Introduction

Links to EDI WebGRIDs

What is Electronic Data Interchange (EDI)?

One important distinguishing feature of EDI is that it is a computer-to-computer process. This automated process allows electronic data to be transferred without human intervention, transferring data that only computers can make sense of. Humans cannot decipher the content of such messages.

There are some common misconceptions about what is and what is not EDI. For example, e-mail is not considered EDI. E-mail is used to send information between humans that humans understand, whereas EDI is a computer-to-computer process. Similarly facsimiles are not EDI. Lastly, sharing of files over networks does not conform to the EDI definition because EDI often requires the translation of data into special formats and is generally an automated process.

How EDI Works

Store and Forward

As mentioned, there is a sending trading partner as well as a receiving trading partner involved in the EDI transaction. Each trading partner has a proprietary format for their data, a format that possibly only their organization can understand and use. In order for these trading partners to be able to transfer information and make sense of one anothers' data they often translate their data into a common format called the EDI format. An EDI translator is responsible for translating from proprietary data formats to EDI formats, and vice versa. The process begins with data in a proprietary format being sent from the sending trading partner. This data then goes through the EDI translator and is translated into the common EDI format. The output of the EDI translator is an outer envelope, called the interchange envelope, which contains address information about which mailbox to place the EDI message in. There is also an inner envelope which constitutes the contents of the EDI message. These envelopes are then placed by the VAN into the designated trading partner's mailbox. When the receiving trading partner wants to retrieve EDI messages from their respective mailbox they simply make a request to the VAN and the EDI messages are translated into their proprietary data format by the EDI translator, thus completing the exchange of data.

Point-to-Point

Internet Vs. VANs

EDI Standards

The Importance of Standards

What Do Standards Consist Of?

Current Standards

The United Nations/EDI for Administration, Commerce and Trade (UN/EDIFACT) standard was developed to fulfill this need for international EDI standards. Though this standard is an international standard, having been accepted by the International Standards Organization (ISO) in 1987, it is used primarily in the European countries. For the last five years it has also been the official EDI standard of Canada. The United States has not been as willing to conform since they have already adopted the ASC X12 standard which facilitates national trading. It has been suggested that this situation will be remedied in the future through the predicted synchronization of both the ASC X12 and UN/EDIFACT standards in 1997.

EDI Quiz

Current Social & Business Applications of EDI

EDI extended definition

KMart Case Study

In the early and mid 1980's KMart integrated an EDI point of sale and stock replenishing system into all of its 2000+ stores. Each store had a Unisys U6000/65 miltiprocessor UNIX based system hooked up to the VAN provider Prism. Every night each store would send their EDI transactions to Prism via satellite, which were then retrieved by KMart central server. This information would contain all of the sales figures for the day and stock information. After analysis from the central server, stock and point of sale instructions were sent to each store via Prism. The next day each store would retrieve their instructions, adjust prices accordingly and send out necessary stock orders via Prism.

Prism is a Value Added Network (VAN) that provides 3 independent or integrated services:

1) DataLink - basic EDI services;
2) DirectNet - Internet Services;
3) Express - E-Mail Services.

Frito-Lay Case Study

As you probably know Frito-lay makes snack Products (Doritos, Lays, etc) and is currently a 4.5 billion dollar company. It recently has integrated an EDI system into their delivery and stocking system. Every delivery person carries a hand held computer that they use to record all products delivered, status of all Frito-lay's stock along with competitors stock and information pertaining to the merchants business. The delivery workers in effect, become a sales and marketing representative for Frito-lay's customers. Frito-lay has 10,000 sales people, tracking 14,000,000 products nightly. Its EDI based IS systems saves approximately 30-50,000 man hours of paper work per week.

The 9 minute movie on Frito-lay's EDI IS can be found at University of Calgary's COM/MEDIA library under the title:

Real World Perspectives: Video To accompany Information ...
call number: XMV55792

Stock Market

Some of these software applications can legally buy and sell automatically. This, in the past has caused a domino effect. This is what happened last year, when the stock market had its worst crash in history. A few of these applications started selling and other applications noticed this and in turn began to sell. Within a matter of a few hours, the bottom of the stock market fell out. There have been new measures instantiated in the American stock market that monitors the rate at which stock is sold. If the rate surpasses a certain level, the stock is automatically frozen, and all electronic transactions are suspended.

The stock market in England has been completely EDIed; buying and selling transactions can only be done electronically by brokers and electronic brokers (the software packages mentioned above).

Future Applications of EDI

Benefits of EDI

Faster Transfer of Data
Data can be transferred faster using EDI since electronic data travels much faster than physically delivering paper documents. In addition the data is usable faster since it does not need to be manually retyped.

Improved Data Integrity
This elimination of human typing also avoids the possibility of typing errors and other transfer errors attributed to human intervention.

Easier Manipulation of Data Data which is received in an electronic format through EDI is easier to reroute to various departments in a company. If solely paper documents were used it would be much more difficult to extract data for different purposes.

Improved Security
It has been suggested that using EDI to transfer data provides a more secure transmission of data than its predecessor, the paper document. Two reasons for why this might be the case are the control of access to EDI data in mailboxes as well as the verification checks that messages sent are equivalent to messages received.

More Cost Efficient
On the whole it is much cheaper to transfer data through EDI methods. An example of this is the Public Warehousing Industry which estimated savings of $300 million dollars per year through EDI implementations.

Enables "Just-In-Time" Programs
Previously in order to meet a deadline, such as a bid for a project, a company would have to take into account the physical transfer time of a document. Through the "just-in-time" programs facilitated through EDI, a company can wait until the last minute before sending a bid electronically.

Overall EDI can allow companies to be more efficient and gain a competitive edge.

Drawbacks of EDI

Increased Advantage for Larger Companies
Often EDI is implemented more easily by larger companies since smaller companies do not necessarily have the resources to initially implement EDI. This gives the larger companies a competitive edge, being very detrimental to the smaller companies. The emerging use of the Internet to provide EDI services may be a more affordable option, allowing these smaller players to use EDI. Additionally, service bureaus can be used to allow entities without EDI capabilities to perform EDI. The user sends e-mail, files or faxes to the service bureau and the service bureau can use image recognition and data capture technologies to translate the data to an EDI format. The service bureau can then execute the electronic data interchange on behalf of its user.

Difficult to Agree Upon Standards
Though standards have been developed, there is no way to force trading partners to accept these standards. Trading partners must be prepared to cooperate with one another in order to develop common rules. This cooperation often contradicts normal business tactics since businesses primarily function so as to give the advantage to themselves rather than others. A dilemma arises between cooperation and competition. Even when standards are agreed upon, if they are not defined extremely well, trading partners can interpret the specifications in different ways, thus defeating the purpose of standards.

Electronic Funds Transfer (EFT)

Definition:

You have probably already used some form of Electronic Funds Transfer (EFT). For example, you may have paid for something by Interact, or made a payment to your credit card at an ATM machine. If you're lucky enough, you may have even had the government directly deposit a tax refund or GST payment into your bank account. However, most of the time, you probably use or receive some other form of payment for goods like cash. That's pretty common since out of all payment transactions, almost 85% involve cash, and only 2% involve electronic transfers. Still, in electronic transactions there is usually much more money involved.

Automated Clearing Houses:

One example of an automated clearing house is CHIPs. CHIPs is an acronym for the Clearing House Interbank Payments System. Essentially it as an automated system run by eleven New York banks to arrange money transfers between the 122 member banks (as of 1992). Each bank is charged $0.18 per transaction, regardless of the size of the payment being made. Believe it or not, almost 1 trillion dollars in electronic money moves through the CHIPs computers each business day, with payments being settled at the end of each day.

Some Comments about Automated Payments...

Benefits:

Alternative Payment Method
It provides another payment alternative for the buyer.

Cheaper
It is cheaper to request a transfer payment than it is to write a cheque.

Reduced Transfer Latency
The seller gets the money within a very short time period (usually between 24-48 hours)

Negatives:

Bad for Small Companies
Small companies may lose out if they can't afford to implement some kind of automated payment, since some larger companies are beginning to refuse to do business with those that do not have some kind of EDI/EFT capability.

Security

Authentication:

Privacy:

Even so, if you own a business and are involved in EDI or EFT and concerned about security, you should actually worry more about a frustrated employee than about some person hacking into your system. In most of the computer fraud cases that have surfaced, they usually involve some insider with authorized access to the system.

Money on the Internet

Credit and digital Money:

To implement the idea of digital cash Cybercash would need to work in cooperation with real banks. These banks would allow their customers to open an account with "electronic money", called an electronic purse. With Cybercash software, users can transfer money from their normal bank accounts into their electronic money accounts.

Smart Cards:

One type of debit-like smart card that you may be familiar with are the photocopy cards they sell at MacKimmie Library, which are prepaid smart cards. Prepaid smart cards are pretty much just like cash. Whenever you spend on a smart card, the transaction is "anonymous", the only people aware of the transaction are whoever or whatever you are buying from, and yourself. Furthermore, for many of these types of smart cards, if you lose it, there is really not much you can do to recover your money.

The largest Smart Card project in the world is the prepaid telephone card used in France. Nearly all public pay phones there use prepaid smart cards. It's sensible because it reduces maintenance costs and deters crime. It has been estimated that, by the year 2000, over 100 countries will be using the smart cards for public pay phones.

Smart cards have different levels of security. They may contain read only information, or may allow a smart card reader to add information but not erase any. Or, a smart card may be readable, writable, and erasable. Some smart cards are even capable of applying encryption and decryption techniques, if they must transmit information that is confidential!

With regards to EDI, smart cards can be used for controlling who has access to sealing and signing transactions.

Advantages of EFT

Check Processing
Eliminates the labor costs of check processing.

Reduced Costs
Reduces the cost of handling and administering invoices.

Accounts Receivable
Reduces and controls accounts receivable.

Validation
Provides "Real-time", "On-line" account validation.

Speed
Speeds payment and settlement.

Alternative Payment Method
Provides alternative method of payment for customers without major credit cards. (Approximately one quarter of all U.S. adult consumers).

Alternative Payment Method
Provides alternative method of payment for customers who would otherwise incur credit card finance charges (Approximately two thirds of all U.S. adult consumers).

Alternative Payment Method
Provides alternative method of payment for customers with credit cards that have reached credit limits.

No Cheques
Removes the risk, loss, inconvenience and customer dissatisfaction experienced with the use of checks.

New Customers
Retains existing customers and attracts new customers.

Disadvantages of EFT

Busy lines
The user is inconvenienced when communication lines are busy or down, and are often left without a method of payment.

Account tracking
Often difficult for users to keep clear up-to-date records of their monetary transactions. Often the user no longer visits a bank (since transactions can be done electronically)

Errors
Errors are often hard to find and are often labelled impossible by the service provider.

Crime
Though rare, insider jobs are attempted, and relatively undetected.

References