Electronic data interchange (EDI) allows businesses to electronically transmit standard business documents like orders and invoices between computer systems without human intervention. EDI began in the 1970s when the transportation industry formed a committee to develop standards. There are three main types of EDI systems: batch, event-driven, and interactive. EDI provides benefits like reduced costs and improved customer service but also faces challenges like inflexibility and high implementation costs.

1. Intro
Electronic data interchange (EDI) is the structured transmission of data between
organizations such as documents or business data from one computer system to another computer
system electronically. The transmission is done from one business organization to another similar
organization without human intervention. EDI can be used to describe the technology by which
business 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 over
Internet or Intranet. A more precise definition implies direct computer-to-computer communication of
business transactions in a standard format where each computer understands the meaning of each field
without 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-profit
organization in Washington DC and organizes data standards, formats codes, and protocols for the
transportation 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 by
the TDCC. Computer technology was not very developed that time and the majority of computers
were mainframe computers running proprietary operating systems. There were numerous modem
standards and most protocols for transmitting files were supplier specific. Even sending tapes was not
easily accomplished because some used the 8 bit character encoding (EBCDIC system) to store
alphanumeric 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 emergence
of the Internet, EDI has received a great deal of research attention, especially with respect to its
applications in logistics and supply-chain management such as the online procurement.
Types
There 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 effectively
to each other. It uses a point-to-point communications link. This method is ideal for regular transfer of
documents 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 relies
on a reduction in volume.
(2) Event-driven EDI: Event-driven EDI takes the idea of Batch EDI a step further and integrate it with
the other processes involved in the commercial business. It starts a detailed cascade effect which initiates
and automates other processes as a result of the request from a customer. For example, a factory can refer
to the information from EDI and thereafter design production schedules. This type EDI system can truly
said 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 a
person with an EDI requesting system to “interrogate” a host system for information in real-time.

2. Benefits
The major benefits that EDI offers can be largely categorized into two groups: direct and
indirect. The direct benefits include reduced transaction costs, improved cash flow, reduced inventory
levels, and enhanced information quality. On the other hand, the indirect benefits include enlarged
operational efficiency, better customer service, improved trading partner relationships, and increased
ability 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 customer
satisfaction.
• Improved customer satisfaction leads to better financial results.
It is not the replacement of paper-based communications by electronic media that provides the major
strategic advantages of EDI. Rather, it is the associated changes in operation within and between
organisations 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 be
identified through a set of rules. With these rules, a variety of software applications (like Web
browsers) can interpret, display, or process data in documents.
Recently, several researchers and practitioners have attempted to combine the best features
of traditional EDI (which has a broad industry support) with the improvements in technology o f f e r e
d 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 the
perspective. In an XML/EDI message the EDI information is explicitly labeled using tag names.
Disadvantages
Some of the problems are:
• In EDI the information can transferred in fixed formats only. This rigidity makes it
extremely difficult to evolution information necessary for companies to introduce new
products and services.
• There is very slow improvement in the EDI standards. The process for defining standards for
transaction sets can take years. This proves harmful for today’s business environment which
is characterized by accelerated change and increased competition.
• In earlier days to make EDI, protocols for a Value Added Network VAN have to be used. This
can prove to be very costly, particularly for small-to- medium enterprises. By using the Internet
instead of a VAN some of the problems of traditional EDI are solved. The use of the Internet is
much cheaper than the use of a VAN which charge money for each individual message or for a
collection of messages. The Internet costs’ are negligible and anybody can use it.

3. Usage
There are four dimensions that determine how the EDI will be used in different types of
companies. They are EDI volume, diversity, depth, and breadth. The volume dimension represents the
extent to which an organization's document exchanges are handled through EDI links. Diversity refers to
the number of distinct document types that an organization handles via EDI. Depth refers to the degree
of to which electronic processes have been established between the business processes of two or more
business organizations. Finally, breadth represents the extent to which an organization has established
EDI links with external organizations such as suppliers, customers, government agencies, and financial
institutions.
The following are some examples of EDI usage.
Auto Loans
A major part of the automobile manufacturers business is the financing of the sale of its vehicles. General
Motors Acceptance Corporation is one of the largest financial institutions in the world. To be more
responsive to their customers, auto companies have implemented electronic links to credit bureaus such as
TRW. The normal process for the auto company is to request a credit history from the credit bureau via
an EDI connection. The auto company’s computer system electronically receives and analyzes the credit
report. Each report is scored and then credit approval is provided without human involvement.
General Motors
General Motors has integrated EDI Electronic funds transfer at 30% of its assembly plants. Shipping
receipts are sent electronically from the GM plant to an Electronic Data System computer center where
they 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 different
plants. These payments are also performed electronically via Electronic Funds Transfers.
JC Penney
Sales of Stafford suits jumped 59% after JC Penney linked up with their supplier Lanier Clothes. EDI
allowed Penney to quickly replenish stock fast enough to meet demand while cutting their overall
inventory of suits by 20%.
Barriers to implementation
Inspite of the benefits provided by EDI there still remains some barriers that create problems in the
implementation of EDI. These include: lack of top management support; lack of motivation; inadequate
technical knowledge; under-investment in IT; a lack of confidence, skills and trust; inadequate security; and
lack of performance measures and metrics.
Technological infrastructure
Implementation of EDI has been influenced by technological infrastructure because organisations with
highly integrated, computerised processes are better prepared to undertake integrated EDI projects which
increase the impact of technology and provide greater benefits . There are four major components necessary
for a successful EDI implementation: standards; hardware; software; and a communication network.

4. Strategic planning
One of the critical jobs for implementing EDI is to develop a strategic plan. The plan should be based on
factors that are both internal and external to the organisation, and an assessment of how the company can
best implement EDI, taking into accounts its goals and constraints. Because EDI is an inter-organizational
system in which other stakeholders in the network play important roles, strategic planning should allow for
the influence of external pressures. A strategic plan should also cover implementations of EDI inside the
organisation such as well-defined objectives of EDI adoption, and an assessment that the organisation is
ready for change.