Introduction to EDI - A Primer
1. THE TRADITIONAL DEFINITION OF EDI
One of the more commonly accepted definitions of Electronic Data Interchange, or EDI, has been "the computer-to-computer transfer of information in a structured, pre-determined format." Traditionally, the focus of EDI activity has been on the replacement of pre-defined business forms, such as purchase orders and invoices, with similarly defined electronic forms.
In it's simplest form, EDI is the electronic exchange of information between two business concerns (referred to in the EDI world as trading partners), in a specific predetermined format. The exchange occurs in basic units called messages, or transaction sets, which typically relate to standard business documents, such as Purchase Orders and Customer Invoices. Over time the business community has arrived at series of standardized transaction formats to cover a wide range of business communication needs.
Each transaction set has an extensive set of data elements required for that business document, with specified formats and sequences for each data element. The various data elements are built up into segments, or logically related groups of data, such as vendor address (which would be made up of data elements for street, city, state, zip code, and country).
All of the related segments for a transaction are then grouped together, and are preceded by a transaction header and followed by a transaction trailer record. If the transaction contains more than one transaction (many purchase orders sent to one vendor) several transaction groups would be preceded by another type of record, referred to as a functional group header, and would be followed by a function group trailer.
TRADITIONAL IMPLEMENTATION OF EDI
One of the first places that EDI was traditionally implemented was in the purchasing operations of a business. Before the implementation of EDI, a purchasing system would allow buyers to review their material requirements, and then create purchase orders, which would be printed out and mailed. The supplier would receive the purchase order, and manually enter it into their customer shipping system. The material would be shipped, and an invoice would be printed, which would then be mailed back to the supplier.
In this simple example, even if the purchased materials were shipped and received on the same day the purchase order was received, the cycle time could be as much as a week, depending on the speed of the mail and the backlog at the supplier's order entry system.
With the introduction of EDI, this scenario changed dramatically. Purchasing agents would still review their material requirements and create their purchase orders. But instead of printing them out and mailing them, the purchase orders would be transmitted directly to the suppliers over an electronic network.
On the supplier's end, the transaction would be automatically received and posted. This new process could allow the shipment of material on the same day the purchase order was sent. As an added bonus, suppliers could send their shipping documentation electronically to the buyer in the form of a shipment notification, providing the buyer with accurate receiving documents prior to the actual arrival of the material. And the supplier gained an additional advantage as well, since now the invoice could be sent directly to the customer's accounts payable system, speeding payment to the supplier.
Whether implementation of EDI was in the area of purchase orders, advanced shipment notification, or automatic invoicing, several immediate advantages could be realized by exchanging documents electronically.
Even when alternate means of document transfer are used they suffer from the major drawback of requiring re-entry into the customer order system, admitting the opportunity of keying errors. But information that passes directly between computers without having to be re-entered eliminates the chance of transcription error. There is almost no chance that the receiving computer will invert digits, or add an extra digit.
The cost of sending an electronic document is not a great deal more than regular first class postage. Add to that the reductions in cost afforded by eliminating the re-keying of data, human handling, routing, and delivery. The net result is a substantial reduction in the cost of a transaction.
THE DOWNSIDE OF TRADITIONAL EDI
Although these benefits are compelling, and were repeated in boardrooms around the world, actual acceptance and implementation of EDI was far less prevalent than might be expected, because for all the acknowledged benefits, the technological complexity of EDI presented a number of major stumbling blocks.
Computers, especially mainframes, and their business application systems were complex and expensive. Primarily serving the peripheral functions of a business, they were not regarded as being fully integrated into all business activities.
Traditionally, the mainframe computing environment was viewed as an information repository. EDI required that information technology be extended beyond core functions. So while there were substantial savings to be gained from the use of EDI, the cost of re-designing and deploying software applications to integrate EDI into an existing portfolio of business applications was high enough to offset the anticipated advantages.
The need for extensive telecommunications capability posed a second major barrier to widespread EDI implementation. Beyond the computer itself, a basic requirement of EDI is a means to transmit and receive information to and from a wide variety of customers or suppliers. This required a heavy investment in computer networks.
Unlike the mail, to send electronic documents there must be a specific point-to-point electronic path for the document to take. So companies were either required to develop extensive, and expensive networks, or rely on intermittent point-to-point modem communication.
Because of the technological complexity and cost of implementation, cheaper alternatives short-circuited widespread utilization of EDI. To gain some of the advantages of EDI without the high price of computer hardware, software and networks, many innovative alternatives were developed. Overnight courier service, facsimile machines, and the ability to give customers limited access to mainframes through dumb terminals provided comfortable, quick, and reasonably priced alternatives to inviting a major alteration of business environments.