Electronic Data Interchange
EDI developed as a means of accelerating the movement of documents and its use
is growing and set to become the standard by which organizations will
communicate formally with each other in the world of electronic commerce. Prior
to EDI, business depended on postal and phone systems.
EDI is a structured document interchange which enables data in the form of
document content to be exchanged between software applications that are working
together to process a business transaction
EDI techniques are aimed at improving the interchange of information between
trading partners, suppliers, and customers by bringing down the boundaries that
restrict how they interact and do business with each other.
Definitions
–Electronic data interchange is the transmission, in a standard syntax, of
unambiguous information of business or strategic significance between computers
of independent organizations
–Electronic data interchange is the interchange of standard formatted data between
computer application systems of trading partners with minimal manual
intervention
–EDI is the electronic transfer, from computer to computer, of commercial and
administrative data using an agreed standard to structure an EDI message
–EDI is the electronic transfer from one computer to another of computer
processable data using an agreed standard to structure the data.
EDI Architecture:
Semantic Layer: The semantic (or application layer) describes the business
application that is driving EDI. For a procurement application, this translates into
requests for quotes, price quotes, purchase orders, acknowledgements and
invoices. This layer is specific to a company and the software it uses.
Standard Layer: The information seen at the EDI semantic layer must be
translated from a company-specific form to a more generic or universal form so
that it can be sent to various trading partners, who could be using a variety of
software applications at their end. Two standards are generally followed - X12
standard developed by American National Standards Institute (ANSI) and
EDIFACT, developed by United Nations Economic Commission.
Transport layer: The packing ( or transport) layer corresponds with the non-
electronic activity of sending a business form from one company A to company B.
EDI documents are exchanged using e-mail programs and network infrastructure.
EDI documents are more structured than e-mail and typically are processed by the
sending and receiving software.
Physical Layer: The Physical infrastructure layer consisting of Dial-up lines,
Internet etc. enable for the transmission of the message.
Information flow without EDI (Non EDI System):
–When the buyer sends a purchase order to a seller, the relevant data must be
extracted from the internal database and recorded on hard copy. This hard copy is
then forwarded to the seller after passing through several intermediate steps
–Sellers receive information in the form of letters and in some cases a vast number
of facsimiles
–This information is manually entered into the internal information systems of the
recipient by data entry operators. This process generates a considerable amount of
overhead in labor costs and time delays. The reproduction of information also
increase the risk of errors caused by incorrect data entries
–This practice of converting digital data into hard copy data that is reconverted
into electronic information again on the receiving end generates unnecessary costs.
Information flow with EDI
–Buyer’s computer sends Purchase Order to seller’s computer
–Seller’s computer sends Purchase order confirmation to buyer’s computer
–Seller’s computer sends Booking Request to transport company’s computer
–Transport company’s computer sends Booking Confirmation to seller’s computer
–Seller’s computer sends Advance Ship Notice to buyer’s computer
–Transport company’s computer sends Status to seller’s computer
–Buyer’s computer sends Receipt Advice to seller’s computer
–Seller’s computer sends Invoice to buyer’s computer
–Buyer’s computer sends Payment to seller’s computer
All the interactions occur through EDI forms and in most cases are generated
automatically by the computer.
EDI Applications in Business:
1) International Trade: Benefits for international trade are:
•Reduced transaction expenditures
•Quicker movement of imported and exported goods
•Improved customer service through “track and trace” programs which locate the
things or being handled
•Faster customer clearance and reduced opportunities for corruption
2) Financial EDI: It comprises the electronic transmission of payments and
remittance information between a payer, payee and their respective banks. Types
of Financial EDI are:
•Bank Cheques
•Interbank Electronic Funds Transfer (EFT) which is credit transfers between
banks where funds flow directly from the payer’s bank to the payee’s bank.
•Automatic clearing (ACH) transfers are used to process high volumes of
relatively small-dollar payments for settlement in one or two business days.
3) Health care and Insurance EDI:
Medical providers, patients, and payers increasingly process claims via electronic
networks. Electronic claim processing reduces the administrative costs of health
care. EDI enables doctors to communicate with other physicians, laboratories,
hospitals, and other health care settings leading to better managed care.
4) Manufacturing/Retail procurement Using EDI:
In manufacturing, EDI is used to support just-in-time. Companies using JIT and
EDI no longer stock thousands of large parts in advance of their use. Instead they
calculate how many parts are needed each day based on the production schedule
and electronically transmit orders and schedules to suppliers every day. Parts are
delivered to the plant “just in time” for production activity.
In retailing EDI is used to support quick response. Retailers are redefining
practices through the entire supply chain using quick response systems. For the
customers, QR means better service and availability of a wider range of products.
5) Business Information, Product design and procurement:
The development of global sourcing has been closely intertwined with the rapid
evolution of business information. Business information is defined in the broad
sense as all information required by enterprises for the efficient planning,
execution, and monitoring of product manufacturing and marketing. This includes
not only raw data, but also product data for design and engineering.
