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  2. 2. Learning Objectives • Introduction to conventional purchasing process • What is Electronic Data Interchange? • Building Blocks of EDI systems • Value Added Networks • Benefits of EDI Systems 2
  3. 3. Conventional Trading Process Either the inventory management system based on re-order policy on the examination of the stock levels raises the purchase requisition for the item or, a department raises the requirement for some items. The information on the requisition forms is entered into the purchase processing system. Many a times there are transcription errors in the process. Thus, editing and correction of the data is needed. Once the correct requisition information has been updated in the computerized purchase system, the purchase management system scans the suppliers’ databases for the potential suppliers and prints the purchase requisitions (PRs), requesting the price and delivery quotation in the name of screened suppliers. 3
  4. 4. Conventional Trading Process- contd. The purchase requests are transmitted to the suppliers either through phone/fax or through mail/courier service. The information printed on the purchase requests may be keyed in by the suppliers in their computerized systems for processing and, a quotation against the purchase request may be prepared and printed. The quotation from the supplier is transmitted using the traditional paper transmission mechanisms such as fax/couriers/mail services. All quotations received from suppliers against a purchase request are entered into the manufacturer’s automated system and edited and corrected to remove any transcription errors. Based on the quotations received, the systems may process using structured (automated) or semi-structured (generate output to assist the decision-maker) mechanism and select the candidate for ordering. 4
  5. 5. Conventional Trading Process- contd. The purchase requests are transmitted to the suppliers either through phone/fax or through mail/courier service. The information printed on the purchase requests may be keyed in by the suppliers in their computerized systems for processing and, a quotation against the purchase request may be prepared and printed. The quotation from the supplier is transmitted using the traditional paper transmission mechanisms such as fax/couriers/mail services. All quotations received from suppliers against a purchase request are entered into the manufacturer’s automated system and edited and corrected to remove any transcription errors. Based on the quotations received, the systems may process using structured (automated) or semi-structured (generate output to assist the decision-maker) mechanism and select the candidate for ordering. 5
  6. 6. Conventional Trading Process- contd. The order is then printed on a standardized order-form along with the terms and conditions for delivery and payment. The printed order is mailed, couriered or faxed to the supplier. The supplier, on receiving the order, enters it into the computer system and matches the order with the quotation submitted. If every thing is found in order, it raises an internal sales-order. Since, the raising of internal sales-order requires data entry/editing of the information from the received purchase-order, matching and processing of the order and then printing of the internal sales-order, it often becomes a source of delay. In extreme cases, if the prices/terms on quotation and the purchase order do not match, it may require repetition of some of the earlier steps, or re- negotiation/clarifications causing further delays. 6
  7. 7. Conventional Trading Process- contd. The internal sales-order is used for generating several documents and forms for locating and identifying the appropriate stocks. In cases where such stocks are not readily available, it may lead to the raising of a work-order or schedule to the production shop. The appropriate stock is thus picked and packed for sending it to the buyer along with the packing list and advance shipping note and advice. The process, at times, may lead to a partial fulfillment of the order. In that case, the customer needs to be informed of the short-delivery and order-status in writing. With the goods, the internal sales-order processing system also prepares a delivery note. The goods packed in the previous step are sent using an appropriate dispatch mechanism. 7
  8. 8. Conventional Trading Process- contd. The buyer-receiving yard, on receiving the goods and advices, compares and inspects the goods, and prepares a goods-receipt note, containing the purchase-order number against which the goods are received, marking the acceptance and rejection of the items shipped. The information on goods-receipt note is transcribed at the computer department, edited and matched against the outstanding purchase-order. The information on the pending quantity against a purchase-order and the stick levels in the inventory management system are updated. In case of partial delivery, steps 9-14 are repeated several times until the quantities on the order are fulfilled. The supplier’s computer, on completion of the order fulfillment, also generates an invoice by printing it, which, in turn, is dispatched to the buyer/manufacturer. 8
  9. 9. Conventional Trading Process- contd. The supplier’s computer also generates a financial statement at the end of the trading month for the payments. At times, it also keeps on sending the reminders for the payment till complete payments have been received from the buyer. The buyer’s computer enters the information on the payment (demand) statement, matches it against the purchase order, and also matches it against the information provided by goods-receipt note or, in other words, ensures that the order has been fulfilled and has been inspected and accepted. If every thing is found in order, the buyer’s computer processes it for the payment. 9
  10. 10. What is EDI? Electronic Data Interchange (EDI) is the exchange of business documents between any two trading partners in a structured, machine-readable form. It can be used to electronically transmit documents such as purchase-orders, invoices, shipping bills, receiving advices and other standard business correspondence between trading partners. EDI can also be used in exchanging financial information and payments in electronic form. The Electronic Fund Transfer (EFT) systems used by the financial institutions are a prime example of the application of EDI in the Banking and Financial sector. 10
  11. 11. What is EDI? The Webopedia defines it in the following form: • “Electronic Data Interchange, the transfer of data between different companies using networks, such as the Internet. As more and more companies get connected to the Internet, EDI is becoming increasingly important as an easy mechanism for companies to buy, sell, and trade information. ANSI has approved a set of EDI standards known as the X12 standards.” 11
  12. 12. What is EDI? By National Institute of Standards and Technology: • “EDI is the computer-to-computer interchange of strictly formatted messages that represent documents other than monetary instruments. EDI implies a sequence of messages between two parties, either of whom may serve as originator or recipient. The formatted data representing the documents may be transmitted from originator to recipient via telecommunications or physically transported on electronic storage media.” 12
  13. 13. What is EDI? The Electronic Commerce Technical Assistance Group defines it in the following manner: • “Electronic Data Interchange (EDI) is the computer-to- computer exchange of business data in standard formats. In EDI, information is organized according to a specified format set by both parties, allowing a "hands off" computer transaction that requires no human intervention or re-keying on either end. The information contained in an EDI transaction set is, for the most part, the same as on a conventionally printed document.” 13
  14. 14. key features • The electronic exchange of information The electronic exchange of information requires presence of direct or indirect interconnection between the involve partners. • Standard formats or business forms. The typical business forms used in the EDI include, Schedules, Purchase Orders, Acknowledgements, Delivery related documentations, Receipt notes, Invoices, Remittance requests, payments through Electronic Fund Transfers, Bills of Lading, Manifests and Reconciliations and many others depending upon the application area. Among the trading partners the above mentioned documents have to follow some standard format. The standardization of the format helps in exchanging these documents with trading partners that may have heterogeneous computing environments. 14
  15. 15. Building Blocks of EDI Systems: Layered Architecture Application/ Conversion Layer Standard Formats Layer EDIFACT or ANSI X12 Data Transport Layer Email, FTP, Telnet, HTTP, X.435(MIME) Interconnection Layer Dial-up lines, Internet, I-way, WAN 15
  16. 16. Application Layer It consists of the actual business applications that are going to be connected through the EDI systems for exchange of electronic information. These applications may use their own electronic record formats and document formats for storing, retrieving and processing the information within the company systems. For EDI to operate, they need to convert the internal company document format to a format that can be understood by the system used by the trading partner. When the trading partners are small in number, then the converters for various partner formats can be built. But, as the number of partners with different internal formats increase, the task of building converters for each proprietary format to other format becomes overwhelming. 16
  17. 17. Converters : Many to Many Approach 17 Format-1 Format-3 Format-4 Format-2 Converters between formats
  18. 18. Standard Format Layer The application layer relies on common agreed formats for operation. Thus, the second important and critical building block of the EDI system is standards for the business documents/forms. Over a period of time, two major EDI standards have evolved. The first, commonly known as X12, was developed by Accredited Standards X12 committee of American National Standards Institute (ANSI) and The second, the International Standard was developed by United Nations EDI for Administration, Commerce and Trade (EDIFACT) standard. 18
  19. 19. Standard Format Approach 19 Format-1 Format-3 Format-4 Format-2 Common Formats Approach Common Formats
  20. 20. ANSI X12 Standard X12 devised the standards to deal with transactions such as purchase-order placement, order-processing, shipping, invoicing and payments etc. The paper documents related to particular business activities are mapped into a transaction set. The X12 standard defined a set of documents, referred to as transaction sets, for a wide range of business transaction forms. Each transaction set is given a numeric code which is similar to the way in most of the paper forms where form numbers are assigned. A transaction set is a term used in X12 standard for defining the transfer of single document (purchase order, Manifest etc.) between the computers of two trading partners. 20
  21. 21. ANSI X12 Standard Document Title Transaction Set Specifications Purchase Order 850 X12.1 Invoice 810 X12.2 Request for Quotation (RFQ) 840 X12.7 Response to RFQ 843 X12.8 P.O. Acknowledgement 855 X12.9 Ship Notice/Manifest 856 X12.10 Order Status Inquiry 869 X12.11 Receiving Advice 861 X12.12 Price Sales Catalog 832 X12.13 Planning Schedule/Material Release 830 X12.14 Trading Partner Profile 838 X12.17 Shipment Information 858 X12.18 Order Status Report 870 X12.23 Price Authorization Ack/Status 845 X12.27 Inventory Inquiry/Advice 846 X12.28 21
  22. 22. EDIFACT Standard Promoted by United Nations Economic Commission, which is responsible for adoption and standardization of the messages. The International Standards Organization (ISO) has been entrusted with the responsibility of developing the syntax and data dictionary for the EDIFACT. The EDIFACT serves the purpose of trans-border standardization of the EDI messages. It combines the efforts of American National Standards Institute’s ASC X12, Trade Data Interchange (TDI) standards developed and deployed by much of Europe and United Kingdom. The GE.1 group of UNECE/EDIFAC deals with data elements, and rules and formats for automated data exchange. The GE.1 group coordinates the six EDIFACT boards set up for Western Europe, Eastern Europe, Pan America, Australia/New Zealand, Asia and Africa. Asia EDIFACT board (AEB) consists of members like India, Japan, Korea, Hong Kong, China, Singapore, Taiwan and Malaysia. 22
  23. 23. Data Transport Layer The data transport layer consists of services that automate the task of electronic transfer of messages. The Electronic Mail exchanged through the network infrastructure has emerged as the dominant means for transporting the EDI messages. The electronic mail is used only as a carrier for transporting the formatted EDI messages by the EDI Document Transport Layer. ITU-T has adopted X.435 (X.400-based) standards to support electronic data interchange (EDI) messaging. 23
  24. 24. Data Transport Layer X.435 standard consists of definition of normal EDI messages and a set of EDI "notifications" to address the security requirement. In order to achieve equivalence to the security control offered by the paper- based systems, it has three types of notifications. • A positive notification – It indicates that the recipient has received the document and accepts the responsibility for it; • A negative notification- It indicates that the recipient received but refused to accept the document. The reason for refusal is attached with the notification. • A forwarding notification- It indicates that the document was received, but forwarded to another recipient. 24
  25. 25. Inter Connection LayerInter Connection Layer It refers to the network infrastructure that is used for the exchange of information between trading partners. In the simplest and most basic form it may consist of dial-up lines, where trading partners dial-up through modem to each other and connect to exchange the messages as illustrated in the following: 25 Phone Exchange
  26. 26. Inter Connection LayerInter Connection Layer The leased lines and I-way, Internet or any reliable network infrastructure that can provide ability of interconnection can be used. Through the interconnection, the EDI partners are able to achieve document exchanges between themselves: 26 Communication Network Dial up/leased line Dial up/leased line
  27. 27. Value Added Network (VAN) VANs are third-party communication networks established for exchanging EDI traffic amongst the partners. Various businesses (trading partners) subscribe to the VAN services. For every subscriber, the VAN maintains an account, which serves as an electronic post office box for the subscriber, for sending and receiving the EDI messages. The subscriber’s account receives and accumulates all incoming mail from other partners that can be viewed by the account owner as and when they connect to the VAN account. There are a number of third-party Value Added Network providers in the market place. Many of the VANs today, also offer the document exchange ability of EDI documents with other VANs. 27
  28. 28. Value Added Network (VAN) 28 Translation, Editing, Compliance checking, verification, Format translation, Alerting services, Storage and Mailbox Value Added Network VAN Dial up/leased line Dial up/leased line Producer Transport Bank Trader TraderTrader
  29. 29. Services Provided By The VAN Document conversion from one standard to another; typically required when two trading partners use different standards for EDI Exchanges i.e. ANSI ASC X12 to EDIFACT or TDCC to ANSI ASC X12; Converting one ANSI ASC X12 document to another ANSI ASC X12 documents; often within the same system the documents may need to be converted to another type. For example, a Motor Carrier Details & Invoice (210) document may need to be converted to Generic Freight Invoice (859). The sender may follow certain conventions that are different from receiver. Translation from a sender's conventions of a standard document to the receiver's conventions; i.e • translate field separators, • discard unwanted characters • format translation from EDI standard to or from flat file, flat file to flat file, XML, and other formats • data translation among the PDF, XLS, MDB or other web-based documents29
  30. 30. Value Added Network (VAN) The appropriate customer data can be saved in the VAN account and later appended on messages where needed. For example, sender’s Bill of Lading (BOL) number can be stored in the account and upon receipt of the BOL acknowledgment (997), an acknowledgment message including BOL number can be created and transmitted to sender. VAN provider’s computers also store data such as customer profiles, repetitive waybill codes, etc which can be used for filling up the EDI transaction document help of customer profile code. The customer profile stored on the VAN can be accessed using the customer profile code and the data from the profile stored on the VAN can be used for completing the EDI transaction. The subscribers can interactively enquire about the status of any EDI transactions made by them. Subscribers can receive “verify acknowledgments” in the mailbox even when they are not online. The VAN can alert the subscriber (receiver) that there is data in their mailbox to be picked up through means such as: • By sending a fax notification • By calling a pager or other alerting device that signals users about the waiting mail in the mailbox 30
  31. 31. Value Added Network (VAN) • The VAN can capture the specified data from transaction which, in turn, can be used for generating customer-specified reports. • The subscriber may specify the editing requirements, VAN can edit for completeness and correctness as per requirements. For example, it can verify that the line item charges on an invoice add up to total value shown on the EDI invoice • In situations where such missing or mismatching data is found during the edit process, the VANs usually send messages to the originator informing it about the missing/mismatched data and request re-transmission of the same; For example in ASC X12, upon receipt of Shipment Status Message (214) with missing data, send a Status Inquiry (213) transaction to carrier requesting correction and re-transmission. • Validate and verify the information stored in customers’ databases for missing data and send messages to appropriate firms requesting correction of the missing data. 31
  32. 32. Third Party VAN Providers. GEIS- Operated by General Electric of USA, has presence in over 50 countries. Cable & Wireless- Highly reliable with a subscriber base of over 2000 top companies of the world, holds nearly 8% market share of global VAN market. GNS – It is one of the largest Value Added Network and has presence in 36(? Check internet) countries. Transpac – A France based EDI VAN provider owns the largest domestic VAN market share and has strong presence in Europe. It uses Infonet for offering VAN service outside the domestic domain. Infonet- VAN service jointly owned and operated by WorldComm, Singapore Telecom and Transpac. The owning organizations themselves offer VAN services in the local domains and cover rest of the world through the Infonet. Satyam Infoway – The private national Internet Service Provider (ISP) offers EDI VAN services in India, in association with the Sterling Software of USA. In addition to the standard VAN services, it offers Web EDI VAN services as well. NICNet – The National Informatics Center, has established connectivity through 600 points of presence in India. The NICNet in late 1999 started offering Value Added Network (VAN) Services to facilitate and encourage the EDI adoption in India. Some of implementations of EDI in India: Indian Customs, Port Trust and Apparel Export Promotion Council use the NICNet VAN. 32
  33. 33. Benefits of EDI- • Reduces Lead Time • Improves Coordination with Suppliers • Reduces Redundancy • Expands the Market Reach • Increases revenue and sales 33