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EDI developed in 1960s.

EDI is the transmission , in a standard syntax of
unambiguous information of business or strategic significance between
computers of independent orgs.
- by The Accredited Standards Committee for EDI of the
American National Standards Institute.

EDI is the interchange of Standard formatted data

between computer application systems of trading partners with minimal
manual intervention.
- by UN/EDIFACT training Guide.

EDI is the electronic transfer from one computer to

another of computer processable data using an agreed standard to structure
the data.
- by International Data Exchange Association.
EDI Layered Architecture:
EDI Architecture specifies FOUR layers:
1. The Semantic (or Application) layer.
2. The Standards translation layer.
3. The packing (or Transport) layer.
4. The Physical network infrastructure layer.


EDI semantic layer Application Layer Services
EDIFACT business form standards
EDI standard layer
ANSI X12 business form standards

Electronic mail X.435,MIME

EDI transport layer Point to point FTP, TELNET

World Wide Web
Physical layer Dial-up lines, Internet, I-way
The EDI semantic layer:

 It describes the business application that is driving EDI.

 It is specific to a company and the Software it uses.

 The user interface and content visible on the screen are tailored or
customized to local environments.

 The information seen at the EDI semantic layer must be translated

from a company-specific form to a more generic or universal form
so that it can be sent to various trading partners, who could be using
a variety of software applications at their end.

 To achieve this, companies must adopt universal EDI standards that

lay out the acceptable fields of business forms.
EDI standards layer:

There are two competing standards that define the content and
structure of EDI forms:
1. The X12 standard
Developed by ANSI
Developed by United Nations Economic Commission for Europe
EDI standards specify business form structure and to some extent
influence content in the application layer.
EDI Transport layer:

It corresponds closely with the non-electronic activity of sending

a business form from one company A to another company B.

The business form could be sent via Regular postal service, Reg.Post.

EDI Documents are exchanged rapidly over e-networks using e-mails.

EDI Versus e-mail:

Electronic Data Interchange (EDI) Electronic Mail

There is typically no human involvement The data are not necessarily structured
in the processing of the information, as to be s/w-understandable. A human –
the interface has s/w to s/w orientation. to – s/w interface is involved at a min
The data are structured in a s/w under- of one end of inter change.
standable way.

The interchange is composed by one The message is composed by a human

s/w for interpretation by another s/w. and/or interpreted by a human and/or a
If reply is involved, it is composed by a reply is composed by a human and/or
s/w to be interpreted by another s/w. interpreted by a human
Information flow without EDI:


Purchase request Finance Finance

Initiated in the Org Department Department


Purchase Paper-based Paper-based Sales

Order Mail room Mail room Department
Department Order
Delivery Confirmation

Inventory and Receiving

Shipping Manufacturing
warehousing Department
Department Department

Product Delivery
Information flow with EDI:


Purchase request Finance Finance

Initiated in the Org Department Department

Payment Details
Purchase EDI-capable Paper-based Sales
Department Computer Mail room Department


Inventory and Receiving

Shipping Manufacturing
warehousing Department
Department Department

Product Delivery
Information flow with EDI:

Step1: Buyer’s computer sends Purchase Order to seller’s computer.

Step2: Seller’s computer sends Purchase Order Confirmation to buyer’s


Step3: Seller’s computer sends Booking Request to transport company’s


Step4: Transport company’s computer sends Booking Confirmation to

seller’s computer.

Step5: Seller’s computer sends Advance Ship Notice to buyer’s computer.

Step6: Transport company’s computer sends Status to seller’s computer.

Step7: Buyer’s computer sends Receipt Advice to seller’s computer.

Information flow with EDI:

Step8: Seller’s computer sends Invoice to buyer’s computer.

Step9: Buyer’s computer sends Payment to seller’s computer

Tangible Benefits of EDI:

 Reduced paper-based systems:

 Improved problem resolution & Customer service:

 Expanded customer/supplier base:

EDI Implementation
The basic kit necessary for EDI Implementation includes the following:

1. Common EDI Standards:

Dictate Syntax and standardize on the business language,
Specify transaction sets-complete business documents (invoice,
a purchase order, or a remittance advice)

2. Translation software:
It sends message between Trading partners, integrates data into
and from existing computer applications, and translates among
EDI message standards.

3. Trading Partners:
These are a firm’s customers and suppliers with whom business is
4. Banks:
Facilitate payment and remittance.
5. UDI value-added network services (VANs):
A VAN is a third party service provider that manages data
communications network for business that exchange electronic data with
other business.

6. Proprietary hardware and networking:

If it is a hub company. Hubs (e.g.: Auto companies like
FORD,TOYOTA, etc.) also called sponsors, are large companies , very
active in EDI, that facilitates their business partners use of EDI.

An important feature of EDI is that software evaluates and

processes structured messages.

Standardization and EDI

Connecting trading partners is not enough for EDI.

All s/w, h/w, and n/ws must work together so that information flows
from one to another.

Standardization expected to promote “interoperability” between

Two major EDI standards exist:
1. ANSI X.12 Committee
2. United Nations EDI For Administration, Commerce, and Trade
The X.12 committee develops standards to facilitate EDI relating
to such business transactions as order placement and processing;
Shipping and receiving; payment, and cash application processing for
products and services.
The X.12 transaction sets generally map a traditional paper
document to an electronic format that can move easily over
communication networks.

Developed by United Nations, EDIFACT is a family of standards
similar to ANSI X.12.
EDIFACT was based on TRADECOMS, developed by the U.K.
Dept of Customs and Excise.
EDIFACT is becoming widely as the foremost international EDI
EDI Software Implementation:
EDI software has 4 Layers as shown in figure:
Company A Company B
Business Application Business Application

Internal format Internal format

Conversion Conversion

EDI Translator EDI Translator

EDI envelope for EDI envelope for

document messaging document messaging

Modem Modem

Private value added network (VAN)

Public Internet

How EDI works

EDI Business Application Layer:
 The first step in EDI process Creates a document.
 This s/w application then sends the doc to an EDI translator which
automatically reformats the doc into agreed-on standard.
 If these two pieces of s/w are from different vendors, it is very
important that the doc preparation application seamlessly integrate with
the EDI translation s/w.
 If both DEI translator and business applications on the same type of
computer, the data will move faster and more easily from one to another.
The translator creates and wraps the doc in an e-envelop “EDI
package” that has a mailbox ID for the company’s trading partner.
 The EDI wrapper s/w can be a module to the translator, a
programming tool to write to different communication protocols, or
separate application.

EDI translator s/w The translator wraps the

Enter the information in
changes the EDI form doc in an e-envelop
the EDI form specified
to fit the EDI standard “EDI package” that has
for that particular
that target application an ID for your trading
business transactions
can understand partner
The Preparation process followed by the application
EDI Translator layer:

Translation is an integral part of the overall EDI solution.

 Translator describes the relation between the data elements in the

business application and the standards.

 The Translator ensures that the data are converted into a format that the
trading partner can use.

 If EDI is done without translation , companies run a great risk of

transmitting data.

Few EDI translators available in the past, now large compnies are writing
their own custom EDI translators.

 Custom Translators have some disadvantages as listed below

1. A custom translator is very restrictive.
2. A custom translator is difficult to update.
3. A custom translator is unsupported.
EDI Communication Layer:

The communication portion

-which could be part of the translation s/w or a separate application
-dials the phone number for the VAN service provider or other type of

access method being used.

Access methods are 3 types:
1. Direct dial or modem to modem connection.
2. Limited third-party VAN services.
3. Full-service third-party VANs.
How much will an EDI Implementation Cost?

The Cost depends on several factors:

1. The expected volume of electronic documents.
2. Economics of the EDI translation s/w.
3. Implementation time.
4. Maintenance fees.
5. VAN charges.
Value Added Networks (VANs)
A VAN is a communications network that typically exchanges EDI
msgs among trading partners.
It also provides other services:
 Holding msgs in “electronic mailboxes”.
 Interfacing with other VANs.
 Supporting many telecommunications modes and transfer protocols.

Electronic mailbox:
 It is a s/w feature into which a user deposits EDI transactions and
then retrieves those msgs when convenient.
 It works much like residential personal mailboxes.
 It allows everybody involved to be flexible and cost-effective.

Interfacing with other VANs:

Business can exchange data either by connecting to each other directly
or by hooking into a VAN.
By acting as middlemen between companies, VANs have allowed
companies to automatically and securely exchange purchase orders,
invoices, and payments.
Functions of a Third-party VAN:

Company VAN
Translate Perform
Incoming Compliance
documents checking

Route to
Transaction of
Mailbox ID

Financial Manufacturing
institution company
This figure illustrates the EDI process:

 Company A puts an EDI msg for trading partner mfg company B in the
VAN mailbox at a date and time of it choosing.
 The VAN picks up the msg from the mail box and delivers it to trading
partner B’s mailbox.
 It will remain until trading partner B logs on and picks it up.
 Trading partner B responds to trading partner A in the same fashion.
 The cycle repeats itself on a weekly, daily or hourly based as needed.
This service referred to as mail-enabled EDI

Disadvantages EDI-enabling VANs:

EDI-enabling VANs are

Charging by no.of characters transmitted.
Communication Choices:

A business that wants to use EDI with some 50 trading partners

has several Communications choices:

 The company can buy a multiport modem capable of handling fifty

incoming phone lines, add communications ports for its computer system,
and allow each trading partner to communicate directly at its

 The company can use a single modem with a phone line and
arrange a tightly controlled schedule for each of it’s trading partners.
E.g: 10:00AM for Trading partner B, 10:15AM for Trading partner C, and
so on.

 The company can establish an electronic mailbox on a VAN and

require each trading partner to use the VAN for sending and retrieving
EDI msgs.
VAN Pricing Structures:

VANs bill based on selected services like:

 EDI translation s/w and support
 EDI to Fax support
 e-mail capability
 inter-VAN connectivity
 transmission of X.12 documents.

VAN services entail 3 types of costs:

 Account start-up costs
 Usage or variable costs
 VAN-to-VAN inter-connect costs