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Electronic Data Interchange (EDI) - Advantages Of Edi, How Edi Works, Security Issues, The Future Of Edi

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Electronic data interchange (EDI) is the electronic exchange of business information—purchase orders, invoices, bills of lading, inventory data and various types of confirmations—between organizations or trading partners in standardized formats. EDI also is used within individual organizations to transfer data between different divisions or departments, including finance, purchasing and shipping. When the focus of EDI centers on payments, especially between banks and companies, the term financial EDI (FEDI) is sometimes used. Along with digital currency, electronic catalogs, intranets and extranets, EDI is a major cornerstone of e-commerce overall.

Two characteristics set EDI apart from other ways of exchanging information. First, EDI only involves business-to-business transactions; individual consumers do not directly use EDI to purchase goods or services. Secondly, EDI involves transactions between computers or databases, not individuals. Therefore, individuals sending e-mail messages or sharing files over a network does not constitute EDI.

While the concept of e-commerce did not receive widespread attention until the 1990s, large companies have been using EDI since the 1960s. The railroad industry was among the first to adopt EDI, followed by other players in the transportation industry. By the early 1980s, EDI was being used by companies in many different industry sectors. In the beginning, companies using EDI transferred information to one another on magnetic tape via mail or courier, which had many drawbacks including long lead times and the potential for a tape to be damaged in transit. During the 1980s, telecommunications emerged as the preferred vehicle for transferring information via EDI.

By the new millennium, EDI was used widely in many industries including manufacturing, finance, and retail. Some large retailers, among them Sears and Target, required suppliers to use EDI in order to engage in business transactions with them. Additionally, the Federal Acquisition Streamlining Act of 1994 (FASA) required all agencies within the United States government to use EDI.

COMMUNICATION METHODS.

After identifying trading partners, entering into TPAs with them and purchasing the necessary hardware and software, a means of communication must be chosen. EDI can occur point-to-point, where organizations communicate directly with one another over a private network; via the Internet (also known as open EDI); and most commonly, via value-added networks (VANs) provided by third-party value-added-network services.

VANs are networks dedicated exclusively to EDI. Not only do they function like telephone lines by allowing for the transfer of information, they also contain storage areas, similar to e-mail boxes, where data sent from one party can be held until it is scheduled to be delivered to the receiver. VANs are able to provide translation services to small organizations that find it too cost prohibitive to do in-house with their own software. Companies may need to join more than one VAN because their partners belong to more than one. However, by the early 2000s most VANS were able to communicate with one another.

In addition to translation, VANs offer a wide variety of other services including data backup, report generation, technical support, training, and the issuance of warnings if data is not properly transmitted between parties. Depending on need, all of the services offered by a VAN may not be required by a particular company. VANs vary in the way they charge companies. Some charge high implementation or setup fees followed by low monthly usage fees, or vice versa. Charges often are made based on the number of documents or characters involved in a given transmission. For example, one EDI provider charged its clients a monthly mailbox fee of $17.50, followed by a charge of 30 cents per 1,024 characters (per kilo character or k/char) transmitted. Additionally, charges can vary depending on participants' phone companies and the time of day when transactions are made. It can be less expensive for companies to make transactions during off-peak or evening hours.

In the early 2000s, although many companies still relied on VANs, the Internet was playing a larger role in EDI. It is possible for companies to translate EDI files and send them to another company's computer system over the Internet, via e-mail or file transfer protocol (FTP). Because it is an open network and access is not terribly expensive, using the Internet for EDI can be more cost effective for companies with limited means. It has the potential to provide them with access to large companies who continue to rely on large, traditional EDI systems. The low cost associated with open EDI also means that more companies are likely to participate. This is important because the level of value for participants often increases along with their number. However, this also presents a dilemma for large companies who have invested a considerable sum in traditional EDI systems. Furthermore, Internet service providers (ISPs) usually do not offer the kinds of EDI-specific services provided by VANs.

While the automotive and retail industries have experimented with open EDI for some time, the efforts didn't result in widespread adoption by small suppliers, usually due to cumbersome requirements like the installation of on-site software. Incorporating EDI into e-marketplaces was an approach that held more potential. In March 2000, an e-marketplace called the WorldWide Retail Exchange (WWRE) was established. It allowed suppliers and retails in various industry sectors—including retail, general merchandise, food and drugstores—to conduct transactions over the World Wide Web. After one year of operation, the WWRE had 53 retailer members with combined annual turnover of $722 billion. Leading retailers, among them Kmart, Rite Aid, Best Buy, and Target, planned to offer a Web-to-EDI translation service on WWRE so it would be easier for smaller suppliers to do business with them. In this arrangement, the retailers send purchase orders to a data center where they are translated to a language that can be read with a Web browser like Internet Explorer or Netscape Navigator. Suppliers are then notified about the PO and allowed to respond. This is a break from true EDI, since orders are handled manually by suppliers.

In addition to the Internet, intranets (private internets) and extranets (links between intranets and the Internet) also showed potential for EDI. According to The International Handbook of Electronic Commerce, "The Extranet makes it possible to connect several organizations behind virtual firewalls. For example, suppliers, distributors, contractors, customers, and trusted others outside the organization can benefit from establishing an Extranet. The Internet is used to provide access to the public; the Intranet serves the internal business; Extranets provide a critical link between these two extremes. Extranets are where the majority of business activity occurs. They enable commerce through the Web at a very low cost and allow companies to maintain one-to-one relationships with their customers, members staff and others."

COMMUNICATION STANDARDS.

As previously mentioned, when companies use EDI to exchange information, translation software is an important part of the process. During EDI, information is usually translated to and from one of several different standard languages, including ANSI X12 and EDIFACT. These languages are more flexible than custom standards developed by individual companies for their specific use.

Because of its reliability and flexibility, ANSI X12 was the most widely used North American standard in the early 2000s. Also called ASC X12, ANSI X12 was developed by the American National Standards Institute (ANSI), which administrates and coordinates voluntary industry standardization within the United States. In addition to its prevelance in North America, this standard also was used in Australia and New Zealand.

Created in 1987 with the cooperation of the United Nations, Electronic Data Interchange For Administration Commerce and Transport (EDIFACT) standards combine the best aspects of ANSI X12 and a standard known as United Nations Guidelines for Trade Data Interchange (UNTDI). Because it is so universal, EDIFACT is suited for use in international EDI. Although EDIFACT was becoming increasingly popular in the early 2000s, it lacked the comprehensiveness of ANSI X12.

In addition to ANSI X12 and EDIFACT, other EDI standards also exist, including Global EDI Guidelines for Retail (GEDI), used within North America for international trade; the grocery industry's Uniform Communication Standard (UCS); Voluntary Inter-Industry Commerce Standards (VISC), used by retailers of general merchandise; Warehouse Information Network Standard (WINS), used by public ware-houses; TRADACOMS, created by the Article Numbering Association and used by retailers in the United Kingdom; and NACHA, developed by the National Automated Clearing House Association and used for transactions in the banking industry.

For companies using open EDI, a language called extensible markup language (XML), similar in some respects to hypertext markup language (HTML), allows users to share information in a universal, standard fashion without making the kinds of special arrangements EDI often requires and regardless of the software program in which it was originally created.

Electronic Data Systems Corp. (EDS) - Early History, Growth As A Unit Of Gm, Reorganization After Spinoff By Gm [next]

User Comments

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over 2 years ago

Roundhouse, Inc. is an EDI outsourcing company based in New York City that deals with these retailers such as Sears, Kmart, Rite Aid, Best Buy, and Target. No staffing needed, no software, no hardware, no monthly fees.

www.roundhousegroup.com

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almost 3 years ago

we appreciate for generous support. respect

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about 3 years ago

Hi can you clatrify me what is the differnce between EDI and XML ? if there is some mistake in EDI then how can you judge?? Thanks in advance





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over 3 years ago

In most cases it becomes quite difficult to check out for the types of EDI when you specify unless you know them,i don't know whether it is a general problem if so then try to help in that area.

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7 months ago

i am trying to find the difference between the actual data and the predicted data is called

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over 1 year ago

I needed to thank you for this excellent information!! I have bookmarked your blog to check out the new stuff you post. Thanks dude

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over 1 year ago

hey, how can we define EDI as a fundamental of technology using e-commerce and environment?

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over 1 year ago

hey, how can we define EDI as a fundamental of technology using e-commerce and environment?

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over 1 year ago

good

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over 1 year ago

good

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about 2 years ago

clearly outline the benefits

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over 2 years ago

Roundhouse, Inc. is an EDI outsourcing company based in New York City that deals with these retailers such as Sears, Kmart, Rite Aid, Best Buy, and Target. No staffing needed, no software, no hardware, no monthly fees.

www.roundhousegroup.com

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over 2 years ago

Very good introduction to EDI. You might be interested in reading an EDI blog one of my collegues has recently written, detailing the effect of imposed EDI particularly on SME's- http://www.frontline-consultancy.com/blog/sap-business-one/effect-imposed-edi-small-midsized-businesses

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over 2 years ago

its really nice information.

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over 2 years ago

What are the EDI benefits to various participants in international trade operations?

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almost 3 years ago

how EDI is useful in case of banking transaction?

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almost 3 years ago

how EDI is useful in case of banking transaction?

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almost 3 years ago

awsome

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almost 3 years ago

advantage of EDI

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almost 3 years ago

what is the advantages of electronic bill of lading

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about 3 years ago

my query is that why we are always using small e to use email, ecommerce,e business etc

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over 3 years ago

Thanks for providing this information