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Lesson 36 ELECTRONIC DATA INTERCHANGE (EDI)
EDI is used by organizations for transactions that occur on a regular basis according to a pre-determined format. It involves exchange of electronic business documents, i.e., purchase orders, invoices etc. EDI transactions are carried through special EDI software. This technology was popularly used before the introduction of e-commerce by different trading partners on private electronic networks. Key features of EDI include:
No paper work No human intervention Exchange of information takes place in seconds
EDI documents are formatted using published standards. Two popular EDI standards are - ANSI (American National Standards Institute) X12 standard and EDIFACT (United Nations Standard of Electronic Data Interchange for Administration, Commerce and Transport).
EDI Example
Assume E-Pens (a manufacturing company of pens and ballpoints) reviews sales and orders on monthly basis to make forecast of its sales for the coming month. Sales forecast is compared with the stocks of raw material and other components and a production plan is devised. This monthly plan needs to be flexible so that materials could be ordered at short notice if these are not available in the store. For instance, packaging material should only be ordered for just in time (JIT) delivery, so that E-Pens can cut down on its stock of packaging and reduce the inventory cost. On the other hand, packaging supplier also wants to improve its processing of orders, particularly urgent orders. Before using EDI technology, the order used to be generated in the following format:
From: E-Pens
To: ABC & C0.
Order Ref:AC Order Date:15.3.
Qty Description Product Code 1500 Superior –Red PC-1075-R 1300 Superior – Silver PC-1075-S
-End of Order-
After both E-Pens and its supplier start using EDI system, any amendment of the schedule on the production control system reviews the materials requirements and the order is automatically generated. In case the above paper order is to be generated using EDI software, the order data is coded and structured into a common and generally accepted format. The order would be written as follows in EDIFACT (See Fig. 1 - not for exam):
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UNB+UNOA:2+8484:xx+1149:xx+ Interchange Header
BEN UNH+000001+ORDERS:2:932:UN Message 1 Header BGM+220+AC DTM+4:20060315:102 Data Segments NAD+BY+8484326:: NAD+SU+1149646: UNS+D LIN+1++PC-1075-R:VP Qty+21: LIN+2++PC-1075-S:VP Qty+21: UNT+11+ Trailer
UNH Message 2 …… UNT
UNZ+1+BEN0273 Trailer
Fig. 1
In the above, ‘UNB’ refers to the start of interchange or envelop header, ‘UNOA:2’ to the United Nations Control Agency (level A) version 2, ‘8484’ to sender code, ‘1149’ to recipient code, ‘BEN0273’ to control reference, ‘UNH’ to message header, ‘000001’ to message no., ‘ORDERS’ to the message type, ‘2:932’ to version 2 and release 932, ‘UN’ to control agency. ‘BGM’ refers to beginning of message, ‘220’ to message name code (i.e, order), ‘AC8484’ to order no., ‘DTM’ to date and time of message, ‘4’ to a qualifier, ‘20060315’ to date, ‘102’ to format qualifier (century date), ‘NAD’ to name and address, ‘BY’ to buyer, ‘SU’ to supplier, ‘8484326’ to buyer address code, ‘91’ to code list agency, ‘1149646’ to supplier address code. ‘UNS’ represents section control (that is, start of a section), ‘D’ is for section identification. ‘LIN’ indicates line item (e.g, line item number 1 and 2), ‘PT-1075-R’ and ‘PT-1075-S’ indicate item number, and ‘VP’ stand for item number type (that is, vendor part). ‘QTY’ represents quantity, ‘21’ is quantity qualifier (indicating ordered quantity), ‘1500’ and ‘1300’ is the number of ordered quantity. ‘UNT’ is message trailer/end, ‘11’ is control count (indicating no. of line segments in the message), ‘000001’ is message no. ‘UNZ’ represents interchange trailer. Note that an interchange can have more than one message, as shown in Fig. 1 above.
Value Added Network (VAN)
Value added networks are third party networks that provide services to execute authorized transactions with valid trading partners using EDI. Each VAN has a centralized computer system that maintains two files for each user, that is, Postbox: where outgoing messages are placed, and Mailbox: where incoming messages can be picked up
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Since an order is generated automatically according to a pre-defined format, thus, the ordering time is very short.
Cost cutting
An EDI transaction is more cost-effective in the sense that paper/stationary cost as well as cost of hiring staff to complete a transaction is eliminated in case of EDI. The only major cost is the expensive EDI software itself. However, once an EDI system is in place, it can save many expenses otherwise associated with a normal transaction.
Elimination of errors
Messages are generated automatically, so the chances of any typing errors caused by human intervention are negligible.
Fast response
An EDI message can be read and processed on the receiver side electronically with the help of EDI software. So, if the receiver is a supplier of raw material, it can quickly fulfill/implement the order as compared to a paper order.
Accurate invoicing
Invoices or payment requests by the merchant/supplier can also be generated using EDI standard format, which are more accurate than paper invoices.
EDI payment
EDI standard documents can be used to electronically provide financial information for payment purposes.
Enterprise Resource Planning (ERP)
ERP is an approach that attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs. For example, finance, manufacturing and the warehouse department of a company may have their own software to perform tasks specific to each one of them. However, each software can be linked together so that a customer service representative can see the credit rating of a customer from finance module, warehouse information from warehouse module, and shipment information from the shipment module. SAP is an example of ERP software. ERP is complex. It is not intended for public consumption as proper integration of ERP with e- commerce applications is still a major problem.
Electronic Banking
Electronic banking, also known as cyberbanking, virtual banking, home banking and online banking, includes various banking activities conducted from home, business, or on the road, instead of at a physical bank location.
Advantages of e-banking
Get current account balances at any time Obtain credit card statements Pay utility bills Download account information Transfer money between accounts
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Send e-mail to your bank Manage your own schedule Handle your finances from any location Apply for loans online
For banks, e-banking represents an inexpensive alternative to branch banking and a chance to enlist remote customers.
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