Electronic Data Interchange

EDI is the electronic transfer of information between two trading partners systems using a set of transactions that have been adopted as a national or international standard for the particular business function. EDI is the computer-to-computer exchange of standardized business documents, such as purchase orders, product information and invoices or EFT.

DIFFERENT TOOLS USED IN EDI Trade Agreement Legally binding trade agreement between you and your trading partner. Standard Documents Format The standard agreed upon format for the document to be electronically transmitted. EDI Translation Management Software Software used to convert the document your application's format into the agreed upon standard format. For optimum performance the translation software should be on the same platform as your business application. Communications Software Programming tool that enables you to write communications protocols, or a separate application. It can be a module to the translator or a separate software application. Modem A hardware device used to transmit electronic information between computer systems. The higher the baud rate, the faster the communications will be. VAN Value Added Network. A network to which you can connect to transmit data from one computer systems to another. One network can act as a gateway to another. Point-to-Point Direct communication link from one computer to another. Some trading partners offer a direct connection to their EDI computer. Trading partners may opt for this method of communication instead of using a VAN.

How It Works:
ABG Creates PO

ABG converts PO to EDI format

PO sent to 3rd party mailbox (called a VAN value added network) or EDI PO is sent directly to suppliers system

Suppliers system picks-up order (from VAN) for review and acknowledgment - -OR - Supplier goes to Hosted EDI website to review and acknowledge order response is sent back to ABG as EDI

Advantages of EDI
Save Money
The cost of paper and paper processing is incredibly high compared to a properly implemented EDI program. RJR Nabisco estimates that processing a paper purchase order costs the company $70. Processing an EDI purchase order reduces the cost to a mere 93 cents.

End Repetition
If your trading partner wants a copy of a document, instead of calling you they simply check their mailbox. This results in a great time savings from not having to copy and fax/mail copies of business documents.

Save Time
EDI also saves time over paper processing since the transfer of information from computer to computer is automatic. There is no need to rekey information with EDI. And the chance for error drops to near zero, with no data entry.

Improve Customer Service

The quick transfer of business documents and marked decrease in errors allow you to do business faster and more efficient. KMart is an example of a retailer that implements a Vendor Stock Replenishment (VSR) program. With VSR, the KMart warehouse sends stock as their EDI system reports it and automatically bills the client. It can cut weeks from the order fulfillment cycle and ensures that product is always on the shelf.

Expand Your Customer Base

Thus with improved customer service, you can ultimately expand your customer base. Many large manufacturers and retailers are ordering their suppliers to institute an EDI program. So, when evaluating a new product to carry or a new supplier to use, the ability to do EDI is a big plus.

Disadvantges of EDI
Too Many Standards
There are too many standards bodies developing standard documents formats for EDI. For example your company may be following the X12 standard format, while your trading partner follows the EDIFACT standard format.

Changing Standards
Each year, most standards bodies publish revisions to the standards. This poses a problem to EDI users. You may be using one version of the standard while your trading partners are still using older versions.

EDI is Too Expensive

Some companies are only doing business with others who use EDI. If a company wants to do business with these organizations, they have to implement an EDI program. This expense may be very costly for small companies.

Limit Your Trading Partners

Some large companies tend to stop doing business with companies who don't comply with EDI. For example Wal Mart is only doing business with other companies that use EDI. The result of this is a limited group of people you can do business with.

Limitations of EDI

Firms have to incur extra cost for hiring and training staff. Needs highly structured protocols. Added security cost to safe guard confidential information from unauthorized access. It does not allows consumers to communicate or transact with vendors in an easy way.

Applications Of EDI
Companies continually reviews and adds new EDI transactions based on the business initiatives, market needs and recommendations from business partners. Currently, Companies uses EDI for the following business applications and much more... Administration - product catalogs and price lists. Sales Analysis - sales and inventory information Purchasing/Order Management - orders, acknowledgments, order status, and changes . Shipping and Receiving - shipping, notification, proof of delivery, and customs information Billing - invoicing and statements Payment Applications - payment remittance.

DIFFERENCE BETWEEN TRADITIONAL EDI AND WEB-BASED EDI

Traditional EDI
- Old, pass electronic standard

EDI reality
- Time tested and successfully works - Straight forward to implement - Cost of tools are getting cheaper e.g. EDIdEv Framework EDI - Can be implemented over the Internet - Less bandwidth - Once understood, quick to implement - Storage requirements are minimal - Information can still be transported on floppy disk - Status quo - Established global user base - Low business risk

- Traditionally expensive

- Cryptic

- Established companies (Fortune 500) and governments

Conclusion
Organization have adopted EDI to expand the automation of business processes beyond traditional corporate boundaries. EDI has become the tool to streamline business activities. It also facilitates the cooperation and coordination between customers and vendors. EDI is the facilitator for achieving improvement in overall quality by fewer errors, reduction in processing time, less human intervention and minimized unproductive time.