Electronic Data Interchange (EDI) involves the computer-to-computer exchange of standard electronic documents between business partners. EDI replaces postal mail, fax, and email by allowing documents like purchase orders and invoices to flow directly to the appropriate application on the receiver's computer without human intervention. Key aspects of EDI include the use of standard formats so computers can process documents, the role of value added networks and trading partners in exchanging documents electronically, and the benefits of EDI like lower costs, fewer errors, and faster processing.

1. What is EDI?What is EDI?
Electronic Data Interchange (EDI) is theElectronic Data Interchange (EDI) is the
computer-to-computer exchange of businesscomputer-to-computer exchange of business
documents in a standard electronic formatdocuments in a standard electronic format
between business partners.between business partners.

2.  Electronic data interchange (EDI) is theElectronic data interchange (EDI) is the
structuredstructured transmission of data betweentransmission of data between
organizations by electronic means, whichorganizations by electronic means, which
is used to transfer electronic documents oris used to transfer electronic documents or
business data from one computer systembusiness data from one computer system
to another computer system, i.e. from oneto another computer system, i.e. from one
trading partner to another trading partnertrading partner to another trading partner
without human intervention.without human intervention.

3.  Computer-to-ComputerComputer-to-Computer–– EDI replacesEDI replaces
postal mail, fax and email. While email ispostal mail, fax and email. While email is
also an electronic approach, thealso an electronic approach, the
documents exchanged via email must stilldocuments exchanged via email must still
be handled by people rather thanbe handled by people rather than
computers. Having people involved slowscomputers. Having people involved slows
down the processing of the documentsdown the processing of the documents
and also introduces errors. Instead, EDIand also introduces errors. Instead, EDI
documents can flow straight through to thedocuments can flow straight through to the
appropriate application on the receiver’sappropriate application on the receiver’s
computer (e.g. the Order Managementcomputer (e.g. the Order Management
System) and processing can beginSystem) and processing can begin
immediately.immediately.

4.  Business DocumentsBusiness Documents –– These are any ofThese are any of
the documents that are typicallythe documents that are typically
exchanged between businesses. Theexchanged between businesses. The
most common documents exchanged viamost common documents exchanged via
EDI are purchase orders, invoices andEDI are purchase orders, invoices and
Advance Ship Notices. But there areAdvance Ship Notices. But there are
many, many others such as bill of lading,many, many others such as bill of lading,
customs documents, inventorycustoms documents, inventory
documents, shipping status documents.documents, shipping status documents.

5.  Standard FormatStandard Format– Because EDI documents must be– Because EDI documents must be
processed by computers rather than humans, aprocessed by computers rather than humans, a
standard format must be used so that the computerstandard format must be used so that the computer
will be able to read and understand the documents.will be able to read and understand the documents.
There are several EDI standards in use today,There are several EDI standards in use today,
including ANSI, EDIFACT.including ANSI, EDIFACT.
- When two businesses decide to exchange EDI- When two businesses decide to exchange EDI
documents, they must agree on the specific EDIdocuments, they must agree on the specific EDI
standard and version. Businesses typically use an EDIstandard and version. Businesses typically use an EDI
translator – either as in-house software or via an EDItranslator – either as in-house software or via an EDI
service provider – to translate the EDI format so theservice provider – to translate the EDI format so the
data can be used by their internal applications anddata can be used by their internal applications and
thus enable straight through processing of documents.thus enable straight through processing of documents.

6.  Business partnersBusiness partners –– The exchange ofThe exchange of
EDI documents is typically between twoEDI documents is typically between two
different companies, referred to asdifferent companies, referred to as
business partners or trading partners. Forbusiness partners or trading partners. For
example, Company A may buy goods fromexample, Company A may buy goods from
Company B. Company A sends orders toCompany B. Company A sends orders to
Company B. Company A and Company BCompany B. Company A and Company B
are business partners.are business partners.

7. A typical manual process looks like this, withA typical manual process looks like this, with
lots of paper and people involvement:lots of paper and people involvement:

8. The EDI process looks like this – no paper, noThe EDI process looks like this – no paper, no
people involved:people involved:

9. Components of EDI SystemComponents of EDI System
 The three main Components required to be able toThe three main Components required to be able to
send or receive EDI messages are:send or receive EDI messages are:
1)1) EDI StandardsEDI Standards
2)2) EDI translation SoftwareEDI translation Software
3)3) Trading PartnersTrading Partners
4)4) Value Added NetworksValue Added Networks (VAN)(VAN) provides users with aprovides users with a
single point interface to the trading community. Theresingle point interface to the trading community. There
can be more than one VAN offering EDI services. Acan be more than one VAN offering EDI services. A
VAN is a third party service provider that managesVAN is a third party service provider that manages
data communication networks for Businesses thatdata communication networks for Businesses that
exchange electronic data with other businesses.exchange electronic data with other businesses.

10.  EDI standardsEDI standards are basically data standards inare basically data standards in
that they lay down the format of data beingthat they lay down the format of data being
exchanged.exchanged.
 Standards are the Key to EDI. They Provide aStandards are the Key to EDI. They Provide a
simple and concise means of communicatingsimple and concise means of communicating
Business Information to Trading Partners.Business Information to Trading Partners.
 ProprietaryProprietary Standards- Standard used in a singleStandards- Standard used in a single
systemsystem
 National and IndustryNational and Industry Standards - standard used in aStandards - standard used in a
single Country or Industrysingle Country or Industry
 InternationalInternational Standards – Standard used world wideStandards – Standard used world wide

11.  UCS (Uniform Communication Standard)UCS (Uniform Communication Standard)
devised by Grocery Segment and adopted bydevised by Grocery Segment and adopted by
other retail sectors.other retail sectors.
 TDI (Trade Data Interchange ) for warehousingTDI (Trade Data Interchange ) for warehousing
 ODETTE (Organization for Data Exchange byODETTE (Organization for Data Exchange by
Tele Transmission in Europe) for automobileTele Transmission in Europe) for automobile
industryindustry
 DISH( Data interchange for Shipping)DISH( Data interchange for Shipping)

12.  Industry wide EDI Standard given by US.Industry wide EDI Standard given by US.
 Accredited Standards Committee (ASC)Accredited Standards Committee (ASC)
X12.X12.
 The X12 Committee of the AmericanThe X12 Committee of the American
National Standards Institute (ANSI).National Standards Institute (ANSI).
 UN/EDIFACT (EDI for Administration,UN/EDIFACT (EDI for Administration,
Commerce and Transport) Standard wasCommerce and Transport) Standard was
announced in 1987 by the Unitedannounced in 1987 by the United
Nations. EDIFACT standard promoted byNations. EDIFACT standard promoted by
the UN for international Trade.the UN for international Trade.

13. EDI standardsEDI standards
13
A
B
CD
E
A
B
CD
E Standard
Format

14.  EDI SoftwareEDI Software : It consists of computer: It consists of computer
instructions that translate the informationinstructions that translate the information
from unstructured, company specific formatfrom unstructured, company specific format
to the structured EDI format, and thento the structured EDI format, and then
communicate the EDI message.communicate the EDI message.
 It also receives the message and translateIt also receives the message and translate
from standard format to company specificfrom standard format to company specific
format.format.
 The major functions of the EDI software areThe major functions of the EDI software are
data conversion, data formatting anddata conversion, data formatting and
message communication.message communication.

15.  X400 MHS (message handling System)-X400 MHS (message handling System)-
Store and forward nature, and generationStore and forward nature, and generation
of delivery reports.of delivery reports.
 X435s special upgrade standard forX435s special upgrade standard for
handling EDI messages.handling EDI messages.
 EDI TranslatorsEDI Translators perform the imp.perform the imp.
Function of translating business data fromFunction of translating business data from
company specific formats to standardcompany specific formats to standard
formats and vice versa.formats and vice versa.

16. Value Added Network (VAN)Value Added Network (VAN)
 A third party network performing servicesA third party network performing services
beyond the transmission of data. For example,beyond the transmission of data. For example,
VANs provide mailbox, data security, and dataVANs provide mailbox, data security, and data
archiving services. Many also offer e-mailarchiving services. Many also offer e-mail
services.services.
 Value Added Networks provides users with aValue Added Networks provides users with a
single point interface to the trading community.single point interface to the trading community.
There can be more than one VAN offering EDIThere can be more than one VAN offering EDI
services. A VAN is a third party service providerservices. A VAN is a third party service provider
that manages data communication networks forthat manages data communication networks for
Businesses that exchange electronic data withBusinesses that exchange electronic data with
other businesses.other businesses.

17. Retailer A
Retailer C
Retailer B
Retailer D
Wholesaler A
Wholesaler B
Wholesaler C
Wholesaler D
Value-added
Network
VAN ModelVAN Model

18. Components of EDI SystemsComponents of EDI Systems
Business Data Business DataBusiness Data Business Data
UN/EDIFACT UN/ EDIFACTUN/EDIFACT UN/ EDIFACT
Message MessageMessage Message
X.400/X.435 X.400/X.435X.400/X.435 X.400/X.435
Business Application
Translator
Communication
NETWORK
Business Application
Translator
Communication
EDI Message

19. Communication of EDI messageCommunication of EDI message
EDI documents are electronically exchangedEDI documents are electronically exchanged
over communication networks which connectover communication networks which connect
trading partners to one another. Thesetrading partners to one another. These
documents are stored in user mailboxes on thedocuments are stored in user mailboxes on the
network’s EDI server from where they can benetwork’s EDI server from where they can be
downloaded/ uploaded at the user’sdownloaded/ uploaded at the user’s
convenience. These VANs provide user’s withconvenience. These VANs provide user’s with
a single point interface to the tradinga single point interface to the trading
community.community.

20. EDI ArchitectureEDI Architecture
EDI architecture specifies 4 layers:EDI architecture specifies 4 layers:
1)Semantic (application layer)1)Semantic (application layer)
2)Standard transaction layer2)Standard transaction layer
3)Packing (transport) layer3)Packing (transport) layer
4)Physical n/w infrastructure layer.4)Physical n/w infrastructure layer.

22. 1)Semantic layer (Application Layer) :-1)Semantic layer (Application Layer) :-
It describes the business application that isIt describes the business application that is
driving EDI.driving EDI.
 For a procurement application, this translatesFor a procurement application, this translates
into requests for quotes, price quotes, purchaseinto requests for quotes, price quotes, purchase
orders, acknowledgements & involves.orders, acknowledgements & involves.
 The information seen at this layer must beThe information seen at this layer must be
translated from a company specific from to atranslated from a company specific from to a
more generic form so that it can be send tomore generic form so that it can be send to
various trading partners, who could be using avarious trading partners, who could be using a
variety of software applications at this end.variety of software applications at this end.

23. When a trading partner sends a document, theWhen a trading partner sends a document, the
EDI translation software converts theEDI translation software converts the
proprietary format into a standard mutuallyproprietary format into a standard mutually
agreed on by the processing system. When aagreed on by the processing system. When a
company receives the document, their EDIcompany receives the document, their EDI
translation software automatically changes thetranslation software automatically changes the
standard format into proprietary format of theirstandard format into proprietary format of their
document processing software so thatdocument processing software so that
company can manipulate the information incompany can manipulate the information in
whatever way it chooses to.whatever way it chooses to.

24. 2.2. EDI Standard Transaction LayerEDI Standard Transaction Layer:- It specify:- It specify
business form structure and it also influencebusiness form structure and it also influence
the content at application layer.the content at application layer.
The most two important standards are:-The most two important standards are:-
 EDIFACTEDIFACT
 ANSI X12ANSI X12
3. EDI Transport layer3. EDI Transport layer:- it corresponds closely:- it corresponds closely
with the non-electronic activity of sending awith the non-electronic activity of sending a
business form from one company A tobusiness form from one company A to
company B.company B.

25.  The business form could be sent via regularThe business form could be sent via regular
postal service, registered mail, certified mail orpostal service, registered mail, certified mail or
private carrier such as united parcel serviceprivate carrier such as united parcel service
(UPS) or simply faxed between the companies.(UPS) or simply faxed between the companies.
 EDI transport layer e- mail X 435EDI transport layer e- mail X 435
 Point2point FTPPoint2point FTP
4.Physical layer4.Physical layer :- Dial up lines:- Dial up lines

26. Advantages of EDIAdvantages of EDI
 Lower operating costsLower operating costs
 Saves time and moneySaves time and money
 Less Errors = More AccuracyLess Errors = More Accuracy
 No data entry, so less human errorNo data entry, so less human error
 Increased ProductivityIncreased Productivity
 More efficient personnel and fasterMore efficient personnel and faster
throughputthroughput
 Faster trading cycleFaster trading cycle
 Streamlined processes for improvedStreamlined processes for improved
trading relationshipstrading relationships

27.  EDI BenefitsEDI Benefits can generally be classified into:can generally be classified into:
1) Strategic,1) Strategic,
2) Operational,2) Operational,
3) Opportunity3) Opportunity
1) Strategic benefits include:1) Strategic benefits include:
 Faster trading cycleFaster trading cycle
 Ability to adopt new business processes suchAbility to adopt new business processes such
as Just-in-Time manufacturing techniques.as Just-in-Time manufacturing techniques.
 Ability to win new business or retain existingAbility to win new business or retain existing
customers leading to improvements in businesscustomers leading to improvements in business
efficiency.efficiency.
 Ability to respond to highly competitive newAbility to respond to highly competitive new
market entrants.market entrants.

28. 2) Operational benefits include:2) Operational benefits include:
 Reduced costs - paper and postage bills cut -Reduced costs - paper and postage bills cut -
reduction in money tied up in stock - manualreduction in money tied up in stock - manual
processing costs (e.g. associated withprocessing costs (e.g. associated with
verification, keying and re-keying of documentsverification, keying and re-keying of documents
and the cost of manual filing systems).and the cost of manual filing systems).
 Improved cash flowImproved cash flow
 Security and error reductionSecurity and error reduction
 Acknowledged receiptAcknowledged receipt
3) Opportunity benefits include:3) Opportunity benefits include:
 Enhanced imageEnhanced image
 Competitive edgeCompetitive edge
 Improved corporate trading relationshipsImproved corporate trading relationships

29. Disadvantages of EDIDisadvantages of EDI
 High Dependence on the participationHigh Dependence on the participation
of trading partnersof trading partners
 Costly for smaller companiesCostly for smaller companies
 Difficult to agree on standard to beDifficult to agree on standard to be
usedused

30. Electronic Fund Tranfers (EFTs)Electronic Fund Tranfers (EFTs)
 For more than 30 years ,banks have beenFor more than 30 years ,banks have been
using electronic fund transfers (also calledusing electronic fund transfers (also called
wire transfers), which the electronicwire transfers), which the electronic
transmission of account exchangetransmission of account exchange
information over private communicationinformation over private communication
networks.networks.