 Electronic Data Interchange Q&A  1. What is EDI? EDI is the computer-to-computer exchange of structured business information in a standard electronic format. Information stored on one computer is translated by software programs into standard EDI format for transmission to one or more trading partners. The trading partners’ computers, in turn, translate the information using software programs into a form they can understand. Stage: Awareness Training | EDI Questions 2. How does EDI differ from other forms of electronic communication such as fax, electronic mail, electronic forms or catalogues, or the World Wide Web?
Unlike other forms of electronic communication EDI is designed
to allow communication from computer to computer without the need
for human intervention. As an example of this process, a
customer’s computer might send an order to a supplier’s
computer, which in turn would enter the information into an order
entry system. The supplier would never see the message until it
was output from the automated order entry system. To accomplish
this communication, EDI messages are highly standardized and
structured.
Stage: Awareness Training
| EDI Questions
ANSI is the American National Standards Institute, a private
non-profit membership organization that coordinates the
development and use of voluntary standards in the United States.
ANSI chartered the Accredited Standards Committee (ASC) X12 to
"develop uniform standards for inter-industry electronic
interchange of business transactions" or EDI. These
standards, called ANSI ASC X12, enables different computers to
exchange structured business data without losing or distorting
information. X12’s secretariat is DISA
(Data Interchange Standards Association). This group produces
detailed information on the X12 standard, keeps track of X12
development activities, and produces conferences to further the
use of EDI. Stage: Awareness Training
| EDI Questions
EDIFACT is an acronym for a standard called Electronic Data
Interchange For Administration, Commerce
and Transport, a UN standard that is rapidly becoming
accepted all over the world. Recently there has been agreement to
"harmonize" the X12 and EDIFACT standards, a process
that will produce, for all practical purposes, a single standard.
Given the timing of this process, companies doing EDI business in
the US and Europe should be prepared to use both standards for at
least the next few years. Stage: Awareness Training
| EDI Questions
Business data is almost never generated, or read (by people or
computer applications) in the form dictated by the X12 or EDIFACT
standards. Thus a translator application is needed to move
data into and out of standard EDI formats. Stage: Awareness Training
| EDI Questions
VAN stands for Value Added Network. These
are third party private communication networks for exchanging
data. VANs charge both senders and receivers -- senders for
transmitting data, and receivers for holding data in a mailbox
and receiving data from that mailbox. VANs also typically provide
services other than networking, such as electronic mail, EDI
consulting, or translation services. The advantages of VANs are that they are secure, relatively
easy to implement and use, and provide technical support for
users. Their big disadvantage is that they are expensive because
their rates are based at least partially on transaction volume
and the number of bridges to other networks. Depending on your
needs two other characteristics of VANs may pose difficulties.
First, particular bridges among VANS may not be as fast or
foolproof as you require. Second, if you plan to use the Internet
and a VAN, you will have to maintain business on two different
networks. Stage: Awareness Training | EDI Questions One of the ways to deal with the cost of VAN-based EDI is the
transmission of EDI via the Internet. The appeal of the Internet
is its accessibility by a wide range of networks (including most
VANs), its relatively low cost (charges are based on time and not
transaction volume), and its wide variety of services, e.g.
electronic mail, file transfer, and access to the World Wide Web. While the Internet is often seen as wanting in security and
reliability, these problems are less serious, and have more
solutions, than many people believe. We expect that for the
foreseeable future EDI data will flow over a combination of the
Internet and VANs, with each company choosing the transmission
mechanism that best meets its business requirements. Stage: Awareness Training | EDI Questions Absolute minimum requirements for doing EDI are: Technology: A desktop stand-alone computer, a
modem, EDI translation software (or an EDI translation service),
and some method of transmitting data, i.e. a subscription to a
VAN or an Internet Service Provider, or a direct connection to a
trading partner. Skill and business process the ability
(either in-house or via a consultant) to install, test and run
the hardware and software; and a business process that assures
that EDI messages will be received, transmitted, and acted upon. Other than the value of customer satisfaction, however,
meeting these minimal requirements are likely to result in a
company’s incurring costs rather than deriving benefit. This
is because the minimal EDI configuration does not improve
efficiency. Rather, it serves only as expensive fax machine. The
value of EDI as a tool to improve efficiency and reduce cost
comes from the ability to integrate EDI into other applications,
particularly into MRP. To realize these advantages a company
requires a functioning MRP and the ability, either alone or with
the help of a consultant, to integrate the two systems. Stage: Awareness Training
| EDI Questions This question can also be cast in a variety of more specific
forms. You are probably going to have to comply in order to keep the
account; unless: 1- your customer does not follow through on his
EDI implementation, or 2- you negotiate, as for example: "We
don’t do that much business with you and we always deliver
on time. Do you really want to make us do this?" Compliance can take two basic forms. You can implement EDI, or
you can engage a service bureau or a VAN to translate your
customer’s EDI into plain English, and your plain English
into EDI for transmission to the customer. Your choice should be
determined by cost versus volume calculations, your expected
increase in doing EDI with other customers, and the value you
place on deriving value by integrating EDI into other business
applications. Stage: Awareness Training
| EDI Questions Trading Partner Agreements (TPA) are legal agreements which
detail the rights and obligations of trading partners doing
business via EDI. The main elements of a Trading Partner
Agreement include: Depending on the trading partner asking you to do EDI, you may
have no choice but to accept their TPA. Whenever there is room
for negotiation legal council should be obtained to develop the
contract. Although it may be risky, its easy enough to find cases
where EDI is done without a formal TPA. Stage: Awareness Training
| EDI Questions First, ask your trading partners and contacts in other
companies for recommendations. Second, check with your industry
association. Third, contact your local NIST/MEP
manufacturing extension center or Electronic
Commerce Resource Center. Stage: Awareness Training | EDI Questions Three solutions are possible. First, go after new business by
presenting your EDI capability as a competitive advantage to new
accounts or to those making decisions about expanding existing
accounts. Second, make sure that EDI replaces rather than duplicates
your current paper systems. There are significant benefits in
electronically processing documents, but only costs in running
dual systems. Finally, look for ways to integrate EDI into other business
applications, e.g. MRP or accounts receivable. These are the
changes that will bring about significant improvement in
important measures such as order response time, inventory, or
cash flow. Stage: Business Analysis
| EDI Questions Or in an alternate form: A customer wants me to do EDI, but I do very little
business with that customer. What should I do? Perhaps you should not do EDI just because your
customer asks you to. The decision should be based on the answers
to a number of questions. Stage: Business Analysis | EDI Questions The same way EDI is used to get better service from you. Your
customer expects EDI to be faster and more accurate than
conventional forms of communications, which should improve
quality, shorten lead times, and even reduce costs. You should
expect the same in dealing with your suppliers. But remember,
treat your suppliers as you would wish to be treated by your
customers. Stage: Business Analysis | EDI Questions Integration is the key to process improvement because it
greatly decreases human involvement in information flow, thus
making business processes simpler (if well designed), faster,
cheaper and less error prone. As an example consider a system in
which incoming EDI data is automatically entered into an order
entry system. Humans no longer need to read orders, make
decisions about required action, or key in data. As a result
processes that may take weeks or days can now take hours. Without
integration EDI systems substitute for expensive fax machines.
With integration those systems lead to shorter cycle times, less
cost, and greater accuracy. Stage: Business Analysis | EDI Questions There are three aspects of security. Can I be assured that a message was received? This question can be dealt with in two ways.
First, the X-12 997 "functional acknowledgement" can be
used to assure a sender that a message was received. Second, for
a fee value added networks provide tracking services. (This
option is not available on the Internet.) Can I be assured that the message was received in a
complete and uncorrupted form? Yes, a high enough level of
assurance is possible so that many businesses around the world
rely on the routine use of EDI to conduct business. One check on
data integrity is the use of the functional acknowledgement (X-12
997 transaction). This acknowledgment won’t check whether
the contents of a transaction are correct, but it will do a
"segment count" to make sure that the amount of
information sent is the same as what was received. For purchase
orders, an additional check is to use a "purchase order
acknowledgement" which indicates that the receiver agrees to
the contents of the transaction. Finally, for any transaction it
is possible to read its contents and communicate agreement to the
sender. This activity, however, should be reserved for the few
times when absolute accuracy is more important than time.
Otherwise why do EDI in the first place? Can I be assured that the message was not intercepted and
read? Start by asking: Is the
information useful enough to other parties that they would go to
the trouble of stealing it? In many cases the answer is
"no". In how many situations, for instance, could
someone hurt your business by knowing how many electric motors
your customer wants to buy from you? A realistic answer to this
question would be "those situations are really quite
rare". Sometimes of course, assurance of privacy is important. The
most common example is when sensitive financial information is
being transmitted. Less likely, but also possible are cases where
new product descriptions (e.g. CAD drawings) are being
transmitted. In these cases the first question must be whether
the security threat with EC is any greater than with traditional
forms of communication such as fax or regular mail. Addressing
this question will often lead to the conclusion that no special
precautions are necessary. Sometimes, but not as often as one might think, there is a
need for especially high levels of secure EC data transmission.
In those cases appropriate steps depend on whether the
transmission is going over private lines maintained by a single
company, value added networks, or the Internet. Private lines are
automatically quite secure because breaking into them requires
getting into systems that are isolated from other networks. Value
added networks are also relatively secure because their access to
public networks is limited. The Internet, which is open to all,
presents the greatest danger. For all of these methods of
transmission, encryption systems exist which can raise the level
of protection to very high levels. But always ask: Do I want to
pay for more insurance than I really need? Stage: Business Analysis | EDI Questions The answer depends on whether you see EDI as a necessary evil
or a way to improve your business, what your present customers
(or suppliers) want, and available resources. If your best
business judgement is that EDI is only an unpleasant requirement
needed to maintain a customer, than do the minimum. If your
transaction volume is low enough, it may make sense to use a
service bureau which would transform your trading partners’
EDI into a fax, and your fax into EDI for your trading partner.
At higher transaction volumes the minimum EDI response is a
stand-alone system. Incoming messages will be printed onto paper.
Your outgoing messages will have to be keyed in manually. Even if a minimum response makes sense for the present and the
near future, it is important to think about the possibility of
expansion into more EDI, i.e. a greater variety of transactions,
higher transaction volumes, EDI with a larger number of trading
partners, or integrated EDI. Even at the low end of investment in
system building, choices can be made which will allow your use of
EDI to grow. As examples, you may want to choose a system based
on how well it could integrate into your MRP system, whether the
vendor has good mapping capability for the trading partners you
are most likely to expand into, or how easy it would be for your
in-house expert to widen the use of the system. These are
relatively low cost choices that can have a major impact on your
use of EDI in the future. Integrated EDI is called for under two conditions. First, the
systems into which the EDI has to integrate are already
functioning well within your company. Second, there is high value
in decreasing the time, cost, or error rates associated with
processing incoming or outgoing information. Stage: Design | EDI Questions This decision requires weighing costs versus benefits. Costs
for the Internet based solution are determined by the answer to
one question: What is the monthly subscription cost for
service with a highly dependable Internet Service Provider,
(i.e. a provider with reliable internal systems and more than
one connection to the Internet in case one goes down.) VAN costs are more difficult to determine. The relevant
questions in making this determination are: These costs must be weighed against the unique benefits that
each method can provide. With respect to each alternative, ask
yourself the following questions. Stage: Design | EDI Questions If your trading partner uses a public VAN (i.e. one that
anyone can subscribe to) the answer is probably "no, you do
not have to use your trading partners network". Its
important to check in your specific case, but most established
VANs have reliable bridging capability to their competitors. You
will, however, probably have to pay a single fixed per-month
charge for inter-communication privileges. Sometimes a company will maintain a private network. (At
certain traffic levels, this makes economic sense.) In those
cases you will either have to use that private network, or pay
bridging fees to your VAN. Bridging costs can get quite high
because unlike bridges to public VANs, interconnections fees are
likely to be on a per network per month basis. Stage: Design | EDI Questions Before calculating the costs it is necessary to have an
understanding of what EDI functionality you need. Without this
information it is impossible to compare cost with value. Your
objective should not be to get the lowest cost system, but to get
the lowest cost system for the EDI you need. One type of cost is the outlay you need to implement and run
EDI technology. These should be calculated both in terms of
dollars and time because often one may be available while the
other is not. As an example there may be enough money in your
budget to buy what you need, but all potential members of your
implementation team are too busy to devote the necessary time to
the task. In theory the money could buy the necessary staff
hours, but in reality this is often a hard exchange to make. When
you are ready to calculate costs the following template
will prove useful. (Not all categories may be applicable to your
situation. As an example, you may already have the necessary
computers in your company.) In addition to costs that can be measured as outlays, there
are also opportunity costs to consider, i.e. the cost of not
implementing EDI. These may be harder to estimate than outlay
costs, but depending on the situation, they may also be the most
important costs of all. To estimate opportunity costs address the
following questions: If I do not implement EDI… Stage: Design | EDI Questions This is a difficult question to answer because the best answer
will be highly dependent upon your specific situation - how many
trading partners you are doing EDI with, how often do your EDI
formats change, how much available EDI skill you have in-house,
what kind of service you can get from your translator vendor, and
numerous other considerations. Below is our best guess for a
"typical" SME, along with an explanation that will help
you decide if your case is or is not "typical". Stage: Maintenance | EDI Questions |