This document provides an overview of electronic data interchange (EDI). It discusses how EDI allows for the computer-to-computer exchange of standard business documents between partners to reduce costs, increase speed and reduce errors. Key points covered include how EDI works through 5 steps, the benefits of EDI for both suppliers and buyers, different types of EDI, applications of EDI, and security and privacy issues related to EDI.

1. Unit-3
Basic Concepts
Electronic Data Interchange
• It is a tool that allows us to significant
improvements in all three objectives
1. It can speed up many business functions
2. We have more time to produce a better
product by reducing unnecessary delays
3. It can provide customer with improved
service

2. EDI
contd….
• It is the computer to computer exchange a
business documents in a standard electronic
format between business partners. By moving
from a paper-based exchange of business
document to one that is electronic business
enjoy major benefits such as reduced cost,
increased processing speed, and reduced
errors and improved relationships with
business partners.

3. EDI Vs E-mail
Electronic Data Interchange
1. It is a direct computer to
computer exchange of data
from one business
partner/organization to
another business
partner/organization
2. It transmits data in
structured format. Its
location and format of data
is fixed
E-mail
1. It is exchange of message
from one user to another
user by using some
intermediate mail server.
2. It transmits data in
unstructured format. Its
location and format of data
is not fixed.

4. EDI Vs E-mail Contd…..
EDI
3. No human intervention is
required and receiver side.
Incoming data is automatically
entered into systems and
receiver side.
4. Incase of EDI receiver
computer must always be
online at the time of data
transmission.
E-mail
3. Human Intervention is
required. Normally at receiver
side. Operators need to read
email message and need to
make entry in systems at
receiver side.
4. In case of E-mail receiver
computer do not need to be
online at the time of data
transmission.

5. EDI Contd….
EDI
5. EDI need the speed
synchronization of receiver
and sender.
6. EDI is normally used in
business transactions.
E-mail
5. In e-mail speed
synchronization is not needed
between sender and receiver.
6. E-mail is normally used for
messaging.

6. How EDI Works
• EDI works in following 5 steps
Step 1 :
Preparation of Electronic Documents:
Data Interchange is the collection and
organization of data by senders internal
application systems. Rather than printing out
purchase orders, their system builds an
electronic file of purchase orders.

7. How EDI Works Contd…
Step 2:
Outband Translation:
The next step is to translate this electronic file
into a standard format. The resulting data file
will contain a series of structured transaction
related to the purchase orders. Senders EDI
translation software will produce a separate file
for each manufacturer.

8. How EDI Works Contd….
Step 3:
Communication:
Senders computer automatically makes a
connection with its Value Added Network, and
transmits all the files that have been prepared. The
VAN will process each file, routing it to the
appropriate electronic mailbox for each
manufacturer. Several manufacturer do not
subscribe to the Senders VAN so the files are
automatically routed to the appropriate network
service.

9. How EDI Works Contd….
Step 4:
Inbound Translation:
The manufacturer retrieve the files from their
electronic mailbox at their convenience, and
reverse the process that senders went through
translating the file from the standard PO format
into the specific format required by the
manufacturer’s application software.

10. How EDI Works Contd….
Step 5 :
Processing Electronic Documents :
Each manufacturer will process the PO’s
received in their internal application systems.

11. Benefits of EDI
• Whether implementation of EDI was in the
area of purchase orders, advanced shipment
notification, or automatic invoicing, several
immediate advantage could be realized by
exchanging document electronically.
1. Speed
2. Accuracy
3. Economy
4. Simplicity and Security.

12. Benefits to Suppliers
1. Elimination of Problems and Delays caused
by Order Entry Errors.
2. Personal Reductions
3. Inventory Reductions
4. Improved Cash Flow

13. Benefits to Buyers
• Lower Inventory Levels
• Quick Order Acknowledgment
• Time spent matching invoices to purchase
orders and re-keying invoices into an Accounts
Payable System is reduced.

14. Types of EDI
• There are different types of EDI they are :
1. Direct EDI/Point-to-Point
2. EDI via VAN or EDI Network Service Provider
3. EDI through AS2
4. EDI via FTP/VPN,SFTP, FTPS
5. Web EDI
6. Mobile EDI
7. EDI Outsourcing
8. EDI Software

15. EDI Application
• International Trade
• Financial Sector
• Health Care and Insurance
• Manufacturing/Retailing Procurement
• Business Information, Product Design and
Procurement

16. Security and Privacy Issues of EDI
Companies that deal with EDI often retain services of
lawyer during the design of EDI application. Some
progress has been made to give legal status of EDI
messages in various countries. No rules exist that indicate
how electronic message may be considered binding in
business or other related transactions. Incase of EDI
courts haven’t decided who is liable if an EDI network
fails to transmit a document or transmits a document to
the wrong party or transmit a document with error. There
is no legal precedence in this area yet. The establishment
of such a framework is essential if EDI is to become
widespread.

17. Security Contd…….
Cryptographic community is exploring various technical uses
of digital signatures by which message might be time-stamped
or digitally notarized to establish dates and times at which a
recipient might claim to had access or even read a particular
message. Digital signatures for privacy and security of EDI
messages are recognized in many countries. Currently people
need to first sign paper contract agreeing to use digital
signatures in EDI as legally binding. Intrestingly US federal
government purchase orders will be signed by the digital
signature standards (DSS) this implies that government will
support the legal authority of digital signature in the courts.
However, since the validity of documents with digital
signature is not challenged in the court, their legal status is
not well defined yet.

18. EDI and Ecommerce
New EDI service for electronic commerce are seen as the
future bridge that automates the external and internal
process enabling companies to improve their productivity on a
scale never before possible.
They present information management solutions that allow
companies to link their trading community like suppliers,
distributors, customers, banks etc. Electronically-order entry,
purchasing, accounts payable, funds transfer and other
systems interact with each other throughout the community.
With the advent of inter-organizational commerce, several
new types of EDI are emerging that can be broadly
categorized as traditional EDI and Open EDI

19. Traditional EDI
It replaces paper forms with almost one to one
mappings between parts of a paper forms to
fields of electronic forms. Tradition EDI covers
two basic business areas:
1) Trade data interchange
2) Electronic Funds Transfer

20. Old EDI
It refers to current practice of automating the
exchange of information pertinent to business
activity, Information that is generated by the
business process of one computer is transferred
electronically and effects the corresponding
business process in another computer.

21. New EDI
It really focuses on standardization process. New
EDI makes EDI work for electronic commerce by
removing the long standardization process that
is threatening it. With new EDI the structure of
the interchange is determined by the
programmer who writes the business
application program. The goal of EDI is to
produce standardization at the document
processing level rather than at the document
interchange level.

22. Open EDI
Open is a business process for automating the
operation of the law of contract within the
process of electronic commerce where the
transactions are not repeated or sustained over
a long period of time.