EDI stands for Electronic Data Interchange. This is one of the applications of E Commerce which makes Business to Business transactions possible over a network.
Electronic data interchange (EDI) is a technology poised for explosive growth in use as the Internet provides an affordable way for businesses to connect and exchange documents with customers and suppliers of any size. EDI is the electronic exchange of business documents, data, and other information in a public-standard format. It cuts the cost of managing business-to-business transactions by eliminating the need for labor-intensive manual generation and processing of documents. In this lecture we will discuss the EDI standards, the EDI networks and the EDI software that interfaces these two elements and the business applications. These elements together with the EDI Agreement are covered in detail in this lecture.
Let’s start with EDI Standards.
EDI Standards
At the heart of any EDI application is the EDI standard. The essence 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. Coding and structuring the documents for business transactions is no easy matter. There have been a number of EDI standards developed in various industry sectors or within a specific country and there are complex committee structures and procedures to support them.
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Following on from the various sectorial and national EDI standards is the United Nations (UN) EDI Standard:EDIFACT. This is the standard that should be adopted for any new EDI application.
EDI provides an electronic linkage between two trading partners. Business transactions are output from the sending computer system, transmitted or transported in electronic format and input into the second, receiving computer system. The computer systems that exchange data need a common format; without a common format the data is meaningless. Two organizations that exchange data can, with relative ease, agree a format that meets their mutual needs. As the network of exchanges develops then the number of organizations needing to be party to the agreement grows. To illustrate this, assume a network of three customers (say supermarkets) ordering goods from four suppliers (food manufacturers), see
Interchanges between Customers and Suppliers.
The network in is 12 separate interchanges. It is unlikely that each of these exchanges would have its own format but it is perfectly possible that each customer would have developed its own standards (giving each supplier three separate standards to cope with).
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It is also possible that new exchanges added to the system will have requirements not envisaged when the data formats were originally agreed; this would require a change to the existing standard or the introduction of an additional standard. The overall picture is one of unnecessary complexity and incompatibility. EDI standards overcome these difficulties.
The EDI standard provides, or attempts to provide, a standard for data interchange that is:
• Ready formulated and available for use;
• Comprehensive in its coverage of the data requirements for any given transaction;
• Independent of hardware and software;
• Independent of the special interest of any party in the trading network.
EDI Standards provide a common language for the interchange of standard transactions.
Most of the work on EDI standards has been concerned with the interchange of trade documentation and financial transactions but the principle applies to any interchange where the data can be systematized and codified. EDI standards are used for the interchange of information as diverse as weather station readings and school exam results. Now let’s see how the various standards evolve.
National and Sectorial Standards
Evolution of EDI Standards
The first EDI standards evolved from the formats used for file transfer of data between computer applications. The evolution of EDI standards can be seen as having three stages (although in practice it was and is somewhat more complex than that):
1. The first formats that might properly be called EDI were developed by organizations that had to process data from a large number of customer organizations. The data recipients set the standard and the customers conformed to it.
2. The concept of EDI as an application independent interchange standard evolved and several industry sector and / or national standards bodies developed EDI standards to meet the needs of a specific user community.
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3. The requirements of international and cross sector trade meant that the sector and national standards were becoming an impediment to the further development of electronic trading. EDIFACT was developed, under the auspices of the United Nations (UN), as a universal standard for commercial EDI.The International EDI Standard
As already outlined, EDI developed in closed user communities within trade sectors and / or national boundaries. The use of sector and national standards for this type of trade was satisfactory. However, as electronic trade developed to cover wider trading relationships there is a growing problem of trade between organisations using different EDI standards.
In addition to the problem of cross sector trade there is a desire to use EDI for international trade. This (sensibly) requires a common format for the exchange of the standard business forms (order, invoice, etc.) between organisations in differing countries.
International trade also requires a great deal of additional documentation for shipping, customs authorities, international credit arrangements, etc. - all of this is potentially electronic and obviously a common format is very desirable. To facilitate this cross sector and international development of EDI the EDIFACT standard has been, and is being, developed.
EDIFACT is the United Nations standard of Electronic Data