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Electronic Data Interchange - an Historical Perspective

Wednesday, November 09, 2011

Electronic Data Interchange – EDI

EDI is a means of transferring data between organizations (Trading Partners) via electronic methods. It can include business documents or data files passed independent of human interaction.

It is more than email since actual purchase orders, ship notices, invoices, and payments can be passed within the relative transmission.

The Accredited Standards Committee (ASC) X12, created by the American National Standards Institute in 1979, works to develop and maintain electronic data interchange (EDI) standards and related documents for national and global markets with experts representing over 340 companies from multiple business domains, including communications, finance,

government, insurance, supply chain and transportation.

A Short History of EDI

EDI initially was in its infancy when the telegraph came into use beginning in the 1840s. This usage was incorporated during the Civil War and later WWI to coordinate troop movements and supply management, later flowing into WWII which truly demanded global management of the logistical supply chain.

Unfortunately, after WWII, business data communication by electronic means was still in the telegraph age. Military development continued aggressively while business data was still exchanged via teletype, fax or telephone and then manually entered into incompatible data base systems, which was indicative of a slow and tedious process with significant opportunities for error.

EDI Standards

EDI is considered to be a technical representation of a transactional exchange between businesses. EDI is also meant to supply a roadmap to the standardized format of electronic documents, helping businesses communicate utilizing similar maps or transactions to convey or receive information.

EDI documents normally contain similar information that is contained in their paper counterparts. For example an EDI 850 purchase order is used by a buying organization to notify a manufacturer to ship product to a retailer. It typically has a “ship to” address, “bill to” address, a list of product numbers (usually a UPC) and quantities. EDI is not confined to just business data related to trade but encompasses all fields such as medicine (e.g., patient records and laboratory results), transport (e.g., container and modal information), engineering and construction, etc.

There are four major sets of EDI standards:

? The UN-recommended UN/EDIFACT is the only international standard and is predominant outside of North America.
? The US standard ANSI ASC X12 (X12) is predominant in North America.
? The TRADACOMS standard developed by the ANA (Article Numbering Association) is predominant in the UK retail industry.
? The ODETTE standard used within the European automotive industry.

All of these standards first appeared in the early to mid 1980s. The standards prescribe the formats, character sets, and data elements used in the exchange of business documents and forms.

Communications Methods

There are several methods available for sending and receiving EDI transmissions. These methods include:
? A VAN (value-added network) acts as a regional post office. They receive transactions, examine the 'from' and the 'to' information, and route the transaction to the final recipient.
? AS2 (Applicability Statement 2) is the draft specification standard by which vendor applications communicate EDI or other business-to-business data (such as XML) over the Internet using HTTP.
? Other methods include FTP and HTTP via the World Wide Web.

Interpreting EDI Data

EDI translation software provides the interface between internal systems and the EDI format sent/received. For an "inbound" document the EDI system will receive the file (either via a Value Added Network or directly using protocols such as FTP or AS2), take the received EDI file (commonly referred to as a "mailbag"), validate that the trading partner who is sending the file is a valid trading partner, that the structure of the file meets the EDI standards, and that the individual fields of information conforms to the agreed upon standards.

For an "outbound" transaction, the EDI process is to export a file (or read a database) from a company's back-end ERP, transform the file to the appropriate format for the translator. The translation software will then "validate" the EDI file sent to ensure that it meets the standard agreed upon by the trading partners, convert the file into "EDI" format (adding in the appropriate identifiers and control structures) and send the file to the trading partner.

Advantages of EDI

EDI systems save a company money by providing an alternative to, or replacing, information exchanges that require a great deal of human interaction and materials such as paper documents, meetings, faxes and data entry. EDI systems allow a company to take advantage of the benefits of storing and manipulating data electronically without the cost of manual entry.

Deciding if EDI is Right for your Business

The key is to determine what type and level of integration is right for your business which will directly correlate to the cost of implementation. For a business that only receives one P.O. per year from a client, fully integrated EDI may not make economic sense. In this case, businesses may implement inexpensive "rip and read" solutions or use outsourced EDI solutions provided by EDI "Service Bureaus".

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