EDI
Four essential elements to an EDI system ;

1. Structured data

2. Agreed message standards

3. Directly between computer systems

4. By electronic means
Historical Development
Developed in 1960's to help organizations to interact more economically
with channel partners.
Reduced time, reduced errors, reduced labor was expected.
In 1968,a small group of shippers and carriers gathered and formed
Transportation Data Coordinating Committee (TDCC ).
In 1979, several Industry groups led by credit research foundation (CRF ),
petitioned the ANSI and formed Accredited Standard Committee X12
Standards to exchange the information.
In 1987, a world wide accepted UN/EDIFACT standard for exchanging
electronic data was developed.
Less than 5% businesses implemented EDI during 90's.
Even Today, world wide only 12% of the business houses have
implemented EDI.

EDI & Trade process
EDI can be used for repetitive orders and payments.

In the pre orders stage it could be used for market negotiation. EDI
can be used in the after sales service stages if a standardised
format is possible and the volume of transactions make it
EDI is most commonly used to
handle the trade processes
from the ordering to the
delivery of goods
An EDI scenario
The following scenario is an example of EDI;
A retail outlet needs to restock so an EDI purchase order is sent to the
On receiving the order, the supplier sends an EDI invoice form to the
retail outlet informing the shop that the order has been shipped.
When received, the shop sends a payment order form to its bank
requesting that an electronic funds transfer (EFT) be made.

This transaction has a number of distinct advantages, the electronic exchange
of documents speeds up the transaction by avoiding delaying in the exchange
of documents and the need for re-keying of information without the use of
paper or the need for human intervention. In eliminating these, the
transaction is less subject to error and also more efficient.
Benefits of EDI
Speed Data can move directly out of one computer system
and into another with little to no delay.
Accuracy Errors are reduced because data is not being re-
keyed. Error rates from entering data are between .5 3%. On
large volumes of transactions, the possibility for the
introduction of errors is enormous.
Simplicity EDI standards specify how data will be formatted
and where it can be found.
Security Much less likely to lose information transmitted
through EDI than information sent via mail. EDI can be
accessed only by authorized users, and then there are audit
trails and archives of data. EDI data cannot be easily changed
by unauthorized users. It is also not subject to viruses.
These 4 benefits produce the following results:
Faster buy-sell cycle time
Faster cash flow
Reduced order lead time
Reduced inventories
Ability to conduct just-in-time manufacturing
Improved trading partner relationships
The advantages of EDI
EDI allows companies to carry to large volume global transactions
Computer-computer transfer means low error rate
Information can flow between several partners freely
Companies can access partners databases to store transactions
EDI foster true partnerships as it requires long term commitments and
Paperless environment saves money
Payments can be speeded up
Data can be entered offline can control computer time
Data can be used immediately
Sales information can be delivered in real time
All above can help save money
Limitations of EDI
Firms have to incur extra cost for hiring and training
Needs highly structured protocols.
Added security cost to safe guard confidential
information from unauthorized access.
It does not allows consumers to communicate or
transact with vendors in an easy way.
Disadvantages of EDI
Too Many Standards :There are too many standards bodies developing
standard documents formats for EDI. For example your company may be
following the X12 standard format, while your trading partner follows the
EDIFACT standard format.
Changing Standards-Each year, most standards bodies publish revisions to
the standards. This poses a problem to EDI users. You may be using one
version of the standard while your trading partners are still using older versions.
EDI is Too Expensive -Some companies are only doing business with others
who use EDI. If a company wants to do business with these organizations, they
have to implement an EDI program. This expense may be very costly for small
Limit Your Trading Partners-Some large companies tend to stop doing
business with companies who don't comply with EDI. For example Wal Mart is
only doing business with other companies that use EDI. The result of this is a
limited group of people you can do business with.
Industries utilizing EDI
Health Care
How Does EDI Work?
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
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. To learn more about the various options
not subject to viruses.
The EDI Process
EDI is a multi-directional, electronic transmission of
information, using standardized formats, and typically
involves the following processes:

The sender creates internal information of a data file
for transmission.

The data file then is entered into a software program
called an EDI translator, which transforms the
message into an EDI standard message, known as an
EDI document.

The EDI Process (cont..)
The resulting document is then transmitted by the
sender to the receiver over the Internet or private
The process is reversed at the receiving end.
The EDI document is inputted into the EDI translator
that translates the data from its current EDI format
into a file that can be assembled or mapped into the
receivers computer system.
It also creates a functional acknowledgment, which is
transmitted back to the sender. A functional
acknowledgment only represents the receipt of an EDI

Electronic Data Interchange
Suppliers, manufacturers, and retailers cooperate in some of the
most successful applications of EDI.
How does EDI work?

Suppliers proposal sent electronically to purchasing organization.
Electronic contract approved over network.
Supplier manufactures and packages goods, attaching shipping
data recorded on a bar code.
Quantities shipped and prices entered in system and flowed to
invoicing program; invoices transmitted to purchasing
Manufacturer ships order.
Shipment notice EDI transaction sent (not shown)
Purchasing organization receives packages, scans bar code, and
compares data to invoices actual items received.
Payment approval transferred electronically.
Bank transfers funds from purchaser to suppliers account using
electronic fund transfer (EFT).

Types of EDI

Brought to prominence by Walmart, point-to-point EDI
establishes a single connection between two trading partners.
In this approach, you connect with each business partner
individually. It offers control and security for the business
partners and is most commonly used between larger customers
and suppliers with a lot of transactions.
Value Added Networks (VANs) are private networks where
electronic business documents are exchanged between
partners. The VAN provider manages the network and provides
companies with mailboxes where they can send and receive
EDI documents.
EDI via AS2
AS2 is an Internet communications protocol. It allows data to
be transmitted securely and reliably over the Internet. EDI via
AS2 delivers the functionality of EDI but with the cost-
effectiveness and ubiquity of access of the Internet
Unlike EDI via AS2, Web EDI conducts EDI using a standard
Internet browser. Organisations use different online forms to
exchange information with business partners. Web EDI makes
EDI easy and affordable for small- and medium-sized
organisations and companies that have only occasional need to
utilise such a service.
Mobile EDI
Users have commonly accessed EDI either by a private network such as
Value Added Network or the Internet in order to send and receive EDI-
related business documents. Mobile EDI has had limited adoption, in part
due to security concerns with mobile devices across an EDI infrastructure,
but mainly due to the mobile devices themselves.The quality and size of the
screen of most devices has been relatively poor until recently. There is a
growing industry for developing software applications or apps for
downloading onto mobile devices and it will be only be a matter of time
before you will be able to download supply chain and EDI related apps from
private or corporate app stores.
EDI Outsourcing
EDI Outsourcing (also referred to as Managed Services) is a fast-growing
option that enables companies to use external resources to manage their
EDI environment on a day-to-day basis. This is in part driven by companies
wanting to integrate to back office business systems such as Enterprise
Resource Planning (ERP) platforms. Many companies do not have the
internal resources to undertake this type of work so they outsource it
The need for a EDI standard
A format is required to ensure the data is meaningful.
Two partners can agree on a standard
Multiple customer / supplier relationships either
require multiple standards or a common standard for
all transactions
EDI Standards
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
The ODETTE standard used within the European
automotive industry
EDIFACT Standard
Electronic Data Interchange for Administration, Commerce, and
Transport (EDIFACT) standard was developed by the United Nations
has become international standard and is increasingly being used for
EDI exchanges in USA, UK, Norway, Australia, Singapore.

Each EDIFACT Document referred to as a message, In the Trade
category the messages include Order, dispatch advice, payment
order, remittance advice.

Other categories include; Transport customs, Finance, Insurance
tourism.12 in all have been agreed for the Western European
Section of EDIFACT

ANSI X.12 Standard

In 1979 the American National Standards Institute
(ANSI) created the Accredited Standards Committee
(ASC) X12 standard.
The ASC X12 standard provides specifications of the
uniform EDI standards for business documents.
It has been adopted widely in the United States, but
without branching to other nations this causes a
limitation in international EDI.
Hardware (PC, ERP system, Order Management system)
Translation software (parsing software)
Data mapping software and/or technical support for data
Business Plan on how your company will use EDI within
its business processes
Communications software to control connectivity and to
manage the transfer of computer files.
Connectivity to trading partners, such as the VAN, AS2,
FTP, (modem seldom used)
EDI data Implementation guide
Internal and or external trading partners to conduct
business with

EDI Checklist: What will I need
to do EDI?

EDI Communication/transfer

VAN (Value Added Network):A Van is a third-party service that transmits
and stores data in the electronic mailbox until it is picked up by the
appropriate party. It serves a role of being a broker and forwarder of
EDI data. It can be compared to a traditional post office, but the
exchange of mail is done electronically. Since the EDI message contains
addressing information, the VAN routes the message to the mailbox of
the recipient.

Direct Connect Method:Directly connecting to trading partners by peer-
to-peer, point-to-point exchange of data. Often used for XML document
Custom Solutions (web-based EDI portals, 3Rdparty
outsourcing):By using a web browser interface, web based custom
EDI solutions make it quick and easy for small-to-medium size
businesses to manage different aspects of EDI, such as creating,
sending, receiving, and more.Web-Based EDI portals are offered by
third-party EDI service providers or can be developed in-house for
full self service ecommerce solutions. These solutions offer many
features and can be customized to meet the needs of any sized
And finally...
What are the four key features to EDI?

What are some of the advantages of EDI?

EDI Advantages and

Advantages Disadvantages
Automating existing business procedures in inventory
management, transport and distribution, also in
administration, and cash management.
Managerial problems in the support, maintenance and
implementation of EDI transactions.
Cost saving in - document preparation, postage, and
handling of mainstream transactions- reduced errors
and exceptions handling.
Each entity may have a different method of delivery,
ranging from dial-up BBS systems mailing hard media
such as a CD-ROM or tape backup.
Faster handling of transactions results in increased
cash flow.
Lack of strict standards across implementations,
transactions and methods. Improve customer services
and Enhance the business process and operations
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

Improve customer services and Enhance the business
process and operations
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