| Have you heard someone mention EDI (Electronic | | | | orders, late invoices, out-of- |
| Data Interchange) or eCommerce | | | | stocks, etc.With the advent of secure Internet EDI, |
| and wondered what it was? Simply put, eCommerce | | | | companies of every size are now able to |
| is the exchange of information | | | | transact electronically with their trading partners. And |
| about trading goods, services, or money from | | | | VAN services such as |
| computer to computer. For example, | | | | "Message Disposition Notifications" (MDNs) are built |
| the purchase of a widget over the internet, paying a | | | | right into the software |
| bill, tracking an overnight | | | | products.Benefits of EDI |
| package delivery, or receiving a paycheck | | | | Consider a very simple non-EDI-based purchase: A |
| electronically.Now imagine you're a company. You | | | | buyer decides he needs 365 |
| want to do the same transactions, but | | | | widgets. He creates a purchase order, prints it out |
| thousands of time a day. That is where EDI steps in. | | | | and pops it in the mail. When |
| EDI is an agreed upon | | | | the supplier gets the order, she types it into her |
| message standard that exchanges information from | | | | company's computer system. The |
| one computer application to | | | | inventory guy pulls the order and ships out the |
| another with the minimum of human intervention. | | | | widgets. Next, the supplier prints |
| And 95% of all eCommerce uses | | | | out and mails an invoice. It's not hard to imagine that |
| EDI to exchange that information. It can be done | | | | this process could take |
| with special software via e-mail, | | | | several days. EDI has the potential to cut massive |
| across the Internet, or by customized connections. | | | | amounts of time out of the |
| And it goes beyond just | | | | process. Sending documents, such as purchase |
| purchasing goods and submitting invoices. A | | | | orders or invoices, electronically |
| company can request information | | | | takes minutes, not days, and shipments can often |
| about inventory levels in it's suppliers' and customers' | | | | go out the day the order comes |
| warehouses, receive an order | | | | in.Moreover, the electronic format does not need to |
| status; and send funds electronically along with | | | | be re-keyed upon arrival. And |
| automatic notification that an | | | | that is the part of the biggest benefit of EDI. This |
| invoice was paid. These are just a few of the many | | | | saves a tremendous amount of |
| types of automated transactionsEDI is not something | | | | labor time, and means that no data entry errors are |
| new. As a matter of fact, it is much older than you | | | | introduced into your system by |
| might | | | | your staff. Cycle times are reduced, and data entry |
| think. Yet to some industries it is only a few years | | | | backlogs are almost completely |
| old. And the health industry of | | | | eliminated. This allows for very quick order |
| the United States had to be mandated by the | | | | processing. A proper system can easily |
| Federal government before they dared | | | | handle receiving an order and shipping that order |
| venture into EDI.Who uses EDI? And how and | | | | with its invoice the same day. |
| where did it all start? What are the benefits? What | | | | Studies indicate that the average reduction in turn |
| are | | | | around time is about 40% for |
| the costs? What are the legalities? And why, with all | | | | most business functions like order fulfillment, |
| the apparent advantages, do | | | | procurement, manufacturing, |
| some industries balk at switching to EDI? Well let's | | | | logistics and finance.This often allows a company |
| start at the beginning to see | | | | that first implements EDI to handle far greater |
| how it all came about.Who uses EDI? | | | | volumes |
| About 90% of the fortune 1000 companies | | | | without adding personnel and other costs. This |
| currently use EDI. Companies such as | | | | means increased sales and |
| American Airlines, BMW, Coca-Cola, Dunkin Donuts, | | | | increased revenues once the initial investment in EDI |
| Eastman Kodak, Federal | | | | is recaptured. |
| Express, Gordmans, Heinz, InFocus, JCPenney, Kohls, | | | | These savings come from: |
| Lowes, Macys, Nike, | | | | - No data entry errors from your operators |
| Openheimer, Prudential Insurance, Queens City | | | | - No mail time |
| Government, Radio Shack, Staples, | | | | - Reduced labor processing costs and time |
| Texaco, United Airlines, Verizon, Wachovia, and | | | | - Reduced lead times |
| Yokohama Tires to name but a few. | | | | - Reduced order cycle time |
| EDI is widely used in manufacturing, shipping, | | | | - Reduced inventory carrying costs |
| warehousing, utilities, | | | | - No filing and other processing of paperworkEDI |
| pharmaceuticals, construction, petroleum, metals, | | | | improves margins by meeting customer demands and |
| food processing, banking, | | | | consequently |
| insurance, retailing, government, health care, and | | | | strengthening relationships. It also allows time and |
| textiles among other industries.Any company that | | | | effort to be focused on other |
| buys or sells goods or services can potentially use | | | | internal priorities.Studies have shown that processing |
| EDI. Because it | | | | a purchase order or invoice costs most |
| supports the entire business cycle, EDI can | | | | companies about $5 in paper, postage, handling, |
| streamline the relationship that any | | | | direct labor and other such odds |
| company has with its customers, distributors, | | | | and ends of direct costs. With EDI this can be |
| suppliers, and so forth. According to | | | | reduced to about 50 cents; |
| a recent study, the number of companies using EDI | | | | sometimes as little as 13 cents, depending on how |
| is projected to quadruple within | | | | the EDI document is transmitted. |
| the next six years.History of EDI | | | | If your direct handling costs are greater, the savings |
| The first recorded EDI dates back to the 1850s | | | | is greater.Another benefit is the implementation of |
| when the railroads and Western | | | | Just-In-Time (JIT) order process |
| Union used the telegraph to communicate business | | | | methodology. With Just-in-Time, a company can |
| information. Starting there, | | | | avoid stock-outs and/or obsolete |
| Samuel Morse's patented code was the single | | | | inventories, reduce lead times on ordering from |
| method used to communicate across | | | | suppliers and reduce inventory |
| the lines.In 1948 during the Berlin Airlift, thousands of | | | | carrying costs. Whether implementing a subset or |
| tons of food and consumables were | | | | the whole of JIT process |
| needed to be air freighted. The task of coordinating | | | | methodology, EDI is what makes Just-In-Time |
| these consignments (which | | | | possible and allows it to be feasible. |
| arrived with differing manifests, languages and | | | | With the proper agreements between trading |
| numbers of copies) was addressed | | | | partners, a manufacturer can |
| by devising a standard manifest.In the late 1950's | | | | determine the current sales of their buyers and their |
| and early 1960's the rise of computer enabled | | | | buyers' current inventory |
| companies to store | | | | levels. Therefore the manufacturer can forecast |
| and process data electronically, companies needed | | | | probable future sales and plan |
| an expedient method to | | | | production and their own purchasing accordingly. |
| communicate the data. This method was realized by | | | | Obviously there will occasionally |
| the widespread use of | | | | be wild fluctuations that will disturb this scenario, but |
| computer telecommunications. Using | | | | it does help the manufacturer |
| telecommunications, companies could | | | | to accurately plan production, and the purchaser to |
| transmit data electronically over telephone lines, and | | | | know that their needs will more |
| have the data input directly | | | | likely be met by their suppliers.Just-In-Time helps the |
| into a trading partner's business application. These | | | | manufacturer communicate quickly and inexpensively |
| electronic interchanges | | | | with |
| improved response time, reduced paperwork, and | | | | their suppliers, who may be using the same |
| eliminated the potential for | | | | forecasting to meet the requirements of |
| transcription errors. Computer telecommunications, | | | | their customers.Disadvantages of EDI |
| however, only solved part of | | | | The biggest disadvantage implementing EDI is it |
| the problem. | | | | reveals inefficient business |
| Early electronic interchanges were based on | | | | practices. If a company's business process was |
| proprietary formats agreed between two | | | | inefficient before EDI, they will be |
| trading partners. Due to differing document formats, | | | | multiply with the implementation of EDI. The original |
| it was difficult for a company | | | | purpose of EDI was to save |
| to exchange data electronically with many trading | | | | money and time. When used improperly, EDI does |
| partners. What was needed was a | | | | neither, and actually wastes both.Costs of EDI |
| standard format for the data being exchanged. In | | | | Prices for EDI applications vary from free (for very |
| 1968 the United States | | | | simple one-function products) to |
| Transportation Data Coordinating Committee | | | | several thousands of dollars for full-function |
| (TDCC) was formed, to coordinate the | | | | applications. The final price you pay |
| development of translation rules among four existing | | | | depends upon several things: |
| sets of industry-specific | | | | The Expected Volume of Electronic Documents. |
| standards.In the mid 1970's, it was clear that the | | | | Generally speaking, |
| TDCC standards were not enough, and work | | | | low cost EDI packages handle only a few |
| began for national EDI standards. The Electronic | | | | documents and trading partners. Midrange |
| Data Interchange Association | | | | EDI packages can be a little more expensive, but |
| (EDIA), a non-profit organization set out to serve as | | | | handle a much larger volume of |
| an administrator for several | | | | EDI. If you anticipate multiple documents or trading |
| different industry groups. Each industry served has a | | | | partners, a midrange EDI |
| committee to determine new | | | | system is a much better choice.The Amplitude of |
| standards, modify existing ones, and pass the | | | | the EDI Translation Software. Some products look |
| information on to the EDIA for | | | | like a bargain, but as your EDI needs grow, hidden |
| publication and distribution. EDIA was asked to | | | | costs (such as having to |
| develop a set of standards | | | | purchase new transaction sets) suddenly appear. |
| applicable to the grocery industry. The first such | | | | You may pay more for a program |
| standard is The Uniform | | | | with an integrated mapper, but you'll avoid |
| Communication Standard (UCS) which was applied to | | | | purchasing overlays and maps in the |
| an actual transaction by the | | | | future.Implementation Time. Some applications are |
| Quaker Oats Company in 1981.In 1979 the American | | | | easier to learn and use |
| National Standards Institute (ANSI) Accredited | | | | than others. But as above, the easier to lean the |
| Standards | | | | less the software package can |
| Committee (ASC) was formed. It included | | | | handle. The more time you spend in training, the |
| representatives from transportation, | | | | more time it takes to get into |
| government & computer manufacturer industries, | | | | production mode. If your time frame is tight, and |
| The committee's first meeting | | | | you are sure the documents you |
| took place in Rosslyn, Virginia with the goal to | | | | will be using are static, look for a translator that |
| create a set of standard data formats | | | | doesn't require training before |
| based on the TDCC structure that: | | | | implementation. |
| - were hardware independent; | | | | |
| - were unambiguous, such that they could be used | | | | Fees vary from Software Company to Software |
| by all trading partners; | | | | Company. Ignoring |
| - reduced the labor-intensive tasks of exchanging | | | | the hidden costs mentioned above, you can expect |
| data (e.g., data re-entry); | | | | the following ongoing charges: |
| - allowed the sender of the data to control the | | | | |
| exchange, including knowing if and | | | | Maintenance Fees. Most companies charge an annual |
| when the recipient received the transaction.In 1982, | | | | maintenance |
| Version 1 of the ANSI ASC certified release of draft | | | | fee that is usually a percentage of the translator's |
| X.12 standards was | | | | list price. This fee should include |
| published.At about the same time, the U.K. | | | | software updates, standards updates, technical |
| Department of Customs and Excise, with the | | | | support, and customer service.VAN Charges. If you |
| assistance of SITPRO (the British Simplification of | | | | use a Value Added Network (VAN), you will be |
| Trade Procedures Board), was | | | | billed for transmitting data similar to making a long |
| developing its own standards for documents used in | | | | distance phone call. Some also |
| international trade, called | | | | bill you for connect time. A fast modem helps to |
| Tradacoms. These were later extended by the | | | | lower transmission costs.Mailbox Fee. Most VANs |
| United Nations Economic Commission | | | | charge a monthly fee for maintaining a |
| for Europe (UNECE) into what became known as | | | | mailbox on their network. Some base billing on the |
| the GTDI (General-purpose Trade | | | | document (25 cents per |
| Data Interchange standards), and were gradually | | | | document transmitted). Others charge based upon |
| accepted by some 2,000 British | | | | the number of characters in each |
| exporting organizations.Problems created by the | | | | document. |
| trans-Atlantic use of two different (and largely | | | | |
| incompatible) sets of standardized documents have | | | | EDI can at times take much longer than expected. |
| been addressed by the | | | | Remember, you are working with |
| formation of a United Nations Joint European and | | | | another company and you have no control over |
| North American working party | | | | their priorities or business practices. |
| (UN-JEDI), which began the development of the | | | | Your priority may be to implement a Purchase Order |
| Electronic Data Interchange for | | | | (850) with Wal-mart, but their |
| Administration, Commerce and Transport (EDIFACT) | | | | priority may be implementing the Advance Ship |
| document translation | | | | Notice (856). You need to |
| standards.Early on, Value Added Networks (VANs) | | | | implement a Remittance Advice (820) with |
| served as an "electronic post office" for | | | | Wachovia yet their Remittance Advice |
| buyers and suppliers that needed to exchange data. | | | | specialist is on Maternity leave and her replacement |
| For example, Company A could | | | | only knows Lockbox (823).Despite its few |
| send an electronic purchase order to the VAN and | | | | disadvantages, EDI has proven to be a powerful |
| Company B could go to the VAN | | | | backbone that supports today's Electronic Commerce. |
| to pick it up. If Company B claimed it did not receive | | | | Companies all over the world utilize EDI's |
| the purchase order, the VAN | | | | versatility and flexibility to communicate with each |
| would serve as a third-party intermediary and would | | | | other. And with the promise of |
| validate whether the purchase | | | | the Web, which offers much lower connectivity |
| order had in fact been picked up or not. That is the | | | | costs, and the lower costs of PCs and |
| type of "value-add" these | | | | simpler software, EDI is opening its doors to smaller |
| networks provided.Despite the benefits, VAN EDI | | | | companies. Moreover, XML, an |
| had limited adoption because it was cost-prohibitive | | | | open standard for sharing data, is starting to appear |
| for most companies to deploy. Before Internet EDI | | | | as a method of EDI coding |
| became available, approximately | | | | standards, which could provide technical clarity |
| 80% of the suppliers in any given supply chain were | | | | across industries and nations |
| communicating with their | | | | around the world.Christopher Alexander is a lead |
| customers manually via fax, telephone and snail mail | | | | developer at CE InterWeb Solutions and a Managing |
| because they could not afford | | | | Partner at Consolidated Energies.He has been |
| the investment required for VAN EDI. This resulted | | | | developing advanced eCommerce applications with |
| in inefficiencies throughout the | | | | EDI since 1997. |
| supply chain including: lost or mis-keyed purchase | | | | |