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A Handbook for

DoD and Small Business

Forging aPartnershipThrough EDI S IrF9 't,! II R CTED

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DL203 LN3

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4. TITLE AND SUBTITLE S fUNDING kUMBRS

A Handbook for DoD and Small Business Forging a Partnership Thrmugh EDI C MDAtu3 I C •L9

6. AUTHOR(S)

Walter P. Hamilton. Morey M Henderson

7. PERFORMING ORGANIZATION NAME(S) AND ADORE SS4ES) . PRRInWSG OIRGANIZATION

Logistics Management Institute RIPORT NUMIER

6400 Goldsboro Road LMl-DL2L3LN3Bethesda, MD 20817-5886

9. SPONSORING/MONITORING AGENCY NAME(S) AND AOORESSE(S) 10 $PON SORINGCIMONITORItNG

Mr. Bobby Parsons AGENCY REPORT NUMBAER

Deputy Assistant Director. Information Systems and TechnologyDLA-Z Room 3A564Cameron Station Alexandria, VA 22314

11. SUPPL.EMENTARY NOTES

12a. DISTRIBUTION/AVAILABILITY STATEMENT I2b. 04STRIB4TION CODE

A: Approved for public release; distribution unlimited

13. ABSTRACT (Maximum ZOO words)

The purpose of this handbook is to acquaint small business with the concepts ofelectronic data interchange (EDI) and how EDT will be used inthe future by the Department of Defense to conduct business, The handbook introduces the reader to EDT. ditcusses how and why EDI is "o-d inbusiness, and explains what is needed to start using EDI in a small business

14. SUBJECT TERMS 15. NUMBER OF PAGES

Electronic Commerce, electronic data interchange. American National Standards Institute. Accredited 6AStandards Committee. ASC X 12, Department of Defense. small business, electronic contracting. 16. PRICE CODEtranslation software, Value-added Networks, EDT benefits, government procurement.

17. SECURITY CLASSIFICATION 18. SECURITY CLASSIFICATION 19. SECURITY CLASSIFICATION 20. LIMITATION OF ABSTRACTOF REPORT OF THIS PAGE OF ABSTRACT UL

Unclassified Unclassified Unclassified

NSN 75A0-01.280-5500 Standard Form 298, (Rev 2-99)"PI"C bod by ANSI Std 2)9 18199.0

A Handbook for

DoD and Small Business

Forging aPartnershipThrough EDI

Acceston For

NTIS CRA&MDliC TAI.

July 1992 By

Avh :1• .... ;odesDst tA,,,ai 1 tor

Dist bp,:Ciat

Walter P. Hamilton IIIMorey M. Henderson

Prepared pursuant to Department of Defense Contract MDA903-90-C-0006. The views expressed here arethose of the Logistics Management Institute at the time of issue but not necessarily those of the Departmentof Defense. Permission to quote or reproduce any part except for Government purposes must be obtainedfrom the Logistics Management Institute.

LOGISTICS MANAGEMENT INSTITUTE6400 Goldsboro RoadBethesda, Maryland 20817-5886

ACKNOWLEDGMENTS

The Department of Defense would like to thank thefollowing organizations and their member companiesfor their assistance in developing this handbook.

Accredited Standards Committee X12

Aerospace Industries Association

American Iron and Steel Institute

American Petroleum Institute

Automotive Industry Action Group

Data Interchange Standards Association

Electronic Data Interchange Association

National Automated Clearing House Association

Uniform Code Council, Incorporated

iii

PREFACE

This handbook is to acquaint small businesses withuse of electronic data interchange (EDT) when doingbusiness with the Department of Defense. Of course,most of these same principles apply when using EDI todo business with major defense contractors or withother small businesses.

Both business and DoD readers should find that thishandbook provides useful information on theimplementation of American National StandardsInstitute (ANSI) Accredited Standards Committee(ASC) X12 EDI standards within automated dataprocessing systems.

V

CONTENTS

Acknowledgments iii

Preface v

Chapter 1. Introduction to Electronic Data Interchange

Definition 1

Standards 2

Configuration Options 3

Computer Hardware 3

Computer Software 5

Communications 6

Business Procedure Integration 7

EDI Benefits to the Small Business 8

Increased Business Opportunities 8

More Accurate Records 8

Lower Data Entry Costs 9

Reduced Inventory 10

Decreased Mailing Costs and PaperHandling 10

Greater Customer Satisfaction 11

Reduction in Order Time 12

Better Cash Management 12

More Accurate Information Available toMake Decisions 13

vii

Chapter 2. Using EDI to Sell Products

Using EDI for Procurements 15

Indefinite Delivery Contracts 15

Individual Competitive Purchases 17

Small-Dollar Procurements 18

Using EDI and Electronic Funds Transfer 21

Chapter 3. Planning EDI for Small Business

Definition 23

Getting Started in EDI 23

Education 24

Establish a Project Team 25

Analyze the Company System 26

Develop a Plan 26

Choose a Trading Partner 27

Chapter 4. Implementation of EDI in a Small Business

EDI Staff 30

Implementation Checklist 31

System Integration Plan 32

Communications Plan 33

Protocols 33Translation Software 34

Choosing EDI Software 35Integrated Testing 42

Trading Partner Agreements 43

Third-Party Service Agreements 46

Viii

Backup Procedures 49

Recovery Procedure Considerations 50

Disaster Recovery Considerations 51

Security 51Points of Contact 52

Glossary 53

ix

CHAPTER 1INTRODUCTION TO ELECTRONIC DATAINTERCHANGE

DEFINITION

Electronic data interchange (EDI) is the computer-to-computer exchange of routine business informationusing Accredited Standards Committee (ASC) X12standards. EDI is now in common use in many privatecompanies and promises to become the preferredmethod for conducting all business in the future. Afteracquiring the appropriate computer hardware, soft-ware, and communications, businesses can eliminatethe burden of paper purchase orders, invoices, ship-ping forms, and other documents that are now used toconduct business. EDI will 7eplace them with theirelectronic equivalents. The motivation to move to EDIis compelling: the costs for processing one multipartpaper document from "cradle to grave" typically canrange from $10 to $40 and sometimes more. Con-ducting business electronically eliminates these paperforms and can slash these costs by a third to a half.Other benefits are identified later.

Certainly, the computer-to-computer interchange ofinformation is not new to American industry nor toDoD. Since the mid-1950s, large, private companies

1

and DoD activities have been sharing business infor-mation electronically. But, because users communi-cated in unique formats, businesses found itcumbersome and time consuming to expand theirelectronic communications to new trading partners.

Today, however, nationally and internationally recog-nized data formats, commonly referred to as standardsor transaction sets, have been developed to allow easyinterchange of data. Commercial computer programseliminate the need to create special software to receiveor send user-unique data formats. Instead, one soft-ware package can generate standard formats toexchange information between all trading partners.And, interestingly, many companies now use thesesame standards to enable exchange of informationbetween incompatible software and hardware withintheir organizations.

STANDARDS

Two key groups developed the EDI standards for NorthAmerica: the Transportation Data Coordinating Com-mittee (TDCC) and the American National StandardsInstitute (ANSI) ASC X12. The TDCC, formed in thelate 1960s, initially created transportation standardsfor rail, motor, air, and ocean shipping. Its success ledother industry groups like grocery, chemical, andwarehousing to seek its help. As TDCC createdindustry-oriented standards, some companies andindividuals saw the need for generic standards that cutacross industry boundaries.

2

In 1979, ANSI formed the ASC X12 to develop uniformstandards for electronically interchanging businesstransactions between and among industries. Whatthis means is that the automotive industry, forexample, can now share a single standard to exchangeelectronic purchase orders, invoices, and technicalspecifications with the chemical, textile, and steelindustries.

The TDCC and ASC X12, through the Joint ElectronicData Interchange Committee, created and published adata dictionary that provides for common EDIstandard elements, segments, and codes. This diction-ary is in essence a common set of definitions and termsfor creating standard EDI transactions.

CONFIGURATION OPTIONS

To do business electronically, you need three types ofresources: computer hardware, computer software,and communication connections.

Computer Hardware

Three basic sizes of computers are used today:personal computer (PC), minicomputer, andmainframe.

When using a PC to process data, all processing is doneby the PC one job at a time using EDI software (seeFigure 1-1). Once the PC cor Jetes processing, itsends the transactions to its trading partner or trading

3

partner's network using communications software anddial-up telephone lines. When receiving inboundtransactions, the PC obtains transactions from itstrading partner or trading partner's network over dial-up telephone lines and processes them. If you select aPC, the start-up costs of the equipment range from$3,000 to $4,000.

NetworkModem Modem

FIG. 1-1. STANDALONE MICROCOMPUTER

If you select a minicomputer, th, same sequenceoccurs, only the minicomputer can process multiplejobs. If the minicomputer is used as a front-endprocessor to a mainframe, the minicomruter willprocess all input and output transactions (seeFigure 1-2). When the front-end minicomputer com-pletes its job, data are passed to the mainframecomputer where they are stored for other businessapplications. Start-up costs for a minicomputer rangefrom $10,000 to $15,000, but it can process highertransaction volumes.

If you already have a mainframe computer all proces-sing will be performed within the mainframe orits communications controllers/processors (seeFigure 1-3). The mainframe receives/sends, trans-lates, and processes all transactions. These data reside

4

in files or data bases for use by other businessapplications.

Hont mainfrafme coenputat *0lMaf $ * "-o ~t I O"o

Network

FIG. 1-2. MAINFRAMEIMINICOMPIJTER FRONT-END PROC($$OR

NetworiK [

FIG. 1-3. MAINFRAME

Computer Software

Computer EDI software costs range from a fewhundred dollars for PCs to thousands of dollars formainframe computers. Some large businesses maychoose to develop their own software. This approach isnot recommended for the novice or small business.

EDI software capabilities range from allowing users toprocess low-volume transactions on a PC to the fullrange of capabilities designed to run on a mainframe.Some EDI software allows users to design and

5

maintain electronic forms that replicate paperbusiness forms such as invoices, purchase orders, andrequests for quotes (RFQ). It can also sendcreceive,translate, and store data to be used by other businessapplications. Other software can limit access andprotect corporate data with passwords and encryption.

Communications

The transaction standards and the method of com-municating those standards are two primary parts ofEDI. A possible addition is special security proce-dures. There is no single or preferred communicationsolution. Each company must determine the properapproach based on current and projected transactionvolume, level of service, and cost. Two alternatives arepossible: point-to-point and value-added network(VAN), also known as third-party network.

"* Point to point. Direct connection between tradingpartners can be either by dedicated line or througha dial-up network. This option requires closecoordination of data exchanges between tradingpartners and becomes very complex as the numberof trading partners increases.

"* VAN. Tht VAN shown in Figure 1-4 provides anelectronic mailbox for each trading partner. Onepartner can send data to another's mailbox for laterpickup and also pick up his or her own EDI datawithout having to connect directly to the othertrading partner. This option reduces the coordina-tion problem, and, for this reason, a VAN is usefulfor large businesses as well as small businesses.

6

Small business

4 / GovernmentSupplier purchasing

Mid-size business

Supplier

Large busines

Government receivingSupplier payment

FIG. 1-4. COMMUNICATIONS USING VALUE-ADDED NETWORKS

BUSINESS PROCEDURE INTEGRATION

Streamlining your way of doing business is where EDIshows its real value. First, look at your paper businesssystems with fresh eyes. The most effective EDIsystem is not one that simply recreates electronicversions of paper forms. A good system will change theway a company does business to exploit the capabil-ities of EDI. It is not at all unreasonable to devise asystem that almost eliminates such things as paperinvoices, multiple copies of correspondence (includingelectronic copies, of course), contract files, and so on.However, the path from here to there is not the

7

automation of current paper trails. The key to successlies in intelligent examination of current businessprocedures. Some procedures will no longer be needed.Redefine procedures so they can be enhanced by usingthe computer. More importantly, new capabilities willemerge that were not possible in the past world ofpaper-based transactions.

EDI BENEFITS TO THE SMALL BUSINESS

The benefits of EDI to the small business extend farbeyond a decrease in paper handling and storage.They include increased business opportunities, moreaccurate records, lower data entry costs, lower mailingcosts, greater customer satisfaction, reduced ordertime, and the availability of more accurate informa-tion to support decisions.

Increased Business Opportunities

Thousands of RFQs for small purchases that werepreviously only found on the bulletin boards outsidethe Government contracting office will be madeavailable to you. Also, having the RFQs in anelectronic form will enable you to rapidly review,select, and respond to the RFQs, eliminating days ofadministrative processing.

More Accurate Records

After a company enters data by keying them directlyinto its system, the software edits the data to ensureaccuracy. For example, software editing will display

8

an error message if the account number or partnumber is not valid or if the price is incorrect. Whenmassive amounts of data are exchanged some errorswill occur, especially if data are entered manually.Data entry errors can prove to be very costly. Aninvoice authorized for a $1,000 payment instead of a$100 payment or an order to ship 100 items instead of10 items can be costly. When errors are discovered,time and money will be wasted tracking down andcorrecting them. Even if 98 percent of the informationentered manually is accurate, the 2 percent that is notcan be embarrassing or costly if a customer's name ismisspelled or an invoice is undercharged.

By exchanging data directly between computersystems EDI ensures greater information accuracy. Amajor freight carrier indicated that one EDI clienttransmitted 600,000 freight bills electronically in aspan of 18 months with absolutely no errors. For thatclient, the elimination of errors alone paid for the costof developing its EDI system.

Lower Data Entry Costs

Nothing is more inefficient than manually enteringdata from one computer printout into anothercomputer system. EDI eliminates the need to re-entersuch data. With most communications packagestoday, information can be transmitted directly fromone computer to another. EDI installations report thatthey have accurately transmitted 10,000 invoices

9

within minutes and processed them immediately

without human intervention.

Reduced Inventory

Timely processing of information allows suppliers toknow what material to ship and when to ship it insteadof having to estimate such factors. One large companyreduced its inventory by $167 million in the first18 months after it implemented EDI. They not onlysaved the cost of carrying inventory but were also ableto reduce the amount of warehouse space they needed.

Inventory reductions through EDI are not limited tousers; suppliers, too, have been able to reduce theirinventories. Suppliers have learned to trust EDI infor-mation and plan receipt of material and productionruns based on true need, not guesswork or urgentphone calls.

Decreased Mailing Costs and Paper Handling

Mailing an order in the traditional way is costly andinefficient. When the cost of typing the order,addressing the envelope, and inserting the order intothe envelope are added to the cost of postage, a singleorder can cost $5 or more. When many orders are senteach year, costs accumulate. Sending orders asovernight packages adds another $5 to $10. Manyoperations justified EDI by the savings in mailing andhandling costs alone.

10

When transmitting information between tradingpartners (even in a small company) the mounds ofpaper previously moved from one department to thenext can be eliminated. Information stored on thecomputer is readily accessible by the order entry,accounts receivable, and other departments within thecompany.

Instead of using people handling pieces of paper, EDIvia computer can print directly onto other electronicmedia and maintain a copy for audit record purposes.

Many businesses use the remittance/payment adviceto electronically apply cash to an account. One checkmay pay thousands of invoices. To post such paymentinformation manually may take hours, whereas withEDI, it can be done with absolute accuracy in minutes.

Greater Customer Satisfaction

With an efficient EDI system, an order can be received,processed, and shipped almost as quickly as it can betransmitted. Companies may use EDI to buy officesupplies, furniture, clothing, and other items not useddirectly in their production processes. They send theorder electronically and the goods are shippedimmediately. Many freight carriers provide theircustomers with status reports about their shipments.Locating shipments more quickly and efficiently addsto customer satisfaction.

11

Reduction in Order Time

When submitting and receiving an order by mail,postal service and handling time can consume a weekor more. Allowing for 1-day handling of paper on bothends plus 2 and 3 days in the postal system means thatthe use of EDI can eliminate almost a full week oforder time. With EDI, in many cases companies canorder goods and have them shipped the same day.

Better Cash Management

By taking advantage of EDI, companies can ensure thepurchase of the right material at the right time. Thus,they are better able to plan cash disbursements. WhenEDI is used to transmit an invoice or advancedshipping notice for use in an evaluated receipt settle-ment (ERS) system, the invoice is handled withconsistency, and no guesswork is needed to know whenit will be paid. This consistency allows for much moreefficient cash management.

With the added use of electronic funds transfer (EFT)and EDI, both parties can better plan the use of funds.A paper payment check may arrive anywhere from 2 to4 days after it has been mailed. (That time is referredto as the float.) With EFT, the money arrives on apreplanned date. With consistent money flow, moneyuse can be planned more efficiently.

12

More Accurate Information Available to MakeDecisions

The availability of accurate information supplied byEDI permits an organization to identify problem areasmore quickly. It highlights areas with the greatestpotential for efficiency improvement or cost reduction.Better information about shipping charges, inven-tories, sales orders, shipment dates, invoice amounts,or cash flow is key to more efficient operation.Continuous knowledge of the location of inboundfreight, for example, enables more accurate schedulingof the receiving dock and in many cases betterscheduling on the production floor.

13

CHAPTER 2

USING EDI TO SELL PRODUCTS

USING EDI FOR PROCUREMENTS

The DoD uses two basic categories of electronicpurchases: purchase orders issued against existingcontracts (indefinite delivery contracts) and individualcompetitive purchases.

Indefinite Delivery Contracts

Multi-item, indefinite delivery contracts usuallycreate a multiyear business relationship with acommercial vendor, which is an ideal environment forEDI. Figure 2-1 shows the logical data flow whenusing EDI to order supplies and services under amulti-item indefinite delivery contract. The numbersin the illustration are EDI transaction numbers. DoDissues a purchase order (transaction 850) to buymaterial from an existing contract. The vendorreturns a purchase order acknowledgment (trans-action 855) to confirm the order. When the material isshipped, the vendor sends a shipment notice/manifest(transaction 856) to the buyer followed by an invoice(transaction 810). Upon notice of receipt (trans-action 861), DoD initiates an EFT payment andpayment order/remittance advice (transaction 820).The DoD and the vendor exchange functional

15

acknowledgments (transaction 997) for each trans-mission to confirm that the format of the trans-missions was ANSI X12 correct.

DoDreceivingactivity

861 Receiving advice

850 Purchase order997 Functional acknowledgment

Vendor'sDoD bank

8S5 Purchase orderacknowledgment

856 Shipment 820 Payment order/notice/manifest remittance advice

810 Invoice997 Functional

acknowledgment 820 Paymentorder/remittanceadvice

EFT Payment

Vendor(goods or services)

820 Payment orderl/_______________

remittance advice

FMS 820 Payment order/remittance advice

Regional EFT Payment Federal

Finance ' ReserveCenter (ACH)

Notes, ACH = Automated Clearing House; EFT = electronic funds transfer; FMS = Financial ManagementService.

FIG. 2-1. INDEFINITE DELIVERY CONTRACT

16

Individual Competitive Purchases

Common items whose specifications are well known toboth DoD and vendors can be purchased using EDI,although this is a more complex process. Figure 2-2depicts the logical data flow where there is no contract.

DoDreceivingactivity

861 Receiving advice

840 Request for quotation (RFQ)850 Purchase order997 Functional acknowledgment

Vendor'sDoD bank

843 Response to RFQ855 Purchase orderacknowledgment

856 Shipment notice810 Invoice997 Functional

acknowledgment 820 Paymentorder/remittanceadvice

EFT Payment

Vendor(goods or services)

820 Payment order/remittance advice

EFT Payment

FMS 820 Payment order/remittance adviceRegional EFT Payment Federal

Finance Reserve

Center (ACH)

FIG. 2-2. INDIVIDUAL PURCHASES

17

DoD sends an RFQ (transaction 840) to one or morevendors. The vendors respond with a quote (trans-action 843). DoD then sends a purchase order (trans-action 850) to the vendor of choice. The vendor sendsacknowledgment to confirm acceptance (trans-action 855). After shipment, the vendor sends a ship-ment notice (transaction 856) to DoD followed by aninvoice (transaction 810). Upon notice of receipt(transaction 861), DoD initiates an EFT payment andpayment order/remittance advice (transaction 820).DoD and the vendor exchange functional acknowledg-ments (transaction 997) for each transmission to verifythat the format of the transmissions was ANSI X12correct.

SMALL-DOLLAR PROCUREMENTS

One of the more costly aspects of DoD procurement iscompetitive small-dollar procurement. It has beenestimated that the process of making a single purrhaseof an item priced under $25,000 can cost anywherefrom $50 to $250 or more in direct and indirect costs.Using electronic commerce (EC)/EDI techniques canreduce costs, while still meeting the following basicprocurement requirements:

" New RFQs are announced promptly.

" Even competition is promoted, in accordance withFederal Acquisition Regulation (FAR) 13-106.

" A lower cost than current paper-based andtelephone-based systems is achievable.

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"* The integrity and confidentiality of submittedquotes is ensured.

"* Award information is provided to appropriaterespondents.

"* Electronic mail (E-mail) is integrated betweensuppliers and DoD.

The DoD EDI integration plan uses E-mail as thecarrier of information ensuring confidentiality ofrespondents. The series of events would follow asequence similar to the following:

"* DoD contracting and procurement offices provideANSI X12 RFQs to a DoD host computer.

"* DoD host computer disseminates information toparticipating commercial VANs.

"* VANs, on receipt of the information, make theinformation available to private-industry sup-pliers/subscribers for standard fees. (Using a VANas a vehicle for communicating with businesstrading partners is the configuration that has beenmost preferred by small companies.)

"* Commercial subscribers respond to an RFQ andsubmit quotes using ANSI X12 standards.

"* VANs receive quotes and responses from private-industry subscribers and forward them directly tothe DoD host computer.

"* DoD host computer time-stamps messages andarchives them for audit. The system simultane-ously forwards the original bid messages to thecontracting officers.

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"• DoD awards the contract after an appropriateevaluation period. It sends the contract informationvia the same channels to the awardee. DoD alsoprovides the award information to participatingVANs for posting on their electronic bulletin boardsto make it accessible to its subscribers.

"* EDI transactions which were a part of this entireprocess now join with the rest of the purchasingprocess, culminating in the payment of an invoice(which was also received electronically) using EFT.

This system has a numbe- of feitures which should beemphasized, including the following:

"* One-time registration for vendors across DoD's sitesfor most purchases using a simple electronicprocess.

"* Appropriate secure mail procedures, passwordprotected or encrypted, will be used by both theindividual supplier and the DoD contracting officer.

"* Small businesses can choose to use the VAN whichprovides the best price/performance combination forthem. This encourages competition among VANs.

"* DoD personnel will archive quote data to provide anaudit trail.

"* E-mail and query-by-mail techniques eliminate therequirement for having thousands of simultaneouslogins on a DoD or commercial VAN computer.

20

"* Quote information is stored on a DoD computer,-A hich can make powerful statistical analyses ofdata.

"* RFQ information is stored in the DoD hostcomputer, and lists of quotes can be pinpointed forlocal minority or depressed area initiatives.

USING EDI AND ELECTRONIC FUNDS TRANSFER

The contractor must use the Standard Form 3881Payment Information Form to request that the DoDagency pay using direct deposit. After approval andtesting, payment data are transmitted to the FederalReserve Bank (FRB) to initiate direct depositpayments to the contractor's bank account. Theelectronic payment conforming to National AutomatedClearing House Association rules includes addendarecords as well as the disbursement amount. Theaddenda records use ANSI X12 standards to define thestructure of the remittance information.

By combining the payment with the EDI paymentinformation, the contractor can credit the paymentupon notice of the deposit and save reconciliation time.Reports are generated to provide an appropriate audittrail and to establish a complete history ofdisbursements.

21

CHAPTER 3PLANNING EDI FOR SMALL BUSINESS

DEFINITION

To avoid misunderstanding about the meaning of theterm "small business," we use the Small BusinessAdministration (SBA) definition. A small business isone that is independently owned and operated and notdominant in its field. The following size and volumestandards are used to determine eligibility for someSBA programs; they illustrate that small businessdoes not always mean small.

* Manufacturing - fewer than 500 employees

* Wholesale - fewer than 100 employees

* Retail - less than $3.5 million in sales per year

* Service - less than $3.5 million in sales per year

* Construction - less than $17 million in sales peryear.

GE17ING STARTED IN EDI

The first step is to review the standards and internalsystems of a small business. Can ANSI standards bemet? Each ANSI standard is introduced with thefollowing words: "This standard was developed withthe intent that users need not reprogram their

23

internal data processing systems." The ANSIstandard is structured to allow computer programs totranslate internal formats to the ANSI X12 standard,and conversely. Software to translate data to and fromthe ANSI standard format may be developed by thesmall business or purchased commercially. Most smallbusinesses elect to purchase commercially availabletranslation software.

If you are processing information on paper today, youcan convert to EDI. You will discover that someefficiencies can be realized if the internal data flow ischanged, but you do not have to change it to conductbusiness electronically. You may also consider someor all of the steps outlined below.

Education

Both Government and commercial EDI seminars canexpose you to what others are doing and help you sellthe idea of EDI to your company. EDI educationalseminars are sponsored by many sources: the FederalGovernment's "Productivity Enhancement Program,"the Automotive Industry Action Group, the NationalIndustrial Transportation League, the AmericanTrucking Association, the Electronic Data Inter-change Association (EDIA), ASC X12 Data Inter-change Standards Association (DISA), and someVANs.

24

Establish a Project Team

The team approach to EDI has proven to be highlysuccessful. Some EDI projects may invol ,e onlyselected departments, but others will cross severaldepartments. All company departments need to berepresented on the EDI team. Select a project leader tohelp coordinate meetings and EDI projects. Share theinformation about these meetings by distributing theminutes to as many people as possible. They will helpothers in your company learn what you are doing.

Discuss the various aspects of EDI at your project teammeetings. What types of EDI transactions do you wantto do? What standards could you use? Would a third-party network help? What resources do you need?What standards are already being used in yourcompany or industry?

Use these meetings to help educate your organizationon EDI. Bring in outside experts, such as the Federalagency or company with which you plan to become anEDI trading partner. Gather the facts and communi-cate the results.

Involve your financial people as early as possible.Once they are tuned in to EDI, they may become yourstrongest supporters.

25

Analyze the Company System

Carefully consider the resources that you will need.Analysis should provide answers to the followingquestions:

"* What documents will be sent? What ANSI ASCX12 standard will be used?

"* Should the company develop its own communica-tions network or select a third-party network?

"• Should the company purchase software or write itsown?

"* When will resources be available?

All EDI systems incur some communications costs.These costs are assumed by different parties that varyfrom industry to industry and company to company.When compared with the overall savings produced byEDI, these costs often are insignificant. In someindustries, the supplier typically pays for the phonecharges or third-party network charges for sendingand receiving EDI. In other industries, the sender of amessage may pay the costs or the sender and receivermay split them evenly. Review the practice yourtrading partner follows and establish anorganizational position for your company.

Develop a Plan

A strategy should evolve from these discussions. Eachdepartment should submit a summary of projects towhich EDI can be applied: systems, accounting,

26

auditing, legal, and transportation. These projectsshould be included in the company budget. If a projectwould not provide a payback, re-evaluate it. EDI mustbe applied for good business reasons, not just for thesake of applying EDI.

If the appropriate information can be printed on apiece of paper, it can also be translated for EDI. Butwhen starting out, do not try to make too manychanges at once.

If a piece of information does not translate easily, donot immediately revise your system. Perhaps a note(NTE) segment of an EDI transaction will get you byuntil sufficient business reasons require that theinternal programs be updated. Refer to your industryor trading partner's guidelines for assistance. If theexisting codes do not match your circumstances,submit a change request to the ASC X12 DataInterchange Standards Association.

Reach consensus on the long-term goals and establishindividual tasks that move toward those goals. Assignresponsibilities to individuals to complete these tasks.To keep the team motivated, it needs success. Publishresults. The more the entire organization knows aboutthe successes, the more others will give their support.

Choose a Trading Partner

The trading partner chosen for a pilot test in mostcases will be a Defense agency. If not, select a

27

company that already has EDI experience. A supplieror customer may have already expressed interest indoing business using EDI.

The pilot test will reveal the processes, procedures,and operations that need to be worked out. The moreyour trading partners know about your company plansthe happier they will be about using EDI with yourcompany. Give your trading partners at least 60 to 90days' notice of your pilot test. They will need to makesome evaluations to help you start your EDI project.

The trading partners that send you the largest numberof RFQs are the ones that will gain the most from yourEDI system. Choose such a company for your test. Theone that sells you the largest number of individualitems is the one that will gain the most from anelectronic material release or schedule.

28

CHAPTER 4IMPLEMENTATION OF EDIIN A SMALL BUSINESS

After following the planning prescription of Chapter 3,you should be ready to implemert EDI. If you areinstalling EDI and currently use an automated dataprocessing system, you will essentially apply theANSI X12 standard to your current system. If you arestarting with a paper-based system, you may want toinstall additional automation capability in conjunctionwith your EDI system.

Implementing EDI is not an insignificant task. It isintended to change the way you do business. Topmanagement must be involved in the approval phasesof the project to ensure the availability of adequatefunding and personnel. Requirements for projects willvary from one organization to another, but thecompany should adhere to the following general rulesfor a successful project:

* Treat EDI as a business issue because EDI is asolution to a business problem.

* Do not deviate from the ANSI X12 standards.Deviations will require that the system becustomized, which will increase costs in the long

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run. Deviations will cause problems for you andyour trading partners when the ANSI X12standards change.

* Make the transition to a full production system onlyafter your system has proved itself in testing.

EDI STAFF

Traditional internal automation projects differ fromEDI projects in that planning, development, andimplementation tasks must be performed in concertwith the trading partners.

Implementing an EDI project will involve severalpeople in a variety of roles. At a minimum, the EDIproject should have the following staff:

"* Senior manager

"* Functional coordinator

"* EDI coordinator

"* Contract administrator.

For a small business, some of these positions will becombined. (For larger systems, more personnel may berequired.)

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During project development, it will be necessary toprovide ad hoc support to the project team. Thefollowing support is needed:

* Functional managers to develop the business plan

* Technical and functional managers to coordinatestandards and procedures with your trading partner

* Analysts with detailed knowledge of the interfacingsystems, communications, computer operations,and operating system software.

For i small business, this support can be combinedinto a small group.

IMPLEMENTATION CHECKLIST

* Identify key management the personnel from eachfunctional area affected by adoption of EDI. Eacharea should be included in analysis, development,testing, and implementation.

* Provide resource estimates and identify potentialsavings.

* Prepare a milestone schedule and estimatedcompletion times.

* Contact your DoD trading partner for help inimplementing the ANSI X12 standard. EstablishEDI contacts among industry associations andnetwork providers.

* Obtain copies of the ANSI X12 publications,training materials, and implementation guidelines.You will need access t3 data dictionaries anddocuments that define functional codes. Contact

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DoD or industry procurement personnel for thisdocumentation.

"• Learn the types of resources available and thecommunication system used by your tradingpartner. Your system must be compatible.

"* Compare your business data against your tradingpartner's ANSI X12 conventions. This will help youdetermine whether your internal system containsthe required data elements. You should identifyoptional data elements and discuss them with yourtrading partner.

SYSTEM INTEGRATION PLAN

Using the information you have collected, prepare adetailed system integration plan that may include thefollowing items:

* General narrative

& Functional description

* Data requirements and data flows

* Communications network

* System specifications

* Program specifications

* User procedures

• Computer operations procedures.

Develop this plan early since it will influence suchother decisions as maintaining connections, coordi-nating the polling schedules, providing audit reports,

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and sharing costs. If you work closely with your

trading partner, your plan will be similar to his.

COMMUNICATIONS PLAN

If your first trading partner is DoD, you must find outif a Government communications network is availablefor you to use. If none are available, you shouldinvestigate third-party, VAN resources. If you plan toconduct EDI with both DoD and commercial firms, theVAN is your best choice.

No matter which communications alternative youchoose, some hardware or software installation will berequired. Installation on a PC is the least complicated.Larger computers are more complicated. Communica-tions software vendors normally provide someinstallation services. Make them aware of your needsby providing all the planning information you havecollected.

Protocols

A protocol is a kind of etiquette, much like theconventions people follow when making introductions,extending greetings, in conversation, and parting.Computers must do the same if they are to exchangeinformation with one another. They must agree tospeak the same language, at the same speed. Theyshould know how to say hello and goodbye to eachother. They have to agree that only one of them canspeak at a time. The rules are of little importance, as

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long as the two parties can agree upon and followthem. Such a set of rules is called a protocol.

There are many communications protocols. Theirrules are designed to ensure that computer flies (e.g.,EDI messages) can be transferred from one computerto another correctly and completely, despite the manypitfalls that lie in the way. Some typical file transferprotocols are XMODEM, KERMIT, and YMODEM.Successful file transfer requires compatible softwarerunning on the two machines (or compatibility withyour VAN).

Since you are just starting EDI, you will want toadhere to the protocol that your trading partner orVAN is using. If you plan to directly communicatewith multiple trading partners, you may have to useseveral different protocols. This is one area whereusing a VAN is helpful. The VAN can make theproblem of multiple protocols transparent to you.

Translation Software

Translation software is a set of programs designed toautomatically translate proprietary data formats intoASC X12 standard format for sending. The softwarereverses the process when data are received. TheASC X12 standard normalizes the results ofprocessing. It does not affect how a program isdesigned nor how it operates.

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Configuration of the EDI translation software dependson how your system is designed. For all but in-house-developed software, translation software must inter-face with your internal software and communicationsystems.

Translation software must be configured to run in yoursystem environment (unless you are using a network-based translation). Tables must be updated andmodified to support your applications.

Choosing EDI Software

Selecting the correct EDI software to meet yourparticular company needs makes a big difference inthe ease and timeliness of your EDI implementation.Good EDI software vendors are a source ofimplementation expertise because they have gonethrough this process with other companies. They canhelp you with all of the choices facing you as youimplement EDI, from choosing a VAN to choosing thehardware components required to do the job. Whilethere are many good software packages to choose from,EDI software falls into three main categories:

* Standalone PC. This type of software provides dataentry screens for your documents as well as printingcommands. The software performs translation toX12 standards and handles communicationinterfaces to the VANs and trading partners.

This type of software is straightforward toimplement and can get you started in EDI quickly.Its drawback is the lack of integration with your

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existing application software (e.g., your purchaseordering system or accounts receivable system).You will have to re-enter information that alreadyexists on your -omputer.

Standalone PC software can also cost less thanother types. Beware, however, of per-documentpricing structures rather than a more all-inclusiveapproach - you may end up paying more in the endas your EDI usage expands.

To summarize - standalone PC advantages includequick implementation and potential low cost. Adisadvantage is the lack of integration, forcing re-entry of data.

* Integrated PC/UNIX. Integrated software has thesame translation and communication interfaces asstandalone PC software and also includes theability to integrate with your existing applicationsoftware, eliminating the need for re-entry of data.This type of software usually runs in both the PCand UNIX operating system environments.

Integration is acuomplished in two very differentways. The first is through "flat file input," and thesecond is through "mapping."

Flat file input integration means that the EDIsoftware will accept information from yourapplication software, provided that you can firsttransfer it to a file that meets the format criteria ofthe EDI software. This may or may not be possiblefor your particular application software. It maytake a little programming expertise on your part.Future changes by your trading partners may alsobe difficult to implement quickly.

Mapping integration allows you to specify a linkbetween the document you need to send yourtrading partner and the data layout of yourapplication software. Once the link is set up, the

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data exchange is automatic. Future changes byyour trading partners can be implemented easily,and existing "maps" can be copied and altered tosupport new EDI documents.

Mapping integration is the more desirable of thetwo methods. When choosing mapping software,pay close attention to the user interface and ease-of-use features for creating the maps themselves.

To summarize - integrated software eliminates thetask of re-entering data but at a higher initial costthan standalone PC software. Mapping-styleintegration is the most desirable.

* EDI server/gateway. If you want to support businessapplications on one or more mainframe computersor implement advanced EDI you need to use EDIserver/gateway software. This software has all ofthe features of integrated EDI software plus datatransfer, routing, and timing mechanisms;mailboxing capabilities; and restart/ recoveryoptions.

Traditionally, EDI server/gateway software wasrun on the mainframe. With the advent ofpowerful minicomputers, companies can choose aminicomputer-based server. A single server caninterface to multiple mainframe host machines.

EDI server/gateway software requires a longerimplementation timeframe as well as more in-housecomputer expertise and is more expensive thaneither standalone PC software or integratedsoftware.

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When choosing any software that will affect yourbusiness operations, be sure to do the following whenevaluating the software vendors:

"$ Get references from the software vendor. Ask forthe names of companies similar to yours who usedthe vendor's software to implement EDI.

"$ Call two or three of the references and listen to theirexperiences from purchase through ongoingsoftware support.

"* Take a copy of the software to your company for atest or trial evaluation if possible.

"* Attend the training that the vendor offers so youcan take full advantage of its capabilities, after youchoose your software.

Good software from a reputable vendor, backed upwith competent support, can make your EDI imple-mentation a profitable decision.

Table 4-1 identifies functions and features that werecommend for inclusion in an EDI system.

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TABLE 4-1

EDI SYSTEM SOFTWARE REQUIREMENTS

Operating environment

Function/feature Stand- Front-end Minicomputer/

alone PC EDserver/ mainframegateway

Communications featuresCommunications software M M M

Transaction set consolidation routines M M M

Multiple communications interface 0 0 0

Network identification table M M M

Unattended operations capability M M M

System utilitiesAutomatic recovery/restart capability M M M

Installation routines M M 0

System interface routinesApplication system interface M M M

Data input screens M 0 0

Input editing M 0 0

User-defined print output M 0 0

User-definable system interface 0 0 0User-defined data input screens 0 0 0

Customized operations routinesCode conversion capability 0 0 0Data element delimiter table M M M

Functional acknowledgment capability M M M

Multiple header support M V! M

Segment terminator table M M M

Notes: M = mandatory; O =optional.a Only pertinent to those sites that will use point-to-point communications for one or more trading partners.b Operating system utilities separate from the translation software package may fulfill this requirement.c Either training or the help screens and tutorial package are mandatory.d When the requirements for such a feature have been fully defined, we expect this feature to be mandatory

for all operating environments.

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TABLE 4-1

EDI SYSTEM SOFTWARE REQUIREMENTS (Continued)

Operating environment

Function/feature Front-endStand- ED ee/Minicomputer/

alone PC gatewa mainframegateway

Customized operations routines (cont.)Trading partner profile 0 M M

Transaction set sequential numbering M M M

Version support table M M M

Editing featuresCharacter conversion capabilitya 0 0 0

Inbound standards compliance editing M M M

Internal codes duplication routine M 0 0

Outbound standards compliance editing M M M

Transaction set correction capability M 0 0

System maintenance routinesAutomated purging M M Mb

Expandability M M M

Maintenance support M M M

Table-driven software structure M M M

Transaction set archivingb M M M

Version support M M M

Report functionsError reports M M M

Functional acknowledgment reconciliation M M M

Notes: M = mandatory; O =optional.a Only pertinent to those sites that will use point-to-point communications for one or more trading

partners.b Operating system utilities separate from the translation software package may fulfill this requirement.c Either training or the help screens and tutorial package are mandatory.dWhen the requirements for such a feature have been fully defined, we expect this feature to be

mandatory for all operating environments.

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TABLE 4-1

EDI SYSTEM SOFTWARE REQUIREMENTS (Continued)

Operating environment

Function/feature Stand- Front-endEDI server/ Minicomputer!alone KC gatewa mainframegateway

Report functions (cont.)Inbound transaction set reporting M M M

Outbound transaction set reporting M M M

Transmitted characters 0 0 0

User-defined management reports 0 0 0

Support featuresHelp screensc 0 0 0

Technical documentation M M M

Trainingc M M M

Tutorial packagec 0 0 0

User documentation M M M

User support (hot lines) M M M

Miscellaneous featuresCompatibility with encryption andauthentication packaged 0 0 0

Multiple users 0 0 0Selective accessibility M M 0

System entry security M M 0

Notes: M = mandatory; O = optional.a Only pertinent to those sites that will use point-to-point communications for one or more trading

partners.b Operating system utilities separate from the translation software package may fulfill this requirement.c Either training or the help screens and tutorial package are mandatory.d When the requirements for such a feature have been fully defined, we expect this feature to be

mandatory for all operating environments.

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INTEGRATED TESTING

Conduct an integrated test of all components to verifythat the system can perform the following tasks:

"$ Obtain data from your internal system

"* Translate those data to ASC X12 format

"* Assemble and transmit the ASC X12 formatteddata to your trading partner

"* Receive transmissions from your trading partner

"* Translate the ANSI X12 formatted data to yourinternal system format

"* Generate and send an acknowledgment.

Conduct extensive system testing before actualproduction. Use the old paper system in parallel tovalidate your new design. Schedule these tests over apredetermined time period. Prepare a trading partneragreement (TPA) document to be signed by allparticipants in the project before production begins.Make sure everyone signs the agreement.

Initial production should be limited to one tradingpartner. Start with one or two transaction sets. Youshould determine in advance a specific time period forthe initial operational capability (IOC). Use that timeto validate assumptions about costs, savings, andtransaction processing times. Make all adjustmentsbefore going operational.

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TRADING PARTNER AGREEMENTS

Sometimes referred to as "preauthorization agree-ments" in DoD, TPAs may require help from legalcounsel. Check to determine if DoD has a general TPAthat establishes the terms and conditions for EC. Ifthis is acceptable to you, then a specific TPA will notbe required. Whether it is a stand-alone agreement orsimply a provision in a master agreement, a TPA mustbe executed before you begin trading using EDItransaction sets.

The TPA is the key document that sets forth the rightsand obligations of the trading parties. The TPAprovisions are tailored by DoD to meet the standardpractice of the industry - transportation, medicalsupplies, grocery, etc. The following elements areessential components of any DoD TPA. (Theseelements, of course, can be used in a commercial TPAas well.)

"* Recital. A statement that the parties desire to entera mutually binding agreement to begin exchangingEDI transaction sets. The recital should state thatthe parties intend to be legally bound in the samemanner as though they were exchanging hard-copypaper documents.

"* Standards. The TPA should specify all standardsand their issuing organizations; it should referencedata dictionaries, segment dictionaries, etc.; and itshould state how to handle updates of newlyadopted standards. (DoD has adopted theANSI X12 standards developed by the ASC X12.)

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"* Documents. The TPA should specify whichtransaction sets are authorized to be exchangedbetween the parties. The TPA is a good place toincorporate by reference the industry guidelinesthat will be followed. Most DoD procurement,financial, and shipping documents can betransmitted using the standard EDI transactions,segments, and data elements.

"* Duration. The TPA should specify the effective dateand period the TPA is to be in effect. Executionrequirements and any necessary approvals shouldalso be stipulated.

"* Communications mode for EDI. DoD may requirethat the Federal Government file transfer system,or FTS-2000, be used. If approval is obtained to usean independent communications provider, the TPAshould specify the name of the provider, the methodof payment for services, and the notification orprocedure required to change the provider.

"* Acknowledgments/acceptances. The TPA shouldinclude the legal requirements for any specialacknowledgments or acceptances as a condition forthe transaction to be legal. If you requireremittance advice, for example, specify it here.

"* Disputes. Small businesses may follow state law indisputes, but DoD contracts will contain thestandard disputes clause specified in FAR 52-233.

"* References. You may incorporate any specialpublications, specifications, and guidelines byreference. You should specify the order of priorityin case of internal conflicts in references.

"* Security. You should agree upon and specifysecurity procedures to be followed by each party toprotect business data from improper access and/ordisclosure.

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"* Signatures. To provide for the confidentiality of thesignatures of both authorizing parties, the TPAshould establish a method, such as a discreteauthentication code, that can be affixed in code or insymbol to each transaction set.

"• Mailbox contents. The TPA should specify at whattime each day the parties are required to review andcollect the contents of their mailboxes. Ordering orshipping requirements may also be specified.

"* Force majeure. The TPA should include a typicalact of God clause excepting such things asexplosion, fire, or flood from imposing a liability oneither party.

"* Garbled/erroneous transmissions. The TPA shouldallocate the risks of garbled or erroneoustransmissions as negotiated. It should specify whoshall be liable, if anyone, for bad transmissions. If athird-party provider is responsible, the extent of theliability must be set out clearly.

"* Termination. If the agreement may be terminatedby either party, the TPA should state this fact. Itshould specify the termination notification period.It should also set the parameters and terminationprocedures to be followed if one of the parties fallsbelow an acceptable standard of performance.

"• Damages. The TPA should describe how the partiesshould handle special or consequential damages, aswell as actual or liquidated damages.

"* Whole agreement. The TPA should contain thetypical clause covering mergers.

"* Special terms and conditions. You may add anyother special provisions that may be wise andnecessary to establish an efficient tradingoperation.

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The Electronic Messaging Services Task Force, aSubcommittee on Electronic Commercial Practices,Uniform Commercial Code Committee, Section ofBusiness Law, American Bar Association, hasprepared a draft model agreement to assist thepractitioner in preparing a TPA.

THIRD-PARTY SERVICE AGREEMENTS

The small business can choose from a host ofcommercial value-added network services (also calledthird-party services).

Third-party providers can be of great service in gettingany EDI program off to a good, solid start. They canprovide a variety of services, especially to small,unsophisticated trading partners not conversant withthe technology. They can assist in selecting hardwareand software and in providing training.

Usually third-party service providers have their ownprinted contract forms which will be helpful to thesmall business.

Like any legal agreement, the third-party agreementshould not be drafted and executed without theassistance of competent legal advice. The merger orwhole agreement clause is a necessity as well as theforce majeure clause, which exonerates the providerfrom liability connected with acts of God, such as fire,theft, and other causes outside the control of theservice provider. In addition, the small business

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should negotiate acceptable terms in these areasbecause of the following concerns:

"• There should be a complete description of theservices to be provided to the respective tradingpartners.

"* There should be language specifying that the third-party provider has no independent property interestin the data and further, foreclosing any claim thatthe provider has added value to the data givingsome legal right to a mechanic's lien or a possessorylien.

"* There must be an understanding that the providerwill store records or perform some archival serviceshould be covered along with the cost for thisservice. If you desire backup copies, this agreementshould provide for them. It should also specify thelength of time backup copies must be kept.

"* The confidentiality, integrity, and securitymeasures to be provided should be listed in thethird-party agreement.

"* The third-party provider's responsibility foraccurate, reliable service should be outlined. Youshould define the third party's liability and itsscope; responsibility for compensatory damages incase of data loss, delay, mistakes, or misdirection;liquidated damages; etc.

"* The agreement termination date should beoutlined. The agreement should say whether thedate can be changed periodically and whether theparties are free to change service providers after thedate has been agreed upon. This is the time andplace to specify these issues. Agree upon a standardof services below which the parties may terminate

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the agreement without risk of breach andassociated damages.

"* Very definite language should be included detailingexactly how the network charges, if any, will beshared between the suppliers and the customers.DoD may be able to negotiate a no-cost, service-provided agreement with a network.

"* Include a warranty that the provider's system,when used in consonance with procedures specified,will perform as stated. This should not mean theprovider has absolute liability but that the providershould deliver services as promised barringextraordinary circumstances. Inclusion of aprovision that this warranty is in lieu of anywarranties implied by law is a reasonablerequirement.

"* Outline the network requirements to support ANSIor EDI for administration, commerce, and transport(EDIFACT) standards. Specify the small businessexpectations. What audit trails are to be provided?

"* You should specify all record keeping requirements.For example, when can the provider discard thedata? The provider may ask for a short statute oflimitations beyond which its liability is forgiven.DoD cannot agree to such a provision because itmust use the statutory period provided by Federallaw.

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BACK-UP PROCEDURES

Businesses, large and small, should establish back-uprecovery procedures so they can retransmit unsuccess-ful EDI messages. The following safeguards shouldprove useful.

"* Back-up procedures should be available for use ifthe computer system or communications fail.

"* Establish a maximum number of attempts atretransmission after a transmission error tominimize communihitions costs.

"* Establish a minimum back-up of 24 to 48 hours ofdata. You will need access to this much data forreal-time transactions, such as the advance shipnotice and shipping schedule.

"* Batch transactions, such as those used for thepurchase order and invoice, require a 1- to 2-weekback-up.

"• Some types of data must be archived on a morepermanent basis. Ideally, this should be accom-plished at a different location. The permanentarchives and supporting system should allow aspecific EDI message to be recovered.

The back-up and recovery system must be thoroughlydocumented. It should allow anyone with the properauthority to retransmit data.

The functional acknowledgment (transaction 997) canbe used to provide a level of automation for backup andrecovery. If the EDI system is designed to receive afunctional acknowledgment for every transaction

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group it sends, that group should be available forretransmission until the sender receives a functionalacknowledgment. Once the sender receives thatfunctional acknowledgment, the system can archivethe original EDI message.

The system should be designed to provide a degree c'flexibility. The use of functional acknowledgmentscan vary based on business requirements. It may beappropriate to send/receive functional acknowl-edgments to some and not other trading partners, for aspecific transaction or combination of the two, orfor some other variation unique to your EDIrequirements.

DoD will require functional acknowledgments.

Recovery Procedure Considerations

You should establish recovery procedures to providecontrolled management of unusual telecommunica-tions problems such as the following:

"* A trading partner's computer or VAN will notrespond when your computer calls to pick up ordeliver EDI messages.

"* A bad connection causes continuous or excessivenumbers of retransmissions.

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Disaster Recovery Considerations

Disaster recovery becomes correspondingly critical asthe number of EDI transactions increases. Considerthe consequences if you were suddenly unable to sendmessages for an unacceptably long period.

You should not assume that you can fall back on apaper-based system. Your trading partners may notbe able to switch from EDI back to paper. You may nothave access to the resources needed for papertransactions.

Develop a plan to deal with extreme problems, such asa total loss of your data center, computer system, ortelecommunications. If you use a microcomputer,backup may be as simple as using an alternate PC andsoftware. The larger your system, the more complexyour solution will have to be.

SECURITY

The elimination of paper document processing throughthe introduction of ANSI X12 EDI standards requiresan evaluation of your existing internal controlprocesses and procedures. Without a signed documentand paper audit trail, you still must determinewhether a transaction is accurate, valid, and approved.

The small business should make certain that security,jrecautions taken to protect EDI data andtransmission are at least as good as those currently

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used for the paper exchange. The small business at aminimum should adhere to the standards developed byits trading partner.

This problem is not new. All software and telecom-munications systems have addressed this problem foryears. The same elements of control apply to EDI asthey do to other automated systems. Controls mustensure:

"* Confidentiality - only authorized persons have

access to data.

"* Integrity - data accuracy.

"* Authenticity - proof of valid transaction andownership.

POINTS OF CONTACT

If you would like additional information about theSBA's training schedules, call the Division of MinoritySmall Business Outreach at (202) 205-6421. If youhave questions about participating in a DoD EDIprogram, call the DoD Executive Agent for Elec-tronic Commerce/Electronic Data Interchange at(703) 617-7107.

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GLOSSARY

ACHAutomated Clearing House

ANSIAmerican National Standards Institute

ANSI standardA document published by ANSI that has beenapproved through the consensus process of publicannouncement and review. Each of these standardsmust have been developed by an ANSI committee andmust be revisited by that committee within 5 years forupdate.

Application acknowledgmentA transaction set whose purpose is to return a responseto a transaction set that has been received andprocessed in an application program. The purchaseorder acknowledgment (transaction 855) is an exampleof an application acknowledgment. It is used torespond to the purchase order (transaction 850)presenting such things as whether the receiver canfulfill the order and if it can be done on time.

Application advice (824)A transaction set that documents errors in the contentof any transaction set beyond the normal syntaxchecks

ASCAccredited Standards Committee

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ASC X12The Accredited Standards Committee X12 comprisesGovernment and industry members who create EDIdraft standards for submission to ANSI for subsequentapproval and dissemination.

AuthenticationA mechanism which allows the receiver of anelectronic transmission to verify the sender and theintegrity of the content of the transmission throughthe use of an electronic key or algorithm which isshared by the trading partners. This is sometimesreferred to as an electronic signature.

Compliance checkingA checking process that is used to ensure that atransmission complies with ANSI X12 syntax rules

Conditional (C)A data element requirement designator whichindicates that the presence of a specified data elementis dependent on the value or presence of other dataelements in the segment. The condition must be statedand must be computer processable.

Control segmentA control segment has the same structure as a datasegment but is used for transferring controlinformation for grouping data segments.

Control validationProvides confirmation that information within thecontrol segments is correct

Data elementThe basic units of information in the EDI standardscontaining a set of values that represents a singular

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fact. They may be single-character codes, literaldescriptions, or numeric values.

Data element lengthThis is the range, minimum to maximum, of thenumber of character positions available to representthe value of a data element. A data element may be ofvariable length ranging from minimum to maximum,or it may be of fixed length in which the minimum isequal to the maximum.

Data element reference numberThe reference number assigned to each data elementas a unique identifier

Data element requirement designatorA code defining the need for a data element value toappear in the segment if the segment is transmitted.The codes are mandatory (M), optional (0), orconditional (C).

Data element separatorA unique character preceding each data element thatis used to delimit data elements within a segment

Data element typeA data element may be one of six types: numeric,decimal, identifier, string, date, or time.

Data Interchange Standards AssociationThe Secretariat and administrative arm of ASC X12

DelimitersThese consist of two levelr, of separators and aterminator. The delimiters are an integral part of thetransferred data stream. Delimiters are specified inthe interchange header and may not be used in a data

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element value elsewhere in the interchange. Fromhighest to lowest level, the separators and terminatorare segment terminator, data element separator, andsubelement separator (only used in EDIFACT).

Direct transmissionThe exchange of data from the computer of the sendingparty directly to the computer of the receiving party.A third-party value-added service is not used in adirect transmission code.

ECelectronic commerce

EDIelectronic data interchange

EDIAElectronic Data Interchange Association. A nonprofit,public interest organization designed to develop,foster, and maintain a program of action to achievecoordination of data and information syctcms by thestandardization of descriptions and codes forintercompany computer-to-computer EDI for businesstransactions.

EDIFACTThis is an international standard for EDI foradministration, commerce, and transport.

EDI translationThe conversion of application data to and from the X12standard format

EDI translatorThe computer software used to perform the conversionof application data to and from the X12 standard

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I

EFTelectronic funds transfer

E-mailelectronic mail

Electronic mailboxThe place where an EDI transmission is stored forpickup or delivery within a third-party-serviceprovider's system. Trading partners can also maintainmailboxes within their own domains.

EncryptionA process of transforming clear text (data in itsoriginal form) into ciphertext (encryption output of acryptographic algorithm) for security or privacy(security transaction set 815)

ERSevaluated receipt settlement

FARFederal Acquisition Regulation

FMSFinancial Management Service

FRBFederal Reserve Bank

Functional acknowledgmentA transaction set (997) transmitted by the receiver ofan EDI transmission to the sender, indicating receiptand syntactical acceptability of data transmittedaccording to the ASC X12 standards. The functionalacknowledgment allows the receiving party to reportback to the sending party problems encountered by thesyntax analyzer as the data are interpreted. It is not

57

intended to serve as an acknowledgment of datacontent.

Functional groupA group of one or more transaction sets bounded by afunctional group header segment and a functionalgroup trailer segment

Industry conventionsThis defines how the ASC X12 standards are used bythe specific industry.

Industry guidelinesThis defines the EDI environment for usingconventions within an industry. It provides assistanceon how to implement X12 standards.

IOCinitial operational capability

Mandatory (M)A designator that indicates a specified data element isrequired

MappingThe process of identifying the relationship of thestandard data elements to application software dataelements

MessageThe entire data stream including the outer envelope

NTEnote segment - EDI message

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Optional (0)A data element/segment requirement designator thatindicates the use of the element is at the option of thesending party

PCpersonal computer

Proprietary formatA data format specific to a company, industry, or otherlimited group. Proprietary formats do not comply withASC X12 standards.

RFQsrequests for quotes

SBASmall Business Administration

SecurityA process of system screening that denies access tounauthorized users and protects data fromunauthorized uses

SFStandard Form

SyntaxThe grammar or rules which define the structure ofthe EDI standards

TDCCTransportation Data Coordinating Committee

TPAtrading partner agreement

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t

Trading partnerThe sending and/or receiving party involved in theexchange of EDI transmissions

Transaction setThe transaction set unambiguously defines, in thestandard syntax, information of business or strategicsignificance. It consists of a transaction set headersegment, one or more data segments in a specifiedorder, and a transaction set trailer segment.

Transaction set IDA code that uniquely identifies the transaction set.This identifier is the first data element of thetransaction set header segment.

TranslationThe act of accepting documents in other than standardformat and translating them to the standard

VANvalue-added network. These are usually third-partyservice organizations.

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