Electronic Data Interchange (EDI)

Used by organizations for transactions that occur on

regular basis. For most part it is used in for purchase

transactions.
Mostly applied in the Execution and Settlement phases of
the trade cycle, it may also be used for Pre-Sale and After
Sale.
Examples of EDI applications in use:
In the UK, National Health Service (NHS)
British Telecom (BT) : for its bills from the gas, electricity
and heating oil utilities.
EDI applications reduces delays, inaccuracies
and inefficiencies associated with exchange of data on paper.
Developed in mid-70s, by 2003 EDI transactions totaled
to $3.4 trillion, that is over 25% of the $13.5 trillion trade
among firms (eMarketer, 2003).
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Cont ...
Search
Negotiate
Order
Deliver

Pre-Sale

EDI

Execution

Invoice
Payment

Settlement

After Sales

After Sales

Figure 1.0: The Trade Cycle

EDI Definition
Simply termed as Paperless Trading
International Data Exchange Association (IDEA) formally
define EDI as:
The transfer of structured data, by agreed message
standards, from one computer system to another, by
electronic means.
Four elements essential to an EDI system:
Structure Data: transactions contain codes, value and
pieces of text, each piece of information with a defined
purpose. Codes for the customer and product.

EDI Definition
Agreed Message Standard: a universal standard not only
agreed between business partners but also national and
international bodies. A Purchase Order is one the agreed
standards.
From One Computer System To Another: any EDI message
is sent between two computer applications. A message is
directly sent between the customers Purchasing System and
the suppliers Order Processing System.
By Electronic Means: what is involved is a networking
channel designed for EDI for the transmission of the
message.

The Benefits of EDI

EDI replaces the previously used fax machines and
traditional mail with computer (replace paper transactions
with electronic transactions). It should then considerably
save time and cost.

The advantages can be seen when an organization fully

restructures its business transactions and maximizes the full

potential of EDI (enabling technology to change the way a
business operates).

Prime examples of EDI is Just-in-Time (JIT) manufacture

and quick response supply.

Advantages of EDI
1. Cost Cutting
Minor costs reduction are postage and stationery costs. Major
savings are staff costs. The cost savings need to be offset
against the system development and network costs.
2. Shortened Ordering Time
Orders are directly sent into the network and the only
possible delay is the amount of time the supplier retrieves
messages from the system.
3. Fast Response

Advantages of EDI
4. Accurate Invoicing
An e-Invoice is automatically matched against the original
order (made by the customer) and cleared for payment,
eliminating any sort of queries.
5. EDI Payment
Payment can also be made by an EDI system. Electronically
matching against the relevant invoices.
6. Elimination of errors
It eliminates the source of errors - the customer will get what
the customer asked for.

EDI Technology

Its technology is defined by EDI standards, EDI networks

and EDI software that interface with the business
applications. The technology however plays only a small part,
as it is often said that EDI is 90% business and 10%
technology.

EDI Standard

Essence of EDI is the coding and structuring of the data into

a common and generally accepted format - anything less is
nothing more than a system of file transfers.
Standards have been developed in various sectors for the
coding and structuring of data to be used in business
transactions.
These bodies include American National Standards
Institute (ANSI X12 standards) and International bodies such
as the UN (EDIFACT standards).
8

Why the need for EDI standards ...?

Provides linkage between two trading partners

Data is exchanged in a common format; without that it is

considered meaningless
Scenario:
Customer

Supplier
Best
Bread

Super
Food

Fresh Fruit

Save Food

Mighty
Meat

Sava
Store

Very Veg

Figure 2.0: Interchange between Customer and Suppliers

9

Why the need for EDI standards ...?

With 12 separate interchanges, each customer would
develop its own standard.
Each supplier would then have three standards to cope
with, but the overall picture would be one of complexity and
incompatibility.
EDI standards overcome this and attempts to provide a
suitable standard for data interchange that is:
Ready formulated and available for use
Comprehensive in its coverage for any given transaction
Independent of H/W and S/W
Independent of special interest of any party in the trading
network

10

Tasks TO DO ...
READ ABOUT:
National and Sectoral Standards
Evolution of EDI Standards
Early EDI Applications
Sector and National EDI Standards
The International EDI Standard
The EDIFACT Standard
Coding Standards
EAN/ UPC Codes
Generic Products
*Resources : The Internet, recommended books and any other relevant
materials

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EDI Communications
Standards specify a syntax for coding of the eDocument,
and NOT the method of transmission.
Methods of transmitting an eDocument are:
i) A magnetic tape or diskette
ii) A direct data communication link
iii) A value added data service (VADS), also known as value
added network (VAN)
Postboxes and Mailboxes
VADS basic facility is a post and forward network
Each user of the system has two files:
postbox - where outgoing messages are placed
mailbox - where incoming messages can be picked from
12

EDI Communications
Customer

VADS

postbo
Super
x
mailbo
Food
postbo
x
x
Save Food
mailbo
x
postbo
x
Sava Store
mailbo
x
Figure 3.0: VADS

Supplier

postbo
x
Best Bread
mailbo
postbo
x
x
Fresh Fruit
mailbo
postbo
x
x
Mighty
mailbo
Meat
postbo
x
x
Very Veg
mailbo
x
- Postbox and Mailbox Files

What are the processes involved for an EDI interchange

between Sava Store and Best Bread, Mighty Meat and Very
Veg suppliers?
13

EDI Communications

The postbox/ mailbox system is also referred to as a store

and forward system.
Principle advantages:
i) Time Independence
The sending and receiving of the interchange are
asynchronous. These two processes can be carried out at the
convenience of all users involved.
ii) Protocol Independence
The type of a communication link to be used is an option
available for each user of the VADS system. Low volume
users will opt for a dial-up modem link whereas high volume
users may use leased line or a packet switching network.

14

Value Added Data Services (VADS)

This is a service that has been set up by several

organizations.
Extensively used by IBM network and GEIS (General
Electric Information Service)
Most important facility is the postbox/ mailbox provision.
Other facilities may be:
Trading Community: EDI VADS will have large number of
clients all with an interest in eTrade.
Inter-network Connections: It facilitates trade between
partners that subscribe to the same VADS but not between
partners that might be using different VADS.
International Connections: VADS are nationally based with
a single computer service providing the switching service- a
set-up appropriate for domestic trade. When VADS are part
of international organization or have an alliance in other
countries, it facilitates international trade.
15

Value Added Data Services (VADS)

Privacy, Security and Reliability: privacy provisions includes

user credentials user-id / password protection of postboxes
and mailboxes. EDI message can be encrypted with
eSignatures. Security is built into the VADS system and
Reliability comes from the appropriate H/W and S/W
configurations to make sure that the service is always
available.
Message Storage and Logging: Users will have there new
messages stored in the postboxes and mailboxes. Called off
messages may also be retained. Logging facilities provides an
audit trail for the messages.
Message Validation: messages will be
conformance with the chosen EDI standards

16

validated

for

EDI Implementation
EDI in the Internet
The Internet has started to be used as an EDI VADS by
several organizations. Here security and reliability are two
major concerns and unlike the traditional VADS, the Internet
does not guarantee delivery of data sent.
The Internet on the other hand is cheaper than any other
commercial network.
The technical element of the EDI system is the EDI
software.

17

EDI Implementation
Pens and
THings

Packaging
Solutions

Production
Control
System

Production
Control
System

EDI Software

VAD
S

EDI Software

Figure 4.0: Sending an order using EDI software

If Pens and Things is to send an order from its production control system to
Packaging Solutions it needs to code that order into the agrees EDI standard and
squirt it into the chosen VADS. On the other end Packaging Solutions needs to
extract the data from the network and decode the data from the EDI message into
its order processing system
The coding/decoding of the EDI message and the interfacing with the VADS is
normally achieved using EDI software.
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Tasks TO DO ...
READ ABOUT:

EDI
EDI
EDI
EDI
EDI
EDI

Software
Integration
Operation
Alternatives
Agreements
Interchange Agreements

*Resources : The Internet, recommended books and any other relevant

materials

19

Interchange (EDI) and

SCM

Define Electronic Data Interchange

Give characteristics of EDI
Discuss benefits of EDI, as well as barriers to its implementation
Describe how EDIt works, and how it is moving to the Internet
Contrast common (ANSI) EDI with Internet EDI
Internet improvements to supply chain management

Electronic Data Interchange

(EDI)

Strategic Impact of EDI

Definition of EDI
Example of EDI
How EDI works
Benefits of EDI
Direct and Process
Barriers to EDI Adoption
Advantages, Disadvantages and Characteristics of
VANs
EDI Implementation Model
EDI migration to the internet

Strategic Impact of EDI

Business processes can become more efficient

Customer-supplier relationships may change
more trust and collaboration
Market structure changes

Definition of EDI
The direct computer-to-computer
transfer of business information
between two businesses that uses a
standard format.
Focus on trade data interchange
Often use VANs (Value-added
networks)
Use of standards

EDI Standards

Companies speak precisely the same language

Same codes in same places
Proprietary codes --> to standards (X12, EDIFACT,X400)
Different computers can communicate with one another

EDI Standards
In 1968, the Transportation Data Coordination
Committee was formed, charged with exploring
ways to reduce the paperwork burden
American National Standards Institute (ANSI):
coordinating body for standards in the United
States since 1918
Accredited Standards Committee X12 (ASC X12)
chartered by ANSI in 1979 to develop EDI
standards
The current ASC X12 standard includes
specifications for several hundred transaction sets

Types of EDI Benefits

Direct
Process
require reengineering
can only be realized with all trading partners are on EDI
can revolutionize the way business is done

 Trading partners not knowing

benefits
Hardware costs
Interfacing translator, software costs
Need for software modifications
Network (VAN) service charges
Costs and effort for trading partner
conversion
Barriers
to Adoption

Trading Partner Concerns

in EDI Implementation
Benefits
Costs
EDI
Trust
Dependency

Value Added Networks

Trading partners can implement
the EDI network and EDI
translation process in several
ways, each using one of two
basic approaches
Direct connection
Indirect connection

Direct Connection Between

Trading Partners
Requires each business in the network to
operate its own on-site EDI translator
computer
EDI translator computers are connected
to each other using modems or
dedicated leased lines
Trading partners using different protocols
can make direct connection options
difficult to implement

Indirect Connection Between

Trading Partners
Companies use the services of a valueadded network (VAN)
The VAN provides communications
equipment, software, and skills needed
to receive, store, and forward electronic
messages containing EDI transaction
sets
The VAN often supplies the software
needed to connect to its services

Advantages of Using a
Value Added Network
Users support only one communications
protocol
The VAN records activity in an audit log,
providing an independent record of
transactions
The VAN can provide translation between
different transaction sets
The VAN can perform automatic compliance
checks to ensure the transaction set is in the
specified EDI format

Disadvantages of Using a
Value Added Network
Most VANs require an enrollment fee,
a monthly maintenance fee, and a
transaction fee
VANs can be cumbersome and
expensive for companies with trading
partners using different VANs
Inter-VAN transfers do not always
provide a clear audit trail

EDI on the Internet

Viewed as a replacement for expensive leased lines and dial-up connections

Small companies can get back in the game of selling to large customers the demanded EDI capabilities of their suppliers

Concerns about security and lack of audit logs continue to be a major roadblock

Takes advantage of open architecture

Comparison of EDI
Standards
EDI STANDARDS
(ASC/ANSI)
Security provided by private
networks
EFT (Electronic Funds
Transmission) - standard for
wire payments between
client and vendor
Transactions sets (810invoices;850, 855- POs)

INTERNET
STANDARDS
SSL (Secure Sockets Layer)
SET (Secure Electroic
Transactions) - protocol
proposed by Visa/MC for Net
No transaction standards

Current Internet EDI

Usage

Much EDI traffic carried over private networks

scalability
reliability
processing power
in 1996 EDI Group study
85% of respondents using some form of EDI
only 3-4% were using Internet EDI

Changes on the Horizon

S/MIME protocol which enables e-mail
applications to verify transmission and receipt
of EDI messages
Products to map Web EDI transactions sent in
multiple formats to legacy EDI applications
New (but potentially competing) technologies
XML
OBI

Products to Smooth EDI

Wrinkles
GEISs TradeWeb - an entry-level forms-based
service with which subscribers can send and
receive four basic EDI documents over the
Internet using a standard Web browser for flat
fee ($50/mo)
purchase order (PO), PO acknowledgement
invoice, functional acknowledgement
GEISs Trading Process Network for posting EDIbased forms on the Web

Financial EDI

A trading partners bank is called a Financial EDI (FEDI)

Many trading partners are reluctant to send FEDI transfers for large sums of money over the Internet
Companies may opt to establish an indirect connection through a VAN for the added security for FEDI
transaction