Electronic Data Interchange


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Electronic Data Interchange

  1. 1. Intro Electronic data interchange (EDI) is the structured transmission of data betweenorganizations such as documents or business data from one computer system to another computersystem electronically. The transmission is done from one business organization to another similarorganization without human intervention. EDI can be used to describe the technology by whichbusiness documents (such as orders, invoices, shipping contracts, etc) are transmitted electronically.Under this concept, a file is copied to a diskette and loaded into another computer or transmitted overInternet or Intranet. A more precise definition implies direct computer-to-computer communication ofbusiness transactions in a standard format where each computer understands the meaning of each fieldwithout human assistance. EDI began in the early 1970s when the transportation industry (i.e. ocean, trucking and rail)formed the Transportation Data Coordinating Committee (TDCC). The TDCC is a non-profitorganization in Washington DC and organizes data standards, formats codes, and protocols for thetransportation of business documents. The first TDCC standard, composed of 45 transaction sets,was published in 1975. ASC X12 was introduced in 1979 and had the standards on those developed bythe TDCC. Computer technology was not very developed that time and the majority of computerswere mainframe computers running proprietary operating systems. There were numerous modemstandards and most protocols for transmitting files were supplier specific. Even sending tapes was noteasily accomplished because some used the 8 bit character encoding (EBCDIC system) to storealphanumeric data and some used ASCII. The basic reasons for the introduction of EDI include low cost, reduction in paper dependency,improved customer service, reduction in mistakes and improved competitiveness. Since the emergenceof the Internet, EDI has received a great deal of research attention, especially with respect to itsapplications in logistics and supply-chain management such as the online procurement.TypesThere are generally agreed to be three types of EDI system. These are:(1) Batch EDI: This is the most commonly used EDI system by organizations to communicate effectivelyto each other. It uses a point-to-point communications link. This method is ideal for regular transfer ofdocuments of a similar type. It relies on only a minimal amount of initiation on the part of the operator.This system is ideal when there are high quantities of repetitive information and the business case relieson a reduction in volume.(2) Event-driven EDI: Event-driven EDI takes the idea of Batch EDI a step further and integrate it withthe other processes involved in the commercial business. It starts a detailed cascade effect which initiatesand automates other processes as a result of the request from a customer. For example, a factory can referto the information from EDI and thereafter design production schedules. This type EDI system can trulysaid to be customer-driven as bottle-necks in information flow are reduced.(3) Interactive EDI: One of the most exciting developments of EDI is that of interactive EDI conversation(IEDI). Messages take the form of a whole series of pairs of conversational messages which allow aperson with an EDI requesting system to “interrogate” a host system for information in real-time.
  2. 2. Benefits The major benefits that EDI offers can be largely categorized into two groups: direct andindirect. The direct benefits include reduced transaction costs, improved cash flow, reduced inventorylevels, and enhanced information quality. On the other hand, the indirect benefits include enlargedoperational efficiency, better customer service, improved trading partner relationships, and increasedability to compete.The following are some of the benefits of adopting EDI:• EDI helps to reduce communication time and improves accuracy of information exchange.• EDI facilitates open communication and thus promotes teamwork and cooperative supported work.• Improved communication leads to smooth material flow and hence reduced production cost.• Reduced communication time improves customer response time and, therefore, improves customersatisfaction.• Improved customer satisfaction leads to better financial results.It is not the replacement of paper-based communications by electronic media that provides the majorstrategic advantages of EDI. Rather, it is the associated changes in operation within and betweenorganisations made possible by EDI link.Role of XML XML (eXtensible Markup Language) is a method for defining structure in documents.The philosophy behind XML is that the information (text, images, other parts) of a document can beidentified through a set of rules. With these rules, a variety of software applications (like Webbrowsers) can interpret, display, or process data in documents. Recently, several researchers and practitioners have attempted to combine the best featuresof traditional EDI (which has a broad industry support) with the improvements in technology o f f e r ed b y X M L . T h i s i s c o m m o n l y re fe rr e d t o as EDI with XML, or XML with EDI ± depending on theperspective. In an XML/EDI message the EDI information is explicitly labeled using tag names.DisadvantagesSome of the problems are:• In EDI the information can transferred in fixed formats only. This rigidity makes itextremely difficult to evolution information necessary for companies to introduce newproducts and services.• There is very slow improvement in the EDI standards. The process for defining standards fortransaction sets can take years. This proves harmful for today’s business environment whichis characterized by accelerated change and increased competition.• In earlier days to make EDI, protocols for a Value Added Network VAN have to be used. Thiscan prove to be very costly, particularly for small-to- medium enterprises. By using the Internetinstead of a VAN some of the problems of traditional EDI are solved. The use of the Internet ismuch cheaper than the use of a VAN which charge money for each individual message or for acollection of messages. The Internet costs’ are negligible and anybody can use it.
  3. 3. Usage There are four dimensions that determine how the EDI will be used in different types ofcompanies. They are EDI volume, diversity, depth, and breadth. The volume dimension represents theextent to which an organizations document exchanges are handled through EDI links. Diversity refers tothe number of distinct document types that an organization handles via EDI. Depth refers to the degreeof to which electronic processes have been established between the business processes of two or morebusiness organizations. Finally, breadth represents the extent to which an organization has establishedEDI links with external organizations such as suppliers, customers, government agencies, and financialinstitutions.The following are some examples of EDI usage.Auto LoansA major part of the automobile manufacturers business is the financing of the sale of its vehicles. GeneralMotors Acceptance Corporation is one of the largest financial institutions in the world. To be moreresponsive to their customers, auto companies have implemented electronic links to credit bureaus such asTRW. The normal process for the auto company is to request a credit history from the credit bureau viaan EDI connection. The auto company’s computer system electronically receives and analyzes the creditreport. Each report is scored and then credit approval is provided without human involvement.General MotorsGeneral Motors has integrated EDI Electronic funds transfer at 30% of its assembly plants. Shippingreceipts are sent electronically from the GM plant to an Electronic Data System computer center wherethey are matched against electronic invoices and purchase orders. Suppliers group the shipping receipts,and one payment is made. This single payment may represent dozens of different shipments to differentplants. These payments are also performed electronically via Electronic Funds Transfers.JC PenneySales of Stafford suits jumped 59% after JC Penney linked up with their supplier Lanier Clothes. EDIallowed Penney to quickly replenish stock fast enough to meet demand while cutting their overallinventory of suits by 20%.Barriers to implementationInspite of the benefits provided by EDI there still remains some barriers that create problems in theimplementation of EDI. These include: lack of top management support; lack of motivation; inadequatetechnical knowledge; under-investment in IT; a lack of confidence, skills and trust; inadequate security; andlack of performance measures and metrics.Technological infrastructureImplementation of EDI has been influenced by technological infrastructure because organisations withhighly integrated, computerised processes are better prepared to undertake integrated EDI projects whichincrease the impact of technology and provide greater benefits . There are four major components necessaryfor a successful EDI implementation: standards; hardware; software; and a communication network.
  4. 4. Strategic planningOne of the critical jobs for implementing EDI is to develop a strategic plan. The plan should be based onfactors that are both internal and external to the organisation, and an assessment of how the company canbest implement EDI, taking into accounts its goals and constraints. Because EDI is an inter-organizationalsystem in which other stakeholders in the network play important roles, strategic planning should allow forthe influence of external pressures. A strategic plan should also cover implementations of EDI inside theorganisation such as well-defined objectives of EDI adoption, and an assessment that the organisation isready for change.