EDI is the computer-to-computer exchange of routine business documents (data) in a standard format between companies.

Electronic Data Interchange (EDI)

COMPANY A COMPANY B

TRANSACTION DATA

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Simply termed as Paperless Trading

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EDI Definition

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”.

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EDI is the computer-to-computer exchange of routine business documents (data) in a standard format between companies.

EDI is the exchange of documents in standardized electronic form, between

organizations, in an automated manner, directly from a computer application

in one organization to an application in another organization

EDI definition Cont….

EDI is defined by International Data Exchange Association (IDEA) as:- This definition has four elements-

1. Structured data- EDI transactions are composed of codes, values and short pieces of text if necessary; each element with a strictly defined purpose. For example, an order has codes for the customer and product and values such as quantity ordered.

2. Agreed message standards- The EDI transaction has to have a standard format. The

standard is not just agreed between the trading partners but is a general standard agreed at national or international level. A purchase order will be one of a number of agreed message standards.

3. From one computer system to another- The EDI message sent is between two computer applications. There is no requirement for people to read the message or relay it in a

computer system.

4. By Electronic Means- Usually this is by data communications but the Physical transfer of magnetic tape or floppy disc would be within the definition of EDI. Often networks

specifically designed for EDI will be used.

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PAPER DOCUMENT INTERCHANGE

Computer

Post Office PO

Purchaser

Computer

Data Entry

Invoice

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ELECTRONIC DATA INTERCHANGE

Computer

VAN

Purchaser

Computer

Data Entry

Invoice PO

• Electronic interchange between the computer and an electronic post office eliminates these problems

• Information is exchanged via electronic post office or VAN 5

EDI History

1948 – Berlin Airlift standardizes processes of airlifting of its consignments

1960 – electronic data transmissions commenced in rail and road transport industry

1968 – US Transportation Data Coordinating Committee (TDCC) formed to develop transport rules

ANSI announced X12 standards to replace TDCC standards

UK developed its own standards for documents used in international trade

UN Economic Commission adopts UK standards into General purpose TradeData Interchange (GTDI) standards

UN Joint Europian and North American Working Party develops EDIFACT to address incompatibilities between X12 and GTDI

1991 – most countries around the world adopt EDI

EDI Components

Hardware Standards

EDI

Software Communications

Four basic components of EDI:

Hardware

Includes computers and modems Software

Select one to fit your requirements Communications

EDI standard

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EDI

One of the most important EDI components is standards EDI Standard - “ A set of rules, agreed upon, accepted, and voluntarily adhered to, by which the data is structured into message formats for exchange of business and operational information” (Beby, Daniel J., E-D-I or D-I-E)

Standards

Started in 1950s and 1960s

First developed for the transportation, warehouse, and grocery industries Provide the commonality of format

Interpretation for communicated information intelligible to both the sender and receiver

American National Standards Institute (ANSI) developed the first national, cross-industry EDI standards

ANSI X12 is the standard for EDI transactions in the U.S.

United Nations/EDI For Administration Commerce and Trade (UN/EDIFACT) is the standard for international EDI transactions

EDI Standard

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ELECTRONIC DATA

INTERCHANGE STANDARDS

UN/EDIFACT ANSI X12

Other Standards

Transportation Data Coordinating Committee (TDCC) Uniform Communications Standard (UCS)

Warehouse Information Network (WINS)

Voluntary Inter-Industry Communication Standard (VICS) EDI for Administration, Commerce, and Trade (EDIFACT)

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EDI Software

X12 Database

1. Document Support

2. Mapping

3. Standards Support 4. Translation

Communications

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Software Component:

Will help design and maintain an electronic form Will replicate a routine paper business form

ASCII files can be used to exchange information between an application package and an EDI package

Translators take information and translate it into an ANSI X12 format Application packages can be mapped to eliminate data entry.

EDI software does not have to match your trading partner’ s software.

Software must use ANSI X12 standards.

Software will send, receive, translate and store the data to be used by other business applications.

Selecting the right software is a very important part of the process.

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EDI USERS

Government Health care Retail Grocery Transportation

Policy

Insuranc e

Manufacturing

Automotive Petroleum

Electronics Chemical

Banks Construction

Advertising

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EDI Users:

Government - DOD, DOC, DOI, GSA, HHS, DOE Federal, state, and local governments

Health care - Hospitals, Pharmacies, Labs, Insurers

Retail - Used to support Vendor Managed Inventory (VMI) Transportation - Motor, Air, Rail, Ocean

Insurance - Property and Casualty, Health care, Life/Annuity, Pensions, Reinsurance

Manufacturing industry uses EDI to support just-in-time material requirement (JIT)

Automotive industry uses EDI to support Evaluated Receipt Settlement(ERS)

Petroleum Electronics Chemical

Banks use financial EDI Construction

Advertising ¹³

EDI Benefits

●No recapture of data. So faster transfers of data and fewer errors

● Reduced cycle time – result of above

● Better coordination with suppliers – no delays, missing documents in transit, no human errors in data entry

● Reduced redundancy – documents stored in email boxes, available anywhere, anytime.

● Expands market reach – through value-added networks

● Increased revenue and sales – result of frictionless transactions and related errors, faster account settlements

•Decrease mailing costs - Information exchanged electronically

•Greater customer satisfaction -Customers receive products faster -Suppliers get paid quicker

•Reduction in order time -Reduced minimum 50%

•Better cash management -Goods received faster Invoicing and payments occur faster and more accurately

–Corporate balance sheets are up-to-date More accurate decision making information available.

–Better scheduling of workloads within the receiving department 14

EDI Disadvantages

• Trading Partners Involvement – Highly dependence on the participation of trading partners. You need to be confident that they will do their part. EDI will be meaningless if your trading partner didn't get involved using EDI system effectively .

• Costly for smaller companies – Many small companies are facing resources problems in getting starter with the initial implementation of EDI system. It is beyond the resources these companies to invest tens or hundreds of thousands of dollars in setting and implementation costs, as well as weeks of personnel training, to get

an EDI system running .

• Difficult to agree on standard to be used –Even though there are widely-accepted and used standards, there are no ways to force trading partners to accept these standards. Cooperation between trading partners is needed in order to develop a common rules to avoid differences in interpretation.

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Barriers to EDI Implementation

●Business process change – from traditional paper format to EDI format

●Cost in time and money for organizations to migrate to EDI

●Business perception of EDI as technical data format, not as document exchange system to be integrated with internal MIS

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EDI Operation 1

●

EDI implies

– Transfer information electronically

– Information transfer between two trading partners who agree upon data formats

– Transferable information complies with agreed upon formats

●

EDI can happen in two ways

– Exchange data directly with each partner

– Interact with multiple partners through a central information

clearing house. Relieves sender from compatibility and licensing issues

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EDI operation 2

● Trading partners meet to specify the applications in the EDI standard they would implement.

● Each partner adds EDI programs to its computer to translate its data into EDI format for transmission and reception.

● As often as required, partners exchange data in standard format.

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EDI Operation 3

● Sender confirms authenticity of recipient

● Records in senders database generate data to transmit.

● Sender composes transmission in EDI format

● Receiver translates received data into its computer record for its internal processing

● All transmissions are checked both electronically and functionally for errors and corrected, if needed

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EDI Building Blocks

Application / conversion Layer Standard Formats Layer (EDIFACT, X12 etc)

Data Transport Layer (email, FTP etc)

Interconnection Layer (network infrastructure)

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Application / Conversion Layer

●Comprises application involved in EDI

● Applications may use their won record formats for storage, retrieval and processing information within internal system

● Applications convert internal information and documents to EDI format

● Conversion may be part of application if number of conversions are few

● Conversion may be separate program if number of conversions are many

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