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).
(trade cy pic-78)
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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.

Disadvantages of EDI
1. High Dependence on the participation of trading partnersYou 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.
2. 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.
3. 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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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).
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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

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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

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EDIFACT
Electronic Data Interchange for Administration, Commerce, and
Transport is the international set of EDI standards
Became a UN standard in 1987
Maintenance and further development is the responsibility of the
United Nations Centre for Trade Facilitation and Electronic
Business (UN/CEFACT)
Includes syntax rules and implementation guidelines, message
design guidelines, data elements, code sets, and other
definitions

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EDIFACT
Used for business-to-business (B2B) communication rather
than business-to-consumer (B2C)

Allows multi-country and multi-industry exchange

Europe adopted EDIFACT early and has a large installed
base indicating its continued use

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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
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EDI Communications
Customer

VADS

Super
Food

postbox
mailbox

Save Food

postbox
mailbox

Sava Store

postbox
mailbox

Supplier
postbox
mailbox

Best Bread

postbox
mailbox

Fresh Fruit

postbox
mailbox

Mighty Meat

postbox
mailbox

Very Veg

Figure 3.0: VADS - 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?
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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.

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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.
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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

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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.

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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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Business-to-business e-commerce (B2B EC)

business-to-business e-commerce (B2B EC)
Transactions between businesses conducted electronically
over the Internet, extranets, intranets, or private networks;
also known as eB2B (electronic B2B) or just B2B
B2B stands for "business-to-business," as in businesses doing
business with other businesses. The term is most commonly
used in connection with e-commerce and advertising, when
you are targeting businesses as opposed to consumers.
On the Internet, B2B (business-to-business), is the exchange
of products, services, or information between businesses. B2B
is e-commerce between businesses. B2B Communication
using XML over HTTP B2B - the basics

5-20

Business-to-business e-commerce (B2B EC)

Business-to-business electronic commerce (B2B) typically
takes the form of automated processes between trading
partners and is performed in much higher volumes than
business-to-consumer (B2C) applications.
The Basic Types of B2B Transactions and Activities
Sell-side
Buy-side
Exchanges
Supply chain improvements and collaborative commerce

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5-22

Business-to-business e-commerce (B2B EC)

The Benefits of B2B
Creates new sales (purchase) opportunities
Eliminates paper and reduces administrative costs
Expedites processing and reduces cycle time
Lowers search costs and time for buyers to find products
and vendors
Increases productivity of employees dealing with buying
and/or selling
Reduces errors and improves quality of services
Makes product configuration easier
Reduces marketing and sales costs (for sellers)
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Business-to-business e-commerce (B2B EC)

The Benefits of B2B
Reduces inventory levels and costs
Enables customized online catalogs with different prices
for different customers
Increases production flexibility, permitting just-in-time
delivery
Reduces procurement costs (for buyers)
Facilitates customization via configuration (e.g., at Cisco)
Provides for efficient customer service
Increases opportunities for collaboration
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Business-to-business e-commerce (B2B EC)

The Limitations of B2B
Channel conflict
Operation of public exchanges

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