EDI

EDI Defined

EDI is a new way of doing business. Many businesses are looking to EDI as a new, fast, inexpensive, and safe method of sending purchase orders, invoices, shipping notices, receiving advices, and other frequently used business documents.For example, Auto manufacturers use EDI to transmit large, complex engineering designs. Multinational firms use EDI to communicate between locations. And universities use EDI to exchange transcripts quickly.

Components of EDI

The Operation of EDI

To send a document, you use your EDI translation software to convert the document format into the agreed upon standard. The translator creates and wraps the document in an electronic envelope and puts the ID for your trading partner on it.

If the information is to be sent Point-to-Point, the communications software sends the document directly from your computer system to your partners computer system. If a VAN is used, the communications software dials the phone number for the network and transmits the envelope containing the document. The VAN reads the ID on the envelope and places it in the correct mailbox.

Your trading partner's modem calls the network and retrieves everything in the mailbox. The EDI translator opens the envelope and translates the data from the standard form to their application's format.

If you attempt to do EDI without translation, you run a great risk of transmitting data that your trading partner will not be able to read. Your trading partners may use business applications on computers that are different than yours. The translator ensures that the data you send is converted into a format that your trading partner can use.

EDI Standards

Standard Organizations

A number of different standards bodies exist to develop standard formats for EDI. The Electronic Data Interchange Association (EDIA) is a non-profit organization set out to serve as an administrator for several different industry groups. Each industry served has a committee to determine new standards, modify existing ones, and pass the information on to the EDIA for publication and distribution. EDIA was asked to develop a set of standards applicable to the grocery industry. The first such standard is The Uniform Communication Standard (UCS) which was applied to an actual transaction by the Quaker Oats Company in 1981. UCS standards are now widely applied in the grocery and retail trade.

The ANSI X12 Committee is set out to develop standards that will be acceptable across industry groups. The ANSI X12 committee has published standards for 20 documents including purchase order, remittance advice, invoice, and request for quote. Work is going forward to define EDI formats for an additional 100 documents.

Parallel efforts in standards development have also been proceeding in Europe, leading to the development of the EDIFACT standards. The EDIFACT (EDI for Administration, Commerce and Trade) committee worked out a common data dictionary and syntax rules so standards in different industries and countries can base standards development on the same building blocks.

Costs of EDI

• The Expected Volume of Electronic Documents. Generally speaking, PC products cost less, but handle only a few documents and trading partners. Midrange EDI packages can be a little more expensive, but handle a much larger volume of EDI. If you anticipate multiple documents or trading partners, a midrange EDI system is a much better choice.

• The Amplitude of The EDI Translation Software. Some products look like a bargain, but as your EDI needs grow, hidden costs (such as having to purchase new transaction sets) suddenly appear. You may pay more for a program with an integrated mapper, but you'll avoid purchasing overlays and maps in the future.

• Implementation Time. Some applications are easier to learn and use than others. The more time you spend in training, the more time it takes to get into production mode. If your time frame is tight, look for a translator that doesn't require training before implementation.

• Maintenance Fees. Most companies charge an annual maintenance fee that is usually a percentage of the translator's list price. This fee should include software updates, standards updates, technical support, and customer service.

• VAN Charges. The VANs bill you for transmitting data similar to making a long distance phone call. Some also bill you for connect time. A fast modem helps to lower transmission costs.

• Mailbox Costs. Most VANs charge a monthly fee for maintaining a mailbox on their network. Some base billing on the document (25 cents per document transmitted). Others charge based upon the number of characters in each document.

Advantages of EDI

The cost of paper and paper processing is incredibly high compared to a properly implemented EDI program. RJR Nabisco estimates that processing a paper purchase order costs the company $70. Processing an EDI purchase order reduces the cost to a mere 93 cents.

End Repetition

If your trading partner wants a copy of a document, instead of calling you they simply check their mailbox. This results in a great time savings from not having to copy and fax/mail copies of business documents.

Save Time

EDI also saves time over paper processing since the transfer of information from computer to computer is automatic. There is no need to rekey information with EDI. And the chance for error drops to near zero, with no data entry.

Improve Customer Service

The quick transfer of business documents and marked decrease in errors allow you to do business faster and more efficient. KMart is an example of a retailer that implements a Vendor Stock Replenishment (VSR) program. With VSR, the KMart warehouse sends stock as their EDI system reports it and automatically bills the client. It can cut weeks from the order fulfillment cycle and ensures that product is always on the shelf.

Expand Your Customer Base

Thus with improved customer service, you can ultimately expand your customer base. Many large manufacturers and retailers are ordering their suppliers to institute an EDI program. So, when evaluating a new product to carry or a new supplier to use, the ability to do EDI is a big plus.

Disadvantges of EDI

There are too many standards bodies developing standard documents formats for EDI. For example your company may be following the X12 standard format, while your trading partner follows the EDIFACT standard format.

Changing Standards

Each year, most standards bodies publish revisions to the standards. This poses a problem to EDI users. You may be using one version of the standard while your trading partners are still using older versions.

EDI is Too Expensive

Some companies are only doing business with others who use EDI. If a company wants to do business with these organizations, they have to implement an EDI program. This expense may be very costly for small companies.

Limit Your Trading Partners

Some large companies tend to stop doing business with companies who don't comply with EDI. For example Wal Mart is only doing business with other companies that use EDI. The result of this is a limited group of people you can do business with.