Introduction to EDI - A Primer
2. THE EVOLUTION OF ELECTRONIC COMMERCE
CHANGES IN THE COMPUTING ENVIRONMENT
The past decade has seen an enormous change in the computing environment in most businesses, with the rapid proliferation of small, inexpensive and powerful personal computers. With the PC, computers have literally moved out of the basements and back rooms, and onto the desktops, and there has been a reduction in price of an order of magnitude.
A RISC-based client server computer can be obtained today for about the same cost as a small mini-computer of 10 years ago, but the same dollars are now buying a machine that has mainframe computing capability in a PC-sized box. PC's are now economical enough that their price approaches the same cost per user as a dumb terminal did attached to that same mini-computer.
The same type or improvements are found in the area of communications. It is now commonplace for computer users in retail stores to access computers many hundreds of miles away. Now, the terminal or PC on a desk in a steel plant may actually be using data from several computers, each in a different location.
Advances in networking and client-server environments have encouraged the realization that while information is surely one of the most valuable assets of any business, information that is strategically shared within and between companies becomes a most powerful asset.
AUTOMATION OF INTERNAL PROCESSES
Businesses have spent hundreds of millions of dollars on computer technology to automate production processes. Computer-assisted manufacturing systems, such as one might find in the automotive industry, have become commonplace. It is now possible to for inventory consumption to be known immediately, and the impact of that consumption on purchasing requirements and master production scheduling can be recalculated continuously.
Computer tools can now be used to simulate factory production, optimizing processes and allowing engineers to determine the best utilization of equipment and personnel. If there is a sudden shift in demand, it is possible to determine on very short notice, what will be the impact of major changes to production schedules. However, it does very little good to radically alter a production schedule if the supply line cannot react to the changed demand.
AUTOMATED PROCESSES SURROUNDED BY MANUAL PROCESSES
As the automation processes inside the four walls of manufacturing plant reached maturity, it became apparent that to gain the full benefits of the increased speed and flexibility could not be achieved as long as the process of receiving raw materials, and distributing finished products remained unchanged.
In the traditional applications of EDI, recalculating raw material requirements on an hourly basis offered little improvement as long as the ordering of raw materials was still based on traditional methods of placing purchase orders. The rapid shift in production frequently would mean hours on the phone obtaining critical material. While the manufacturing floor could operate on a "just in time" basis, the purchasing department would frequently have to operate on a "just in case" basis. Then, in an emergency, the procurement of material would have to rely on the "whatever it takes" methodology: premiums, surcharges, and special deliveries.
Automation within the four walls revealed the need to add the same speed, accuracy and predictability to the receiving and distribution operations. Of course, these needs describe the traditional benefits of EDI. Now however, the same information technology that drives the processes inside a dynamic production environment, makes it possible to expand the boundaries of EDI beyond the traditional replacement of documents. Companies that had made large investments in internal systems began to examine those processes which in many cases were not controlled by them, to determine other areas that could be automated to match their internal efficiencies.
NEW WAYS TO EXTEND EDI INTO MANUAL PROCESSES
Then, businesses began to push the boundaries of EDI. The initial implementation of EDI looked at the documents used in business, and replaced them with electronic documents. However, this implementation did not address how the documents were being used. It merely automated traditional methodology.
The need for greater speed and flexibility led the business analysts to take a serious look at how the documents were being used, and this has led to an overhaul in the way the documents are being used. This analysis has, in effect, looked not at replacing the documents, but at eliminating them altogether.
This approach, predicated on an information partnership between the customer and supplier, has replaced purchase orders with production schedules and inventory balances. Rather than have purchasing agents review raw material requirements and place purchase orders, purchase orders can be placed automatically, based on pre-determined inventory levels.
This can be carried yet a step further. In some cases, companies have begun to make their inventory levels or production schedules available to their suppliers via EDI, allowing the supplier to adjust their own production schedules to respond quickly to their customer's needs. In addition, with bar coding and point-of-sale data collection, replenishment of retail inventory or shipment of finished products can now be triggered by information collected right at the cash register.
While the processes described above are particularly suited to what is referred to as "batch mode" transmission, where large numbers of transactions are batched together and sent at one time, many industry groups are beginning to work towards defining interactive EDI protocols and guidelines. Interactive EDI will provide a "prompt response" to a query for information, simulation the interactive nature of many applications systems. This type of EDI can provide critical information in such areas as law enforcement, and medical records transfer.
The changes in the computer technology environment and the increasingly integral role information technology now plays in today's manufacturing, distribution and service environments, along with changes in business philosophy and practices, have changed the definition of Electronic Data Interchange. The definition must now be more encompassing than merely the rapid transmission of electronic documents.
EDI must now be viewed as "an enabling technology that provides for the exchange of critical data between computer applications supporting the process of business partners by using agreed-to, standardized, data formats". EDI is no longer merely a way to transmit documents. It is a means to dynamically move data between companies that will be used by computer systems to order raw materials, schedule production, schedule and track transportation, and replenish stock.