| Have you heard someone mention EDI (Electronic | | | | 80% of the suppliers in any given supply chain were |
| Data Interchange) or eCommerceand wondered | | | | communicating with theircustomers manually via fax, |
| what it was? Simply put, eCommerce is the | | | | telephone and snail mail because they could not |
| exchange of informationabout trading goods, | | | | affordthe investment required for VAN EDI. This |
| services, or money from computer to computer. For | | | | resulted in inefficiencies throughout thesupply chain |
| example,the purchase of a widget over the internet, | | | | including: lost or mis-keyed purchase orders, late |
| paying a bill, tracking an overnightpackage delivery, or | | | | invoices, out-of-stocks, etc. |
| receiving a paycheck electronically. | | | | With the advent of secure Internet EDI, companies |
| Now imagine you're a company. You want to do the | | | | of every size are now able totransact electronically |
| same transactions, butthousands of time a day. That | | | | with their trading partners. And VAN services such as |
| is where EDI steps in. EDI is an agreed uponmessage | | | | "Message Disposition Notifications" (MDNs) are built |
| standard that exchanges information from one | | | | right into the softwareproducts. |
| computer application toanother with the minimum of | | | | Benefits of EDI |
| human intervention. And 95% of all eCommerce uses | | | | Consider a very simple non-EDI-based purchase: A |
| EDI to exchange that information. It can be done | | | | buyer decides he needs 365widgets. He creates a |
| with special software via e-mail,across the Internet, | | | | purchase order, prints it out and pops it in the mail. |
| or by customized connections. And it goes beyond | | | | Whenthe supplier gets the order, she types it into |
| justpurchasing goods and submitting invoices. A | | | | her company's computer system. Theinventory guy |
| company can request informationabout inventory | | | | pulls the order and ships out the widgets. Next, the |
| levels in it's suppliers' and customers' warehouses, | | | | supplier printsout and mails an invoice. It's not hard to |
| receive an orderstatus; and send funds electronically | | | | imagine that this process could takeseveral days. EDI |
| along with automatic notification that aninvoice was | | | | has the potential to cut massive amounts of time out |
| paid. These are just a few of the many types of | | | | of theprocess. Sending documents, such as purchase |
| automated transactions | | | | orders or invoices, electronicallytakes minutes, not |
| EDI is not something new. As a matter of fact, it is | | | | days, and shipments can often go out the day the |
| much older than you mightthink. Yet to some | | | | order comesin. |
| industries it is only a few years old. And the health | | | | Moreover, the electronic format does not need to be |
| industry ofthe United States had to be mandated by | | | | re-keyed upon arrival. Andthat is the part of the |
| the Federal government before they daredventure | | | | biggest benefit of EDI. This saves a tremendous |
| into EDI. | | | | amount oflabor time, and means that no data entry |
| Who uses EDI? And how and where did it all start? | | | | errors are introduced into your system byyour staff. |
| What are the benefits? What arethe costs? What | | | | Cycle times are reduced, and data entry backlogs are |
| are the legalities? And why, with all the apparent | | | | almost completelyeliminated. This allows for very |
| advantages, dosome industries balk at switching to | | | | quick order processing. A proper system can |
| EDI? Well let's start at the beginning to seehow it all | | | | easilyhandle receiving an order and shipping that order |
| came about. | | | | with its invoice the same day. |
| Who uses EDI? | | | | Studies indicate that the average reduction in turn |
| About 90% of the fortune 1000 companies currently | | | | around time is about 40% formost business functions |
| use EDI. Companies such as | | | | like order fulfillment, procurement, |
| American Airlines, BMW, Coca-Cola, Dunkin Donuts, | | | | manufacturing,logistics and finance. |
| Eastman Kodak, Federal | | | | This often allows a company that first implements |
| Express, Gordmans, Heinz, InFocus, JCPenney, Kohls, | | | | EDI to handle far greater volumeswithout adding |
| Lowes, Macys, Nike, | | | | personnel and other costs. This means increased |
| Openheimer, Prudential Insurance, Queens City | | | | sales andincreased revenues once the initial |
| Government, Radio Shack, Staples, | | | | investment in EDI is recaptured. |
| Texaco, United Airlines, Verizon, Wachovia, and | | | | These savings come from:o No data entry errors |
| Yokohama Tires to name but a few. | | | | from your operatorso No mail timeo Reduced labor |
| EDI is widely used in manufacturing, shipping, | | | | processing costs and timeo Reduced lead timeso |
| warehousing, utilities,pharmaceuticals, construction, | | | | Reduced order cycle timeo Reduced inventory |
| petroleum, metals, food processing, banking,insurance, | | | | carrying costso No filing and other processing of |
| retailing, government, health care, and textiles among | | | | paperwork |
| other industries. | | | | EDI improves margins by meeting customer demands |
| Any company that buys or sells goods or services | | | | and consequentlystrengthening relationships. It also |
| can potentially use EDI. Because itsupports the entire | | | | allows time and effort to be focused on otherinternal |
| business cycle, EDI can streamline the relationship | | | | priorities. |
| that anycompany has with its customers, distributors, | | | | Studies have shown that processing a purchase order |
| suppliers, and so forth. According toa recent study, | | | | or invoice costs mostcompanies about $5 in paper, |
| the number of companies using EDI is projected to | | | | postage, handling, direct labor and other such |
| quadruple withinthe next six years. | | | | oddsand ends of direct costs. With EDI this can be |
| History of EDI | | | | reduced to about 50 cents;sometimes as little as 13 |
| The first recorded EDI dates back to the 1850s | | | | cents, depending on how the EDI document is |
| when the railroads and Western | | | | transmitted. |
| Union used the telegraph to communicate business | | | | If your direct handling costs are greater, the savings |
| information. Starting there, | | | | is greater. |
| Samuel Morse's patented code was the single | | | | Another benefit is the implementation of Just-In-Time |
| method used to communicate acrossthe lines. | | | | (JIT) order processmethodology. With Just-in-Time, a |
| In 1948 during the Berlin Airlift, thousands of tons of | | | | company can avoid stock-outs and/or |
| food and consumables wereneeded to be air | | | | obsoleteinventories, reduce lead times on ordering |
| freighted. The task of coordinating these | | | | from suppliers and reduce inventorycarrying costs. |
| consignments (whicharrived with differing manifests, | | | | Whether implementing a subset or the whole of JIT |
| languages and numbers of copies) was addressedby | | | | processmethodology, EDI is what makes |
| devising a standard manifest. | | | | Just-In-Time possible and allows it to be feasible. |
| In the late 1950's and early 1960's the rise of | | | | With the proper agreements between trading |
| computer enabled companies to storeand process | | | | partners, a manufacturer candetermine the current |
| data electronically, companies needed an expedient | | | | sales of their buyers and their buyers' current |
| method tocommunicate the data. This method was | | | | inventorylevels. Therefore the manufacturer can |
| realized by the widespread use ofcomputer | | | | forecast probable future sales and planproduction and |
| telecommunications. Using telecommunications, | | | | their own purchasing accordingly. Obviously there will |
| companies couldtransmit data electronically over | | | | occasionallybe wild fluctuations that will disturb this |
| telephone lines, and have the data input directlyinto a | | | | scenario, but it does help the manufacturerto |
| trading partner's business application. These electronic | | | | accurately plan production, and the purchaser to |
| interchangesimproved response time, reduced | | | | know that their needs will morelikely be met by their |
| paperwork, and eliminated the potential | | | | suppliers. |
| fortranscription errors. Computer telecommunications, | | | | Just-In-Time helps the manufacturer communicate |
| however, only solved part ofthe problem. | | | | quickly and inexpensively withtheir suppliers, who may |
| Early electronic interchanges were based on | | | | be using the same forecasting to meet the |
| proprietary formats agreed between twotrading | | | | requirements oftheir customers. |
| partners. Due to differing document formats, it was | | | | Disadvantages of EDI |
| difficult for a companyto exchange data electronically | | | | The biggest disadvantage implementing EDI is it |
| with many trading partners. What was needed was | | | | reveals inefficient businesspractices. If a company's |
| astandard format for the data being exchanged. In | | | | business process was inefficient before EDI, they will |
| 1968 the United States | | | | bemultiply with the implementation of EDI. The original |
| Transportation Data Coordinating Committee (TDCC) | | | | purpose of EDI was to savemoney and time. When |
| was formed, to coordinate thedevelopment of | | | | used improperly, EDI does neither, and actually |
| translation rules among four existing sets of | | | | wastes both. |
| industry-specificstandards. | | | | Costs of EDI |
| In the mid 1970's, it was clear that the TDCC | | | | Prices for EDI applications vary from free (for very |
| standards were not enough, and workbegan for | | | | simple one-function products) toseveral thousands of |
| national EDI standards. The Electronic Data | | | | dollars for full-function applications. The final price you |
| Interchange Association | | | | paydepends upon several things: |
| (EDIA), a non-profit organization set out to serve as | | | | - The Expected Volume of Electronic Documents. |
| an administrator for severaldifferent industry groups. | | | | Generally speaking, low cost EDI packages handle |
| Each industry served has a committee to determine | | | | only a few documents and trading partners. Midrange |
| newstandards, modify existing ones, and pass the | | | | EDI packages can be a little more expensive, but |
| information on to the EDIA forpublication and | | | | handle a much larger volume of EDI. If you anticipate |
| distribution. EDIA was asked to develop a set of | | | | multiple documents or trading partners, a midrange |
| standardsapplicable to the grocery industry. The first | | | | EDI system is a much better choice. |
| such standard is The Uniform | | | | - The Amplitude of the EDI Translation Software. |
| Communication Standard (UCS) which was applied to | | | | Some products look like a bargain, but as your EDI |
| an actual transaction by the | | | | needs grow, hidden costs (such as having to |
| Quaker Oats Company in 1981. | | | | purchase new transaction sets) suddenly appear. You |
| In 1979 the American National Standards Institute | | | | may pay more for a program with an integrated |
| (ANSI) Accredited Standards | | | | mapper, but you'll avoid purchasing overlays and |
| Committee (ASC) was formed. It included | | | | maps in the future. |
| representatives from transportation,government | | | | - Implementation Time. Some applications are easier |
| & computer manufacturer industries, The | | | | to learn and use than others. But as above, the |
| committee's first meetingtook place in Rosslyn, | | | | easier to lean the less the software package can |
| Virginia with the goal to create a set of standard | | | | handle. The more time you spend in training, the |
| data formatsbased on the TDCC structure that: | | | | more time it takes to get into production mode. If |
| - were hardware independent; | | | | your time frame is tight, and you are sure the |
| - were unambiguous, such that they could be used | | | | documents you will be using are static, look for a |
| by all trading partners; | | | | translator that doesn't require training before |
| - reduced the labor-intensive tasks of exchanging | | | | implementation. |
| data (e.g., data re-entry); | | | | Fees vary from Software Company to Software |
| - allowed the sender of the data to control the | | | | Company. Ignoringthe hidden costs mentioned above, |
| exchange, including knowing if andwhen the recipient | | | | you can expect the following ongoing charges: |
| received the transaction. | | | | - Maintenance Fees. Most companies charge an annual |
| In 1982, Version 1 of the ANSI ASC certified release | | | | maintenance fee that is usually a percentage of the |
| of draft X.12 standards waspublished. | | | | translator's list price. This fee should include software |
| At about the same time, the U.K. Department of | | | | updates, standards updates, technical support, and |
| Customs and Excise, with theassistance of SITPRO | | | | customer service. |
| (the British Simplification of Trade Procedures Board), | | | | - VAN Charges. If you use a Value Added Network |
| wasdeveloping its own standards for documents | | | | (VAN), you will be billed for transmitting data similar |
| used in international trade, called | | | | to making a long distance phone call. Some also bill |
| Tradacoms. These were later extended by the | | | | you for connect time. A fast modem helps to lower |
| United Nations Economic Commissionfor Europe | | | | transmission costs. |
| (UNECE) into what became known as the GTDI | | | | - Mailbox Fee. Most VANs charge a monthly fee for |
| (General-purpose Trade | | | | maintaining a mailbox on their network. Some base |
| Data Interchange standards), and were gradually | | | | billing on the document (25 cents per document |
| accepted by some 2,000 Britishexporting | | | | transmitted). Others charge based upon the number |
| organizations. | | | | of characters in each document. |
| Problems created by the trans-Atlantic use of two | | | | EDI can at times take much longer than expected. |
| different (and largelyincompatible) sets of | | | | Remember, you are working withanother company |
| standardized documents have been addressed by | | | | and you have no control over their priorities or |
| theformation of a United Nations Joint European and | | | | business practices. |
| North American working party | | | | Your priority may be to implement a Purchase Order |
| (UN-JEDI), which began the development of the | | | | (850) with Wal-mart, but theirpriority may be |
| Electronic Data Interchange for | | | | implementing the Advance Ship Notice (856). You |
| Administration, Commerce and Transport (EDIFACT) | | | | need toimplement a Remittance Advice (820) with |
| document translationstandards. | | | | Wachovia yet their Remittance Advicespecialist is on |
| Early on, Value Added Networks (VANs) served as | | | | Maternity leave and her replacement only knows |
| an "electronic post office" forbuyers and suppliers | | | | Lockbox (823). |
| that needed to exchange data. For example, | | | | Despite its few disadvantages, EDI has proven to be |
| Company A couldsend an electronic purchase order | | | | a powerful backbone that supports today's Electronic |
| to the VAN and Company B could go to the VANto | | | | Commerce. Companies all over the world utilize |
| pick it up. If Company B claimed it did not receive the | | | | EDI'sversatility and flexibility to communicate with |
| purchase order, the VANwould serve as a third-party | | | | each other. And with the promise ofthe Web, which |
| intermediary and would validate whether the | | | | offers much lower connectivity costs, and the lower |
| purchaseorder had in fact been picked up or not. | | | | costs of PCs andsimpler software, EDI is opening its |
| That is the type of "value-add" thesenetworks | | | | doors to smaller companies. Moreover, XML, anopen |
| provided. | | | | standard for sharing data, is starting to appear as a |
| Despite the benefits, VAN EDI had limited adoption | | | | method of EDI codingstandards, which could provide |
| because it was cost-prohibitivefor most companies to | | | | technical clarity across industries and nationsaround |
| deploy. Before Internet EDI became available, | | | | the world. |
| approximately | | | | |