MIS_B COM VI

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Electronic Data Interchange (EDI)

Used by organizations for transactions that occur on regular basis. For most part it is used in for purchase transactions. Mostly applied in the Execution and Settlement phases of the trade cycle, it may also be used for Pre-Sale and After Sale. Examples of EDI applications in use: In the UK, National Health Service (NHS) British Telecom (BT) : for its bills from the gas, electricity and heating oil utilities. EDI applications reduces delays, inaccuraciesand inefficiencies associated with exchange of data on paper. Developed in mid-70s, by 2003 EDI transactions totaled to $3.4 trillion, that is over 25% of the $13.5 trillion trade among firms (eMarketer, 2003).

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EDISearch NegotiateOrder DeliverInvoice Payment After Sales After SalesSettlementExecution Pre-SaleFigure 1.0: The Trade Cycle

*EDI Definition

Simply termed as Paperless Trading

International Data Exchange Association (IDEA) formally define EDI as:

The transfer of structured data, by agreed message standards, from one computer system to another, by electronic means.

Four elements essential to an EDI system: Structure Data: transactions contain codes, value and pieces of text, each piece of information with a defined purpose. Codes for the customer and product.

*EDI Definition

Agreed Message Standard: a universal standard not only agreed between business partners but also national and international bodies. A Purchase Order is one the agreed standards.

From One Computer System To Another: any EDI message is sent between two computer applications. A message is directly sent between the customers Purchasing System and the suppliers Order Processing System.

By Electronic Means: what is involved is a networking channel designed for EDI for the transmission of the message.

*The Benefits of EDI

EDI replaces the previously used fax machines and traditional mail with computer (replace paper transactions with electronic transactions). It should then considerably save time and cost.

The advantages can be seen when an organization fully restructures its business transactions and maximizes the full potential of EDI (enabling technology to change the way a business operates).

Prime examples of EDI is Just-in-Time (JIT) manufacture and quick response supply.

*Advantages of EDI

1. Cost CuttingMinor costs reduction are postage and stationery costs. Major savings are staff costs. The cost savings need to be offset against the system development and network costs.

2. Shortened Ordering TimeOrders are directly sent into the network and the only possible delay is the amount of time the supplier retrieves messages from the system.

3. Fast Response

*Advantages of EDI

4. Accurate InvoicingAn e-Invoice is automatically matched against the original order (made by the customer) and cleared for payment, eliminating any sort of queries.

5. EDI PaymentPayment can also be made by an EDI system. Electronically matching against the relevant invoices.

6. Elimination of errorsIt eliminates the source of errors - the customer will get what the customer asked for.

*EDI Technology Its technology is defined by EDI standards, EDI networks and EDI software that interface with the business applications. The technology however plays only a small part, as it is often said that EDI is 90% business and 10% technology.EDI StandardEssence of EDI is the coding and structuring of the data into a common and generally accepted format - anything less is nothing more than a system of file transfers.

Standards have been developed in various sectors for the coding and structuring of data to be used in business transactions.

These bodies include American National Standards Institute (ANSI X12 standards) and International bodies such as the UN (EDIFACT standards).

*Why the need for EDI standards ...?Provides linkage between two trading partners

Data is exchanged in a common format; without that it is considered meaninglessScenario:

Figure 2.0: Interchange between Customer and Suppliers

CustomerSupplierBest BreadFresh FruitMighty MeatVery VegSuper FoodSava StoreSave Food

*Why the need for EDI standards ...?

With 12 separate interchanges, each customer would develop its own standard.

Each supplier would then have three standards to cope with, but the overall picture would be one of complexity and incompatibility.

EDI standards overcome this and attempts to provide a suitable standard for data interchange that is: Ready formulated and available for use Comprehensive in its coverage for any given transaction Independent of H/W and S/W Independent of special interest of any party in the trading network

*Tasks TO DO ...

READ ABOUT: National and Sectoral Standards Evolution of EDI Standards Early EDI Applications Sector and National EDI Standards The International EDI Standard The EDIFACT Standard Coding Standards EAN/ UPC Codes Generic Products

*Resources : The Internet, recommended books and any other relevant materials

*EDI Communications

Standards specify a syntax for coding of the eDocument, and NOT the method of transmission.

Methods of transmitting an eDocument are: i) A magnetic tape or diskette ii) A direct data communication linkiii) A value added data service (VADS), also known as value added network (VAN)

Postboxes and Mailboxes

VADS basic facility is a post and forward network

Each user of the system has two files: postbox - where outgoing messages are placed mailbox - where incoming messages can be picked from

*EDI Communications

Figure 3.0: VADS - Postbox and Mailbox Files

What are the processes involved for an EDI interchange between Sava Store and Best Bread, Mighty Meat and Very Veg suppliers?Best BreadFresh FruitMighty MeatVery VegSava StoreSupplierCustomerSuper FoodSave FoodVADSpostboxmailboxpostboxmailboxpostboxmailboxpostboxmailboxpostboxmailboxpostboxmailboxpostboxmailbox

*EDI CommunicationsThe postbox/ mailbox system is also referred to as a store and forward system.

Principle advantages:i) Time IndependenceThe sending and receiving of the interchange are asynchronous. These two processes can be carried out at the convenience of all users involved.

ii) Protocol IndependenceThe type of a communication link to be used is an option available for each user of the VADS system. Low volume users will opt for a dial-up modem link whereas high volume users may use leased line or a packet switching network.

*Value Added Data Services (VADS) This is a service that has been set up by several organizations. Extensively used by IBM network and GEIS (General Electric Information Service)Most important facility is the postbox/ mailbox provision. Other facilities may be:

Trading Community: EDI VADS will have large number of clients all with an interest in eTrade. Inter-network Connections: It facilitates trade between partners that subscribe to the same VADS but not between partners that might be using different VADS. International Connections: VADS are nationally based with a single computer service providing the switching service- a set-up appropriate for domestic trade. When VADS are part of international organization or have an alliance in other countries, it facilitates international trade.

*Value Added Data Services (VADS) Privacy, Security and Reliability: privacy provisions includes user credentials user-id / password protection of postboxes and mailboxes. EDI message can be encrypted with eSignatures. Security is built into the VADS system and Reliability comes from the appropriate H/W and S/W configurations to make sure that the service is always available.

Message Storage and Logging: Users will have there new messages stored in the postboxes and mailboxes. Called off messages may also be retained. Logging facilities provides an audit trail for the messages.

Message Validation: messages will be validated for conformance with the chosen EDI standards

*EDI Implementation

EDI in the Internet

The Internet has started to be used as an EDI VADS by several organizations. Here security and reliability are two major concerns and unlike the traditional VADS, the Internet does not guarantee delivery of data sent.

The Internet on the other hand is cheaper than any other commercial network.

The technical element of the EDI system is the EDI software.

*EDI Implementation

Figure 4.0: Sending an order using EDI software

If Pens and Things is to send an order from its production control system to Packaging Solutions it needs to code that order into the agrees EDI standard and squirt it into the chosen VADS. On the other end Packaging Solutions needs to extract the data from the network and decode the data from the EDI message into its order processing system

The coding/decoding of the EDI message and the interfacing with the VADS is normally achieved using EDI software. VADSPens and THingsPackaging SolutionsEDI SoftwareEDI SoftwareProduction Control SystemProduction Control System

*Tasks TO DO ...

READ ABOUT:

EDI Software EDI Integration EDI Operation EDI Alternatives EDI Agreements EDI Interchange Agreements

*Resources : The Internet, recommended books and any other relevant materials

Electronic Data Interchange (EDI) and SCMDefine Electronic Data InterchangeGive characteristics of EDIDiscuss benefits of EDI, as well as barriers to its implementationDescribe how EDIt works, and how it is moving to the InternetContrast common (ANSI) EDI with Internet EDIInternet improvements to supply chain management

Electronic Data Interchange (EDI)Strategic Impact of EDIDefinition of EDIExample of EDIHow EDI worksBenefits of EDIDirect and ProcessBarriers to EDI AdoptionAdvantages, Disadvantages and Characteristics of VANsEDI Implementation ModelEDI migration to the internet

Strategic Impact of EDIBusiness processes can become more efficientCustomer-supplier relationships may changemore trust and collaborationMarket structure changes

Definition of EDIThe direct computer-to-computer transfer of business information between two businesses that uses a standard format. Focus on trade data interchangeOften use VANs (Value-added networks)Use of standards

EDI StandardsCompanies speak precisely the same languageSame codes in same placesProprietary codes --> to standards (X12, EDIFACT,X400)Different computers can communicate with one another

EDI StandardsIn 1968, the Transportation Data Coordination Committee was formed, charged with exploring ways to reduce the paperwork burdenAmerican National Standards Institute (ANSI): coordinating body for standards in the United States since 1918Accredited Standards Committee X12 (ASC X12) chartered by ANSI in 1979 to develop EDI standardsThe current ASC X12 standard includes specifications for several hundred transaction sets

Types of EDI BenefitsDirectProcessrequire reengineeringcan only be realized with all trading partners are on EDIcan revolutionize the way business is done

Barriers to AdoptionTrading partners not knowing benefitsHardware costsInterfacing translator, software costsNeed for software modificationsNetwork (VAN) service chargesCosts and effort for trading partner conversion

Trading Partner Concerns in EDI ImplementationCostsTrustDependencyBenefitsEDI

Value Added NetworksTrading partners can implement the EDI network and EDI translation process in several ways, each using one of two basic approaches

Direct connectionIndirect connection

Direct Connection BetweenTrading PartnersRequires each business in the network to operate its own on-site EDI translator computerEDI translator computers are connected to each other using modems or dedicated leased linesTrading partners using different protocols can make direct connection options difficult to implement

Indirect Connection BetweenTrading PartnersCompanies use the services of a value-added network (VAN)The VAN provides communications equipment, software, and skills needed to receive, store, and forward electronic messages containing EDI transaction setsThe VAN often supplies the software needed to connect to its services

Advantages of Using aValue Added NetworkUsers support only one communications protocolThe VAN records activity in an audit log, providing an independent record of transactionsThe VAN can provide translation between different transaction setsThe VAN can perform automatic compliance checks to ensure the transaction set is in the specified EDI format

Disadvantages of Using aValue Added NetworkMost VANs require an enrollment fee, a monthly maintenance fee, and a transaction feeVANs can be cumbersome and expensive for companies with trading partners using different VANsInter-VAN transfers do not always provide a clear audit trail

EDI on the InternetViewed as a replacement for expensive leased lines and dial-up connectionsSmall companies can get back in the game of selling to large customers the demanded EDI capabilities of their suppliersConcerns about security and lack of audit logs continue to be a major roadblockTakes advantage of open architecture

Comparison of EDI Standards EDI STANDARDS(ASC/ANSI)Security provided by private networks EFT (Electronic Funds Transmission) - standard for wire payments between client and vendorTransactions sets (810-invoices;850, 855- POs)INTERNET STANDARDSSSL (Secure Sockets Layer)SET (Secure Electroic Transactions) - protocol proposed by Visa/MC for Net

No transaction standards

Current Internet EDI UsageMuch EDI traffic carried over private networksscalabilityreliabilityprocessing powerin 1996 EDI Group study85% of respondents using some form of EDIonly 3-4% were using Internet EDI

Changes on the HorizonS/MIME protocol which enables e-mail applications to verify transmission and receipt of EDI messagesProducts to map Web EDI transactions sent in multiple formats to legacy EDI applicationsNew (but potentially competing) technologiesXML OBI

Products to Smooth EDI WrinklesGEISs TradeWeb - an entry-level forms-based service with which subscribers can send and receive four basic EDI documents over the Internet using a standard Web browser for flat fee ($50/mo)purchase order (PO), PO acknowledgementinvoice, functional acknowledgementGEISs Trading Process Network for posting EDI-based forms on the Web

A trading partners bank is called a Financial EDI (FEDI)Many trading partners are reluctant to send FEDI transfers for large sums of money over the InternetCompanies may opt to establish an indirect connection through a VAN for the added security for FEDI transactionFinancial EDI

ANSI - American National Standards InstituteEDIFACTPhysical transfer of magnetic tape is declining in popularity due to delays. Speed of transmission is relatively slow, as a result a direct data com link is the second possibility, which on the other hand is suitable when there are two trading partners involved. When more trading partners are involved complexity arises because aspects of time, protocols and linespeeds become major requirements. The final possibility is the use of VADS. It provides a number of facilities but the important components is the provision of postboxes and mailboxes that provide time independence and protocol independenceTake a scenario Sava Store (customer) wants to place orders for bread, meat and vegetables. It then formats an EDI interchange containing orders of those three suppliers. Sequence of events would then be: Sava Store establishes a communication link to the VADS system. It obtains a leased line communication link It then transmits the EDI interchange and it is temporarily stored in its postbox The VADS system then inspects the postboxes, unpacks the interchanges and moves any available messages to the mailboxes of the intended recipients. The users of the system (suppliers) then establish a communication link to the VADS system at their convenience. For our case Best Bread is the first user and in this case the communication link is a dial-up line. Best Bread then inspects its mailboxes for new interchanges, on finding the order from Sava Store it causes them to be transmitted to its own order processing system.

The VADS suppliers makes a wide variety of communications facilities and has the capability to handle a wide range of protocols.Other facilities:

Local Address: cost of the connection from the user to the VADS can be reduced by using a local access node or a packet switching service.

Charges: Its a commercial org. and charges for its services. Charges tend to be: subscription - monthly or annual usage charge - number of characters transmitted

Software and Consultancy: Network providers promote the widespread adoption of EDI. Most of the VADS providers supply EDI software that provides easy access to their own network. Consultancy is on the business use of EDI within the organization.1234510DIRECT BENEFITSEliminated/reduced paper workGreater accuracyShorter lead timesLess inventory costsMore responsiveness to customerReduced postageEasier product comparisonPROCESS BENEFITS No redundant clerical tasksFewer steps to process business documentsNo redundant information exchangesReengineered operationsPromotes true partnerships1416A new ASC X12 Task Group has been charged with several broad objectivesConverting the ASC X12 EDI data elements and transaction set structures to XML, retaining one-to-one mappingDeveloping XML data element names consistent with existing ASC X12 transaction setsMeeting the needs of app-to-app and human-to-app interfaces18202122