Electronic Data Interchange (EDI) and SCM

Define Electronic Data InterchangeGive characteristics of EDIDiscuss benefits of EDI, as well as barriers to

its implementationDescribe how EDIt works, and how it is

moving to the InternetContrast common (ANSI) EDI with Internet EDI Internet improvements to supply chain

management

Electronic Data Interchange (EDI)Strategic Impact of EDIDefinition of EDIExample of EDIHow EDI worksBenefits of EDI

Direct and ProcessBarriers to EDI AdoptionAdvantages, Disadvantages and Characteristics of

VANsEDI Implementation ModelEDI migration to the internet

Strategic Impact of EDI

Business processes can become more efficient

Customer-supplier relationships may change more trust and collaboration

Market structure changes

Definition of EDI

The direct computer-to-computer transfer of business information between two businesses that uses a standard format.

Focus on trade data interchangeOften use VANs (Value-added

networks)Use of standards

EDI Standards

Companies speak precisely the same language

Same codes in same placesProprietary codes --> to

standards (X12, EDIFACT,X400)Different computers can

communicate with one another

EDI Standards In 1968, the Transportation Data Coordination

Committee was formed, charged with exploring ways to reduce the paperwork burden

American National Standards Institute (ANSI): coordinating body for standards in the United States since 1918

Accredited Standards Committee X12 (ASC X12) chartered by ANSI in 1979 to develop EDI standards

The current ASC X12 standard includes specifications for several hundred transaction sets

Types of EDI Benefits

DirectProcess

require reengineering can only be realized with all trading partners are on EDI

can revolutionize the way business is done

Barriers to Adoption

Trading partners not knowing benefits

Hardware costsInterfacing translator, software costsNeed for software modificationsNetwork (VAN) service chargesCosts and effort for trading partner

conversion

Trading Partner Concerns in EDI Implementation

Costs

Trust

Dependency

Benefits

EDI

Value Added Networks

Trading partners can implement the EDI network and EDI translation process in several ways, each using one of two basic approaches

Direct connection Indirect connection

Direct Connection BetweenTrading Partners

Requires each business in the network to operate its own on-site EDI translator computer

EDI translator computers are connected to each other using modems or dedicated leased lines

Trading partners using different protocols can make direct connection options difficult to implement

Indirect Connection BetweenTrading Partners

Companies use the services of a value-added network (VAN)

The VAN provides communications equipment, software, and skills needed to receive, store, and forward electronic messages containing EDI transaction sets

The VAN often supplies the software needed to connect to its services

Advantages of Using aValue Added Network

Users support only one communications protocol

The VAN records activity in an audit log, providing an independent record of transactions

The VAN can provide translation between different transaction sets

The VAN can perform automatic compliance checks to ensure the transaction set is in the specified EDI format

Disadvantages of Using aValue Added Network

Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee

VANs can be cumbersome and expensive for companies with trading partners using different VANs

Inter-VAN transfers do not always provide a clear audit trail

EDI on the Internet

Viewed as a replacement for expensive leased lines and dial-up connections

Small companies can get back in the game of selling to large customers the demanded EDI capabilities of their suppliers

Concerns about security and lack of audit logs continue to be a major roadblock

Takes advantage of open architecture

Comparison of EDI Standards EDI STANDARDS

(ASC/ANSI)

Security provided by private networks

EFT (Electronic Funds Transmission) - standard for wire payments between client and vendor

Transactions sets (810-invoices;850, 855- POs)

INTERNET STANDARDS

SSL (Secure Sockets Layer)

SET (Secure Electroic Transactions) - protocol proposed by Visa/MC for Net

No transaction standards

Current Internet EDI Usage

Much EDI traffic carried over private networks scalability reliability processing power

in 1996 EDI Group study 85% of respondents using some form of EDI only 3-4% were using Internet EDI

Changes on the HorizonS/MIME protocol which enables e-mail

applications to verify transmission and receipt of EDI messages

Products to map Web EDI transactions sent in multiple formats to legacy EDI applications

New (but potentially competing) technologies XML OBI

Products to Smooth EDI WrinklesGEIS’s TradeWeb - an entry-level forms-

based service with which subscribers can send and receive four basic EDI documents over the Internet using a standard Web browser for flat fee ($50/mo) purchase order (PO), PO acknowledgement invoice, functional acknowledgement

GEIS’s Trading Process Network for posting EDI-based forms on the Web

A trading partner’s bank is called a Financial EDI (FEDI)

Many trading partners are reluctant to send FEDI transfers for large sums of money over the Internet

Companies may opt to establish an indirect connection through a VAN for the added security for FEDI transaction

Financial EDI