EDI

1. EDI EDI is the electronic exchange of business documents in a standard, computer processable, universally accepted format between trading partners. In EDI, the computer application of both the sender and the receiver, referred to as Trading Partners have to agree upon the format of the business documents which is sent as a data file over an electronic messaging service.

2. Conventional Trading Process: • The typical process between two organizations remained more or less similar to what has been in use for over a century now. The relationship between a manufacturing organization with the sub – assembly, component, or other raw – material provider organizations in a conventional consists of the following steps:

3. 1.Either the inventory management system – based on a re-order policy following the examination of the stock levels – raises the purchase requisition for the item or a department raises the requirement for some items. The information on the requisition forms is entered into the purchase processing system. Many a time there are transcription errors in the process. Thus, it is necessary to edit and correct to the data.

4. 2.Once the correct requisition information has been updated in the computerized purchase system, the purchase management system scans the suppliers ‘ databases for potential suppliers and prints the purchase requisitions, requesting the price and delivery quotation in the name of screened suppliers.

5. 3. The purchase requests are transmitted to the suppliers, either through phone / fax or through mail / courier service. 4. The information printed on the purchase requests may be keyed in by the suppliers in their computerized systems for processing, and a quotation against the purchase request may be prepared and printed.

6. 5.The quotation from the supplier is transmitted using traditional paper transmission mechanisms such as fax /courier / mail service.

7. 6. All quotations received from suppliers against a purchase request, are entered into the manufacturer's automated system and edited and corrected to remove any transcription errors. Based on the quotations received, the system may process the quotations using structured or semi - structured mechanisms and select the most suitable candidate ordering.

8. 7.The order is then printed on a standardized order form along with the terms and conditions for delivery and payment. 8. The printed order is mailed, couriered, or faxed to the supplier. 9.The supplier, on receiving the order, enters it into the computer system and matches the order with the quotation that has been submitted.

9. 10.If everything is found in order, it raises an internal sales order. Since the raising of an internal sales-order requires data entry / editing of the information from the received purchase order, matching and processing of the order, and then printing of the internal sales order, it often becomes a source of delay. In extreme cases, if the prices / terms on quotation and the purchase order do not match, it may be require repetition of some of the earlier steps, or re-negotiation / clarifications, causing further delays.

10. 11.The internal sales order is used for generating several documents and forms for locating and identifying the appropriate stocks. In case where such stocks are not readily available, it may lead to the raising of a work order or schedule to the production shop. The appropriate stock thus picked and packed for sending it to the buyer along with the packing list and advance shipping note and advice. The process, at times, may lead to a partial fulfillment of the order. In that case, the customer needs to be informed of the short – delivery and order – status in writing..

11. 12. With the goods, the internal sales – order processing system also prepares a delivery note. The goods packed in the previous step are sent using an appropriate dispatch mechanism. 13.The delivery / dispatch note is sent to the buyer using postal mail / courier / fax services.

12. 14.The buyer or receiving yard, on receiving the goods and advices, compares and inspects the goods, and prepares a goods receipt note containing the purchase order number against which the goods are received, and marks the acceptance and rejection of the items shipped. The information on the goods receipt note is transcribed at the computer department, edited, and matched against the outstanding purchase – order. The information on the pending quantity against a purchase - order and the stick levels in the inventory management system are updated. In case of partial delivery, steps 9 – 14 are repeated several times until the quantities on the order are fulfilled.

13. 15. The suppliers computer, on completion of the order fulfillment, also generates an invoice by printing it, when, in turn, is dispatched to the buyer / manufacture. 16.The supplier’s computer also generates a financial statement at the end of the trading month for the payments. At times it also keeps sending reminders for the payment till the complete payment have been received from the buyer.

14. 17.The buyer’s computer enters the information on the payment statement, matches it against the purchase order, and also matches it against the information provided by goods receipt note, or in other words, ensures that the order has been fulfilled and has been inspected and accepted. If everything is found to be in order, the buyer’s computer processes the ordered payment.

16. If we look at the above process, we will notice that computerization has helped only in managing and processing of records of the traditional supply chain management. The whole process remains more or less the same, and is burdened with exhaustive paper work, repetitive entry of data, making it prone to errors and, is still dependent on the postal communication of the document. The advances in communication technologies have made it possible to interconnect the computers of suppliers and buyers. As a result, they can talk to each other directly, or exchange the requisite information without printing on paper, dispatching it through mail / fax, and then re – entering it all at the other end. If this model of transmitting information electronically between the supplier’s and buyer’s computer is put in practice, it will lead to increased speeds, avoidance of errors due to re – entry, accuracy and cost reductions due to reduced cycle time. These improvements dramatically influence the overall efficiency of business and commerce. Electronic Data Interchange is a paperless mechanism that addresses the problems of the traditional systems by electronic interchange of documents.

17. In the EDI environment, buyers create purchase requisitions in their computers and based on these purchase requisitions, and the suppliers’ database at the buyer’s computers, the purchase system creates calls for quotations to suppliers. The calls for quotations are transferred electronically to the suppliers’ computers to the push of a button. The supplier’s computerized system receives the requests and prepares a quotation record which, in turn, is submitted to the buyer’s computer electronically. The buyers’ purchase system collects, compiles and processes all quotations and finally creates purchase orders in their own company’s’ purchasing software program. The electronically generated purchase – order, on pushing a button, is automatically transferred to a supplier’s order entry system. In other words, the transmission of the data between two trading partners happens in electronic form.

18. What is EDI? • Electronic Data Interchange (EDI) is the exchange of business documents between any two trading partners in a structured, machine – readable form. It can be used to electronically transmit documents such as purchase – orders, invoices, shipping bills, receiving advices, and other standard business correspondence between trading partners. EDI can also be used in exchanging financial information and payments in electronic form. The Electronic Fund Transfer (EFT) systems used by financial institutions are a prime example of the application of EDI in the banking and financial sector. EDI should not be viewed as simply a way of replacing paper documents and traditional methods of transaction such as mail, phone, or in-person delivery with electronic transmission. Rather, it should be seen not as an ‘end’, but as a means to streamline procedures and improve efficiency and productivity.

19. EDI covers wide and varied application areas and, depending upon the perspective, has been defined in several ways. According to the Data Interchange Standards Association. • “Electronic Data Interchange (EDI) is the computer – to – Computer exchange of business data in standard formats. In EDI, information is organized according to a specified format set by both parties, allowing a “hands – off” computer transaction that requires no human intervention or rekeying on either end. All information contained in an EDI transaction set is, for the most part, the same as on a conventionally printed document.”

20. The Webopedia says that, • “Electronic data interchange, is the transfer of data between different companies using networks, such as the Internet. As more and more companies get connected to the Internet, EDI is becoming increasingly important as an easy mechanism to buy, sell, and trade information. ANSI has approved a set of EDI standards known as the X12 standards.”

21. According to the EDI University, a training provider in EDI, • “EDI stands for Electronic Data Interchange, a method of transporting all types of information, such as purchase orders, invoices, payments and even graphics, to another party electronically. EDI technology was introduced by Value Added Networks (VANs), in the 1970’s, as an alternative to modern banks, and essentially replaces paper-based communications with electronic equivalents. Since EDI is based on a standard developed by the American National Standards Institute (ANSI), everyone can use it, enabling all businesses to share a common language.”

22. The national Institute of Standards and Technology says that, • “Electronic Data Interchange (EDI) is the computer – to – Computer interchange of strictly formatted messages that represent documents other than monetary instruments. EDI implies a sequence of messages between two parties, either of whom may serve as originator or recipient. The formatted data representing the documents may be transmitted from originator to recipient via telecommunications or physically transported on electronic storage media”.

23. According to the Electronic Commerce Technical Assistance Group, • “Electronic Data Interchange (EDI) is the computer – to – Computer exchange of business data in standard formats. In EDI, information is organized according to a specified format set by both parties, allowing a “hands – off” computer transaction that requires no human intervention or rekeying on either end. The information contained in an EDI transaction set is, for the most part, the same as on a conventionally printed document.”

24. BUILDING BLOCKS OF EDI SYSTEMS: LAYERED ARCHITECTURE • As described above, two key concepts – electronic document exchange and electronic messages – need to be addressed for an EDI system to evolve. The real networking environment that is used for purpose of electronic exchange of information / documents is heterogeneous in nature. Similarly, electronic messages / documents that can be interpreted and understood by various purchase and order processing the systems deployed at different vendors are also heterogeneous in nature. Thus, evolution a general purpose EDI system requires addressing of the problem of heterogeneity at two levels – exchanging documents over heterogeneous networks and the heterogeneity of document formats. • The general architecture of the EDI system consists of four layers: the application – conversion layer, standard message formats layer, the data transport layer and the interconnection layer, as shown in figure.

26. Application / Conversion Layer • The application layer consists of the actual business applications that are going to be connected through the EDI systems for exchange of electronic information. These applications may use their own electronic record formats and document formats for storing, retrieving, and processing the information within each company’s systems. Since each company’s system may have its own proprietary format, which would be used by their system(s), for EDI to operate, they need to convert the internal company document format to a format that can be understood by the system by the trading partner. When the trading partners are small in number, converters for various partner formats can be built. But, as the number of partners with different internal formats increase, the task of building converters for each proprietary format to other formats becomes overwhelming. The fig. below shows a number of converters for four trading partners with four different proprietary message formats.

28. In case a need arises to handle a new proprietary format for an additional partner, four new format conversion programs have to be built. Thus, the approach is markedly unsuitable for the general purpose EDI system. The problem of heterogeneity of formats can be better addressed using a common standard format for documents / messages transferred within the EDI system. The internal processing systems continue to use the proprietary formats, but, for transmission over the wire, they adopt a common document / message format. In this case the conversion program learns to translate the common message format to the proprietary message format used by a system, and vice – versa. The approach greatly simplifies the problem posed by heterogeneity of proprietary message formats, as depicted in the fig. below. Operational EDI systems follow the second approach, in which all the documents that need to be transmitted to the other systems are translated into the standard format. The receiving systems accept the input in the standard format and convert it into the native format used internally by the local system.

30. The Standard Formats Layer • The application layer of EDI systems rely on common agreed formats for operation. Thus, the second important and critical building block of the EDI system is standards for business documents / forms. Since the sender and receiver in the EDI systems have to exchange business documents that can interpreted by all parties, it has necessitated the development of form standards in EDI. EDI form standards are basically data standards in that they lay down the syntax and semantics of the data being exchanged. • The grocery industry sector created the Uniform Communication Standards (UCS) for addressing the EDI standards requirement for their segment, which were later adopted by several other retail sectors.

31. . In Europe on the other hand, the industry developed and adopted yet another set of standards. • The shipping industry devised a set of standards called Data Interchange for Shipping (DISH), the automobile sector came up with a standard under the umbrella of Organization for Data Exchange by Tele Transmission in Europe (ODETTE). • The need for an industry-wide EDI standards was widely felt and this lead to the formation of a Standard Committee X12 under the auspices of American National Standards Institute (ANSI)

32. Document Standards • The cross-industry standardization of documents is at the core of smooth functioning of EDI systems. The interconnection among trading partners only serve the purposing of exchanging information, but a document exchanged between two trading partners needs to be recognized and interpreted correctly by the corresponding software systems running at various partners computers. For example, a purchase order needs to be identified by all the EDI applications running on trading partner’s computers as being a purchase order from a particular organization. Over a period of time, two major EDI standards have evolved. The first, commonly known as X12, was developed by the Accredited Standards X12 committee of the American National Standards Institute (ANSI) and the second, the international standard, was developed by the United Nations EDI for administration, Commerce and Trade (EDIFACT)

33. ANSI X12 • The Accredited Standards Committee (ASC) X12 was set up by the American National Standards Institute (ANSI ) in 1979 to develop cross-industry standards for exchanging electronic documents for use by all businesses in the United States. The committee developed ANSI ASC X12, commonly referred to as X12 standard. Today, EDI standards are firm but not static, because the development of EDI is a continuing effort. Specific industry groups are continuing to evolve new transaction sets that may be better suited to standardization. The X12 standard sets the framework and rules for electronic data interchange. It describes the format for structuring the data. The types of documents that should be transmitted electronically, and the content of each document. The identification numbers for various forms, codes for a variety of fields, and types of information is also defined in the standard. The standard also defines the sequence of information flow.

34. The X12 devised the standards to deal with transactions such as purchase order placement, order processing, shipping, invoicing, and payments, to name a few. In the X12 standard, paper documents related to particular business activities are mapped into a transaction set. It assigns a numeric code to each of these transaction sets, in a manner similar to the numbering of business forms followed at many organizations. • The X12 standard defines a set of documents, referred to as transaction sets, for a wide range of business transaction forms. Each transaction set is given a numeric code, and each transaction set is used and for defining the transfer of a single document (purchase order, manifest etc.) between the computers of two trading artners. The ata embedded in a transaction set conveys the same information that is contained in the printed version of the document; usually, it is a subset of the whole information on the printed version. The printed version of the document can be thought of as containing three distinct types of information – header, detail, and summery.

35. 1.The header contains the information that is common to the whole document, such as date; from address; to address; terms and conditions, tec. In the sample order form shown in Fig., the following information is the header: Alpha Electronics Date 24/11/04 1025, Sector K Aliganj, Lucknow 226011 Purchase Order no. : 200401123

36. 2. Detail refers to line items that describe the actual business transaction. In case of a purchase order, it may contain item number, description, quantity ordered, and price information. In the sample order shown in Fig., the following information is the detail:

37. 3.  Summery refers to the control information and other components that refer to the complete transaction. In case of a purchase-order, it may refer to order value. In the sample order form example, the summery information refers to the following.

38. For each transaction set, extended specification is required. Each of the transaction sets in the X12 standard has a further specification. For example, The transaction set 850 is reserved for the purchase order and X12.1 describes the transaction specification for it, Transaction set 838 is used for vendor registration and X12.7 contains the transaction specification for each transaction set. For example, the specification for the purchase order transaction set (850) can be found in X12.1 standard. For some commonly used documents, the transaction set number along with the corresponding specification standards are listed in the following table:

40. EDIFACT – An International Standard • In 1987, the United Nations announced an international standard called EDI for Administration, Commerce, and Transport (EDIFACT). The EDIFACT standard is promoted by the United Nations Economic Commission, which is responsible for the adoption and standardization of messages. The International Standards Organization (ISO) has been entrusted with the responsibility of developing the syntax and data dictionary for EDIFACT. EDIFACT serves the purpose of trans-border standardization of EDI messages. EDIFACT combines the efforts of American National Standards Institute’s ASC X12, Trade Data Interchange (TDI) standards developed and deployed by much of Europe and the United Kingdom.

41. The GE.1 group of UNEC / EDIFACT deals with data element and rules and formats for automated data exchange. The GE.1 group also coordinates the six EDIFACT boards set up for Western Europe, Eastern Europe, Pan America, Australia/New Zealand, Asia, and Africa. The Asia EDIFACT board (AEB) consists of members like India, Japan, Korea, Hong Kong, China, Singapore, Taiwan, and Malaysia. • The basic unit of communication among EDI Trading Partners, defined by EDIFACT, is an interchange.

42. Data Transport Layer • The data transport layer consists of services that automate the task of electronic transfer of messages. In a typical purchase process, once a purchase order has been prepared and printed in the standard format, it is placed in an envelope and dispatched through postal or courier services to the supplier. The content and structure of the purchase order is defined in the standards layer and is separate from the transport/ carrier mechanism. The layer utilizes any of the available network transport services such as electronic mail; file transfer protocol; Telnet based remote connection and transfer; or even the Hyper Text Transfer Protocol (HTTP) that drives the World Wide Web. Electronic mail has emerged as the dominant means for transporting EDI messages. EDI documents/ messages are exchanged through network infrastructure as electronic mail messages. Electronic mail is used only as a carrier for transporting formatted EDI messages by the EDI Document Transport Layer. The structured message, delivered by the electronic mail, is interpreted by the receiving software, which is capable of comprehending the structure of the EDI standard information.

43. Benefits of EDI • Reduces Lead Time • In the EDI environment, the exchange of documents among trading partners happens electronically through interconnected computers. The process of transferring the documents is instantaneous, offering weeks of time savings compared to the traditional environment that used postal / courier based exchange of printed documents. Also, the direct electronic transfer of documents between inter-organizational systems eliminates the chance of error due to re-entry of data printed on paper from one system to another system. As it streamlines the information flow, the cycle time is reduced drastically. In the environment, order-processing, shipping of goods, and invoice-preparation and transmission can all be done within a matter of a few hours compared to the days/ weeks it takes in a non-EDI environment.

44. Improves Coordination with Supplies • Traditional trading environments are often burdened with the problem of mismatched invoices, un-matching terms in quotations and purchase-orders, missing invoices even after the bill for payment is received and many similar inter-business problems. On careful examination, it will be evident that much of these problems are caused either by delays in the transmission of printed documents, loss of documents in transition, or due to errors in the transcription of the printed information into the electronic form. The instantaneous transfer of business documents over the network in electronic form and confirmation of the same addresses the first problem, thereby making nearly impossible for documents to arrive in wrong sequence. Also, since the documents are received in electronic form, the need to re-enter the same data is not there and, as a result, transcription errors are totally eliminated.

45. Reduces Redundancy • As all the documents exchanged between trading partners are stores in an electronic mailbox, documents can be accessed, retrieved, and examined at any point of time. Either trading partner can access, examine, and make a copy of the document from the electronic box instantly. Contrast it with the non-EDI system; it may take hours, or even days, to locate and retrieve a printed business document from the past. Many a time, trading partners file copies of the same document at multiple places. The EDI environment eliminates the need for multiple copies and reduces redundancy without compromising the accessibility and retrieval of old documents.

46. Expands the Market Reach • Most large manufacturers like General Motors deal with EDI-enabled suppliers only. In the process of streamlining the purchase process they often institute a value-added network. By being a part of their value-added network, many opportunities open up for supplying the material to some other larger supplies who are also a part of the network. Also, with the growth of electronic commerce and further integration of EDI with electronic commerce, the creation of an electronic marketplace by large manufacturers who buy supplies from many large and small suppliers, has become a reality. By participating in this large market place you are likely to pick many orders from other suppliers who are a part of the market/ place / network. The General Electric initiated Trade Process Network (tpn.com) is a prime example of such a marketplace.

47. Increases Revenue and Sales • Many large organizations use EDI and trade with other EDI-enabled suppliers. The efficiency brought about by EDI reduces the total transaction friction by eliminating paperwork and related errors that ensure. It also leads to quicker settlement of accounts. The reduced transaction friction saves money and the supplier is in a better position to offer the items at cheaper costs, leading to improve revenue realizations and sales.

48. Applications of EDI • The ability to exchange documents electronically has been found to facilitate coordination between the partners, reduce the lead time and thus reduce inventory. Although, large manufacturing and transportation companies were the early birds who recognized the advantages, any of the other industry segments also stand to benefit from electronic document exchange. The health care, and financial sectors and cross-border trade facilitated through electronic document exchanges including customs service – have been some other sectors that adopted and derived the returns from EDI.

49. VALUE ADDED NETWORKS • VALUE ADDED NETWORKS(VANs)are third-party communication networks established for exchanging EDI traffic amongst partners. Various business (trading partners) subscribe to VAN services. For every subscriber, the VAN maintains an account, which serves as an electronic post box for the subscriber, for sending and receiving EDI messages. The subscriber’s account receives and accumulates all incoming mail from other partners, which can be viewed by the account owner as and when they connect to the VAN account. There are a number of third-party value added network providers in the market place. Many VANs today also offer document exchange ability of EDI documents with other VANs.

50. Typically, a company subscribers to a VAN for smooth provision of network services and to facilitate electronic data interchange (EDI). These services include: EDI translation, encryption, secure e-mail, management reporting, and other extra services for their customers. • The typical services provided by value added networks are as follows: 1.Document conversion from one standard to another; typically required when two trading partners use different standards for EDI exchanges, ANSI ASC X 12 to EDIFACT or TDCC to ANSI ASC X12.