ELECTRONIC DATA INTERCHANGE

MeaningElectronic Data Interchange (EDI) refers to the structured transmission of data between organizations by electronic means.A way to exchange transcripts (and other important data) without paper.Definition- Electronic data interchange (EDI) is the use of computer and telecommunication technology to move data between or within organizations in a structured, computer retrievable data format that permits information to be transferred from a computer program in one location to a computer program in another location, without manual intervention.EDI can be transmitted using any methodology agreed to by the sender and recipient. This includes a variety of technologies, including modem, Email, HTTP, etc

Example of EDI The Bergen Drug Company, a wholesale pharmaceutical distributor in Orange, California, is one of the most successful companies in using EDI for many of its business processes. To generate an order to Bergen , a customer (pharmacist) uses a handheld bar code scanner to capture the Uniform Product Code number on a shelf label for a product to be ordered. The pharmacist enters the quantity desired into a keypad on the scanner and moves onto the next item. All items in the pharmacy can be scanned in only a few minutes. A microcomputer next reads the information contained in the scanner and an electronic order is prepared for the pharmacist's review. The order is sent via EDI to a Bergen distribution center where the order is analyzed. Within five hours, the order is delivered to the pharmacy. Bergen has been able to eliminate all order takers, reduce errors to near zero, fulfill orders faster, reduce overhead costs, and build customer loyalty. The company also uses EDI for sending purchase orders to pharmaceutical manufacturers, receiving invoices, and handling charge backs

Buyer makes a buying decision, creates the purchase order and prints it.Buyer mails the purchase order to the supplier.Supplier receives the purchase order and enters it into the order entry system.Buyer calls supplier to determine if purchase order has been received, or supplier mails buyer an acknowledgment of the order.

An EDI Document Exchange Of a Purchase Order

Buyer makes a buying decision, creates the purchase order but does not print it.EDI software creates an electronic version of the purchase order and transmits it automatically to the supplier.Supplier's order entry system receives the purchase order and updates the system immediately on receipt.Supplier's order entry system creates an acknowledgment an transmits it back to confirm receipt.

A Traditional Document Exchange Of a Purchase Order

Difference between the traditional paper purchase order and its electronic counterpart:This process normally takes between three and five days!This process normally occurs overnight and can take less than an hour!

Features of EDIExchange of structured business information in standard formats between computers.It has reduced data entry link, eliminates the need for a paper base system and improved business cycle.EDI transfer structured business documents internally among groups of departments or externally with its suppliers, customers and subsidiaries.In EDI, information transferred over a network will not have to read, retyped or printed but must have predefine structure agreed between the two company's which send and receive data.The two companies or groups which exchange information through EDI are called the Trading Partners.

Applications of EDIExchange of data with several trading partners directly in a standard format.

2. Interaction with multiple companies through a central information clearing house. Here each companies add EDI program to its computer to translate the company data into standard formats for transmission, and for reverse translation in the data.

One to ManyMany to oneApplications of EDI

Benefits of EDIReduction of Time delays. Delays are caused primarily by two factors. Paper documents may take days to transport from one location to another. In addition, manual processing delays are caused by the need to key, file, retrieve, and compare data. Reduced Labor costs. In non-EDI systems, manual processing is required for data keying, document storing and retrieving, sorting, matching, reconciling, envelope stuffing, stamping, signing, etc. While automated equipment can help with some of these processes, most managers will agree that labor costs for document processing represents a significant proportion of their overhead. In general, labor-based processes are much more expensive than non-labor-intensive operations involving computers and telecommunications. Less Errors. Because information is keyed multiple times and documents are transported, stored, and retrieved by people, non-EDI systems tend to be error prone.

Benefits of EDI contLower Uncertainty. Uncertainty exists in two areas. First, paper transportation and other manual processing delays mean that the time the document is received is uncertain. Once a transaction is sent, the sender does not know when the transaction will be received nor when it will be processed. Second, the sender does not even know whether the transaction has been received at all nor whether the receiver agrees with what was sent in the transaction.Low Inventories. Because of time delays and uncertainties in non EDI processing, inventories are often higher than necessary. Lead times with paper processing are long. In a manufacturing firm, it may be virtually impossible to achieve a just-in-time inventory system with the time delays inherent in non-EDI processing systems.

Benefits of EDI contInformation Access. EDI permits user access to a vast amount of detailed transaction datain a non-EDI environment this is possible only with great effort and time delay. Because EDI data is already in computer-retrievable form, it is subject to automated processing and analysis. Such information helps one retailer, for example, monitor sales of toys by model, color, and customer zip code. This enables the retailer to respond very quickly to changes in consumer taste.

Competitive Edge. Because electronic data interchange (EDI) makes you attractive to deal with from your customers' point of view, and you are in their eyes cheaper and more efficient to deal with than a competitor trading on paper, your costs will be lower because you will require less manpower to process orders, deliveries or payments.

Components of EDIThere are 3 types of component

1. Application service2. Translation service3. Communication service

Components of EDI cont

EDI services1. Application Services :-It provides the link between application and EDI. It allows you to send documents from an EDI system. Document destination can be either intra-company or to the external companies. There are 2 components of software, which is generally used to link the existing business application to the EDI data. One is the translator and the other is application link software . Application link software is used to collect information from the business application and then it formats into fixed length computer file and passes it onto translators.

EDI services contDocumentDocumentInternal Format FileInternal Format FileApplication Service

Management - Interface

EDI services2. Translation service:-Converts the out going documents from an internal format file to an agreed external format.Translates internal document from external format to EDI internal format file. Every EDI sender and receiver should have EDI translator. It varies based on the computer on which it is going to reside. The computer may be a micro computer or a midrange or a mainframe. Translator reads the fixed length file and generates valid EDI standard and maintains control information.

EDI Services contTranslation ServiceManagement - InterfaceExternal Format FileExternal Format FileTransmission FileInternal Format FileInternal Format FileTransmission FileCTFSTransmission file BuilderTFBTranslatorTConverterTransmission file Splitter,,

EDI Services cont3. Communication service:-The communication service sends and receives transmission files to and from the trading partners either directly or by using party service called a valued added network(VAN).

VAN provide a secure interface between trading partners. Since trading partners send EDI messages only through the VAN, there is no fear that a trading partner may dip into sensitive information stored on the computer system nor that a trading partner may send a computer virus to the other partners.

EDI Services contCommunication ServiceCC = Communication ControllerTransmission FileTransmission FileTransmission FileTransmission File

Management - Interface

Security issues of EDILoss of confidentiality of sensitive information. Sensitive information may be accidentally or deliberately divulged on the network or in the mailbox storage system to unauthorized parties including competitors.Increased exposure to fraud. Access to computer systems may provide an increased opportunity to change the computer records of both the organization and that of its trading partners by third-party networkManipulation of payment. A situation where amounts charged by or paid to suppliers are not reviewed before transmission. Therefore, there is a risk that payments could be made for goods not received, payment amounts could be excessive, or duplicate payment could occur.Digital control. There will be increased reliance on computer controls where they replace manual controls, and they may not be sufficiently timely.

Security issues of EDI5. Loss of transactions. Transactions could be lost as a result of processing disruptions at third party network sites or en route to the recipient organization, which could cause losses to the organization and inaccurate financial reporting.6. Errors in information and communication systems. Errors in the processing and communications systems, such as incorrect message repair, can result in the transmission of incorrect trading information or inaccurate reporting to management.7. Loss of audit trail. EDI eliminates the need for hard copy.8. Application failure. Application or EDI component failures could have a significant negative impact on partner organizations within the respective business cycles

Security issues of EDI9. Potential legal liability. A situation where liability is not clearly defined in trading partner agreements, legal liability may arise due to errors outside the control of an organization or by its own employees. 10.Overcharging by third-party service providers. Third-party suppliers may accidentally or deliberately overcharge an organization that is using their services.11. Manipulation of organization. An information available to the proprietors of third-party networks may enable them or competitors to take unfair advantage of an organization.12. Not achieving anticipated cost savings. Happens where the anticipated cost savings from the investment in EDI are not realized for some reason by an organization.

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Business software or business application is any software or set of computer programs that are used by business users to perform various business functions**