ELECTRONIC DATA INTERCHANGE (EDI)

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E-COMMERCE IT430

Lesson 36

ELECTRONIC DATA INTERCHANGE (EDI)

EDI is used by organizations for transactions that occur on a regular basis according to a pre-determined

format. It involves exchange of electronic business documents, i.e., purchase orders, invoices etc. EDI

transactions are carried through special EDI software. This technology was popularly used before the

introduction of e-commerce by different trading partners on private electronic networks. Key features of

EDI include:

No paper work

No human intervention

Exchange of information takes place in seconds

EDI documents are formatted using published standards. Two popular EDI standards are - ANSI

(American National Standards Institute) X12 standard and EDIFACT (United Nations Standard of

Electronic Data Interchange for Administration, Commerce and Transport).

EDI Example

Assume E-Pens (a manufacturing company of pens and ballpoints) reviews sales and orders on monthly

basis to make forecast of its sales for the coming month. Sales forecast is compared with the stocks of raw

material and other components and a production plan is devised. This monthly plan needs to be flexible so

that materials could be ordered at short notice if these are not available in the store. For instance, packaging

material should only be ordered for just in time (JIT) delivery, so that E-Pens can cut down on its stock of

packaging and reduce the inventory cost. On the other hand, packaging supplier also wants to improve its

processing of orders, particularly urgent orders. Before using EDI technology, the order used to be

generated in the following format:

From:

E-Pens

---------

To: ABC & C0.

--------------------

Order Ref:AC8484

Order Date:15.3.2006

Qty

Description

Product Code

1500

Superior Red

PC-1075-R

1300

Superior Silver

PC-1075-S

-End of Order-

After both E-Pens and its supplier start using EDI system, any amendment of the schedule on the

production control system reviews the materials requirements and the order is automatically generated. In

case the above paper order is to be generated using EDI software, the order data is coded and structured

into a common and generally accepted format. The order would be written as follows in EDIFACT

(See Fig. 1 - not for exam):

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UNB+UNOA:2+8484:xx+1149:xx+

Interchange

Header

BEN0273

UNH+000001+ORDERS:2:932:UN

Message 1

Header

BGM+220+AC8484

DTM+4:20060315:102

Data Segments

NAD+BY+8484326::91

NAD+SU+1149646:91

UNS+D

LIN+1++PC-1075-R:VP

Qty+21:1500

LIN+2++PC-1075-S:VP

Qty+21:1300

UNT+11+000001

Trailer

UNH

Message 2

......

UNT

UNZ+1+BEN0273

Trailer

Fig. 1

In the above, `UNB' refers to the start of interchange or envelop header, `UNOA:2' to the United Nations

Control Agency (level A) version 2, `8484' to sender code, `1149' to recipient code, `BEN0273' to control

reference, `UNH' to message header, `000001' to message no., `ORDERS' to the message type, `2:932' to

version 2 and release 932, `UN' to control agency. `BGM' refers to beginning of message, `220' to message

name code (i.e, order), `AC8484' to order no., `DTM' to date and time of message, `4' to a qualifier,

`20060315' to date, `102' to format qualifier (century date), `NAD' to name and address, `BY' to buyer, `SU'

to supplier, `8484326' to buyer address code, `91' to code list agency, `1149646' to supplier address code.

`UNS' represents section control (that is, start of a section), `D' is for section identification. `LIN' indicates

line item (e.g, line item number 1 and 2), `PT-1075-R' and `PT-1075-S' indicate item number, and `VP' stand

for item number type (that is, vendor part). `QTY' represents quantity, `21' is quantity qualifier (indicating

ordered quantity), `1500' and `1300' is the number of ordered quantity. `UNT' is message trailer/end, `11' is

control count (indicating no. of line segments in the message), `000001' is message no. `UNZ' represents

interchange trailer. Note that an interchange can have more than one message, as shown in Fig. 1 above.

Value Added Network (VAN)

Value added networks are third party networks that provide services to execute authorized transactions with

valid trading partners using EDI. Each VAN has a centralized computer system that maintains two files for

each user, that is,

Postbox: where outgoing messages are placed, and

Mailbox: where incoming messages can be picked up

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VAN Example

Value Added Network (VAN)

Supplier

VAN

Customer

Postbox

Bread shop

Mailbox

Postbox

Super

Mailbox

Food

Postbox

Fruit shop

Mailbox

Postbox

Best

Mailbox

Vegetables

Food

Postbox

Shop

Mailbox

Postbox

Nice

Mailbox

Postbox

Food

Meat Shop

Mailbox

Fig. 2

Note that in Fig. 2 above, Nice Store needs to place orders for bread, meat and vegetables. It

establishes a link to VAN through the dial up line, and sends EDI-based order messages for the three

suppliers which are temporarily stored in its postbox. VAN computer system inspects postbox, unpacks

interchanges (electronic envelopes), repackages them as new interchanges and moves them to the

mailbox of the intended recipients. The three recipients check their mailboxes for new interchanges,

pick them up and cause them to be transmitted to their respective processing systems. They can also

send acknowledgment messages and cause them to be stored in their respective postboxes. VAN

checks them and put them in the mailbox of Nice Food.

Advantages of VAN

Two big advantages of using a VAN in EDI are time independence and protocol independence. Time

independence means that the sending and receipt of the interchange or messages can be carried out at

the convenience of the users involved. Thus, they are not required to be connected with each other at

the same time. Protocol independence means that interchanges are re-enveloped with the transmission

protocol appropriate to the recipient when they are retrieved from the postbox by the VAN. Thus, a

VAN can provide protocol compatibility between the sender and the recipient, wherever that is

missing.

Internet-Based EDI

Internet can support EDI in a variety of ways. Internet e-mail can be used as EDI message transport

mechanism in place of having a VAN. An extranet can be created with the trading partner allowing a

partner to enter information in the fields of web forms which correspond to the fields of EDI message.

Also, web-based EDI hosting service can be utilized through web-based EDI software. However, a lot

of work is still required to be done to make use of and popularize internet-based EDI.

Benefits of EDI

Some of the benefits of EDI are listed as under:

Shortened ordering time

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Since an order is generated automatically according to a pre-defined format, thus, the ordering time is

very short.

Cost cutting

An EDI transaction is more cost-effective in the sense that paper/stationary cost as well as cost of

hiring staff to complete a transaction is eliminated in case of EDI. The only major cost is the expensive

EDI software itself. However, once an EDI system is in place, it can save many expenses otherwise

associated with a normal transaction.

Elimination of errors

Messages are generated automatically, so the chances of any typing errors caused by human intervention

are negligible.

Fast response

An EDI message can be read and processed on the receiver side electronically with the help of EDI

software. So, if the receiver is a supplier of raw material, it can quickly fulfill/implement the order as

compared to a paper order.

Accurate invoicing

Invoices or payment requests by the merchant/supplier can also be generated using EDI standard

format, which are more accurate than paper invoices.

EDI payment

EDI standard documents can be used to electronically provide financial information for payment

purposes.

Enterprise Resource Planning (ERP)

ERP is an approach that attempts to integrate all departments and functions across a company onto a single

computer system that can serve all those different departments' particular needs. For example, finance,

manufacturing and the warehouse department of a company may have their own software to perform tasks

specific to each one of them. However, each software can be linked together so that a customer service

representative can see the credit rating of a customer from finance module, warehouse information from

warehouse module, and shipment information from the shipment module. SAP is an example of ERP

software. ERP is complex. It is not intended for public consumption as proper integration of ERP with e-

commerce applications is still a major problem.

Electronic Banking

Electronic banking, also known as cyberbanking, virtual banking, home banking and online banking,

includes various banking activities conducted from home, business, or on the road, instead of at a physical

bank location.

Advantages of e-banking

Get current account balances at any time

Obtain credit card statements

Pay utility bills

Download account information

Transfer money between accounts

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Send e-mail to your bank

Manage your own schedule

Handle your finances from any location

Apply for loans online

For banks, e-banking represents an inexpensive alternative to branch banking and a chance to enlist remote

customers.

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