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E-COMMERCE ­ IT430
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Lesson 36
ELECTRONIC DATA INTERCHANGE (EDI)
EDI is used by organizations for transactions that occur on a regular basis according to a pre-determined
format. It involves exchange of electronic business documents, i.e., purchase orders, invoices etc. EDI
transactions are carried through special EDI software. This technology was popularly used before the
introduction of e-commerce by different trading partners on private electronic networks. Key features of
EDI include:
No paper work
No human intervention
Exchange of information takes place in seconds
EDI documents are formatted using published standards. Two popular EDI standards are - ANSI
(American National Standards Institute) X12 standard and EDIFACT (United Nations Standard of
Electronic Data Interchange for Administration, Commerce and Transport).
EDI Example
Assume E-Pens (a manufacturing company of pens and ballpoints) reviews sales and orders on monthly
basis to make forecast of its sales for the coming month. Sales forecast is compared with the stocks of raw
material and other components and a production plan is devised. This monthly plan needs to be flexible so
that materials could be ordered at short notice if these are not available in the store. For instance, packaging
material should only be ordered for just in time (JIT) delivery, so that E-Pens can cut down on its stock of
packaging and reduce the inventory cost. On the other hand, packaging supplier also wants to improve its
processing of orders, particularly urgent orders. Before using EDI technology, the order used to be
generated in the following format:
From:
E-Pens
---------
To: ABC & C0.
--------------------
Order Ref:AC8484
Order Date:15.3.2006
Qty
Description
Product Code
1500
Superior ­Red
PC-1075-R
1300
Superior ­ Silver
PC-1075-S
-End of Order-
After both E-Pens and its supplier start using EDI system, any amendment of the schedule on the
production control system reviews the materials requirements and the order is automatically generated. In
case the above paper order is to be generated using EDI software, the order data is coded and structured
into a common and generally accepted format. The order would be written as follows in EDIFACT
(See Fig. 1 - not for exam):
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UNB+UNOA:2+8484:xx+1149:xx+
Interchange
Header
BEN0273
UNH+000001+ORDERS:2:932:UN
Message 1
Header
BGM+220+AC8484
DTM+4:20060315:102
Data Segments
NAD+BY+8484326::91
NAD+SU+1149646:91
UNS+D
LIN+1++PC-1075-R:VP
Qty+21:1500
LIN+2++PC-1075-S:VP
Qty+21:1300
UNT+11+000001
Trailer
UNH
Message 2
......
UNT
UNZ+1+BEN0273
Trailer
Fig. 1
In the above, `UNB' refers to the start of interchange or envelop header, `UNOA:2' to the United Nations
Control Agency (level A) version 2, `8484' to sender code, `1149' to recipient code, `BEN0273' to control
reference, `UNH' to message header, `000001' to message no., `ORDERS' to the message type, `2:932' to
version 2 and release 932, `UN' to control agency. `BGM' refers to beginning of message, `220' to message
name code (i.e, order), `AC8484' to order no., `DTM' to date and time of message, `4' to a qualifier,
`20060315' to date, `102' to format qualifier (century date), `NAD' to name and address, `BY' to buyer, `SU'
to supplier, `8484326' to buyer address code, `91' to code list agency, `1149646' to supplier address code.
`UNS' represents section control (that is, start of a section), `D' is for section identification. `LIN' indicates
line item (e.g, line item number 1 and 2), `PT-1075-R' and `PT-1075-S' indicate item number, and `VP' stand
for item number type (that is, vendor part). `QTY' represents quantity, `21' is quantity qualifier (indicating
ordered quantity), `1500' and `1300' is the number of ordered quantity. `UNT' is message trailer/end, `11' is
control count (indicating no. of line segments in the message), `000001' is message no. `UNZ' represents
interchange trailer. Note that an interchange can have more than one message, as shown in Fig. 1 above.
Value Added Network (VAN)
Value added networks are third party networks that provide services to execute authorized transactions with
valid trading partners using EDI. Each VAN has a centralized computer system that maintains two files for
each user, that is,
Postbox: where outgoing messages are placed, and
Mailbox: where incoming messages can be picked up
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VAN Example
Value Added Network (VAN)
Supplier
VAN
Customer
Postbox
Bread shop
Mailbox
Postbox
Super
Mailbox
Food
Postbox
Fruit shop
Mailbox
Postbox
Best
Mailbox
Vegetables
Food
Postbox
Shop
Mailbox
Postbox
Nice
Mailbox
Postbox
Food
Meat Shop
Mailbox
Fig. 2
Note that in Fig. 2 above, Nice Store needs to place orders for bread, meat and vegetables. It
establishes a link to VAN through the dial up line, and sends EDI-based order messages for the three
suppliers which are temporarily stored in its postbox. VAN computer system inspects postbox, unpacks
interchanges (electronic envelopes), repackages them as new interchanges and moves them to the
mailbox of the intended recipients. The three recipients check their mailboxes for new interchanges,
pick them up and cause them to be transmitted to their respective processing systems. They can also
send acknowledgment messages and cause them to be stored in their respective postboxes. VAN
checks them and put them in the mailbox of Nice Food.
Advantages of VAN
Two big advantages of using a VAN in EDI are time independence and protocol independence. Time
independence means that the sending and receipt of the interchange or messages can be carried out at
the convenience of the users involved. Thus, they are not required to be connected with each other at
the same time. Protocol independence means that interchanges are re-enveloped with the transmission
protocol appropriate to the recipient when they are retrieved from the postbox by the VAN. Thus, a
VAN can provide protocol compatibility between the sender and the recipient, wherever that is
missing.
Internet-Based EDI
Internet can support EDI in a variety of ways. Internet e-mail can be used as EDI message transport
mechanism in place of having a VAN. An extranet can be created with the trading partner allowing a
partner to enter information in the fields of web forms which correspond to the fields of EDI message.
Also, web-based EDI hosting service can be utilized through web-based EDI software. However, a lot
of work is still required to be done to make use of and popularize internet-based EDI.
Benefits of EDI
Some of the benefits of EDI are listed as under:
Shortened ordering time
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Since an order is generated automatically according to a pre-defined format, thus, the ordering time is
very short.
Cost cutting
An EDI transaction is more cost-effective in the sense that paper/stationary cost as well as cost of
hiring staff to complete a transaction is eliminated in case of EDI. The only major cost is the expensive
EDI software itself. However, once an EDI system is in place, it can save many expenses otherwise
associated with a normal transaction.
Elimination of errors
Messages are generated automatically, so the chances of any typing errors caused by human intervention
are negligible.
Fast response
An EDI message can be read and processed on the receiver side electronically with the help of EDI
software. So, if the receiver is a supplier of raw material, it can quickly fulfill/implement the order as
compared to a paper order.
Accurate invoicing
Invoices or payment requests by the merchant/supplier can also be generated using EDI standard
format, which are more accurate than paper invoices.
EDI payment
EDI standard documents can be used to electronically provide financial information for payment
purposes.
Enterprise Resource Planning (ERP)
ERP is an approach that attempts to integrate all departments and functions across a company onto a single
computer system that can serve all those different departments' particular needs. For example, finance,
manufacturing and the warehouse department of a company may have their own software to perform tasks
specific to each one of them. However, each software can be linked together so that a customer service
representative can see the credit rating of a customer from finance module, warehouse information from
warehouse module, and shipment information from the shipment module. SAP is an example of ERP
software. ERP is complex. It is not intended for public consumption as proper integration of ERP with e-
commerce applications is still a major problem.
Electronic Banking
Electronic banking, also known as cyberbanking, virtual banking, home banking and online banking,
includes various banking activities conducted from home, business, or on the road, instead of at a physical
bank location.
Advantages of e-banking
Get current account balances at any time
Obtain credit card statements
Pay utility bills
Download account information
Transfer money between accounts
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Send e-mail to your bank
Manage your own schedule
Handle your finances from any location
Apply for loans online
For banks, e-banking represents an inexpensive alternative to branch banking and a chance to enlist remote
customers.
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