Electronic Data Interchange EDI and SCM

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Electronic Data Interchange (EDI) and SCM

• Define Electronic Data Interchange, Exchange
• Give characteristics of EDI
• Discuss benefits of EDI, as well as barriers to
  its implementation
• Describe how EDI works, and how it is moving to
  the Internet
• Contrast common (ANSI/ASC) EDI with Internet EDI
  and Exchanges

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Electronic Data Interchange (EDI)

• Strategic Impact of EDI
• Definition of EDI
• Example of EDI
• How EDI works
• Benefits of EDI
• Direct and Process
• Barriers to EDI Adoption
• Advantages, Disadvantages and Characteristics of
  VANs
• EDI Implementation Model
• EDI migration to the internet

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Strategic Impact of EDI

• Business processes can become more efficient
• Customer-supplier relationships may change
• more trust and collaboration
• Market structure changes

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Definition of EDI

• The direct computer-to-computer transfer of
  business information between two businesses that
  uses a standard format.
• Focus on trade data interchange
• Often use VANs (Value-added networks)
• Use of standards

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EDI Standards

• Companies speak precisely the same language
• Same codes in same places
• Proprietary codes --gt to standards (X12,
  EDIFACT,X400)
• Different computers can communicate with one
  another

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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

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Commonly Used ASC X12 Transaction Sets Figure 9-3
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EDI Example - Before
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EDI Example - Before
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EDI Example - After
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EDI Example - After
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The EDI Purchasing Process Figure 9-6
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Types of EDI Benefits

• Direct
• Process
• require reengineering
• can only be realized with all trading partners
  are on EDI
• can revolutionize the way business is done

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Direct Benefits of EDI

• Eliminated/reduced paper work
• Greater accuracy
• Shorter lead times
• Less inventory costs
• More responsiveness to customer
• Reduced postage
• Easier product comparison

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Process Benefits of EDI

• No redundant clerical tasks
• Fewer steps to process business documents
• No redundant information exchanges
• Reengineered operations
• Promotes true partnerships

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Examples of EDI Benefits

• AIAG - Automakers save 200 per car
• A large computer manufacturer reduced purchase
  order cycle from 7 to 2 days
• A supermarket chain eliminated 600 invoice
  errors/day (6,000/day savings)
• The US Treasury plans to save 50 Million per
  year in postage
• Dofasco saves 70,000 annually sending 400 ship
  notices and chemistry reports over a secure
  extranet.

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Barriers to Adoption

• Trading partners not knowing benefits
• Hardware costs
• Interfacing translator, software costs
• Need for software modifications
• Network (VAN) service charges
• Costs and effort for trading partner conversion

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Trading Partner Concerns in EDI Implementation
Benefits
Costs
EDI
Trust
Dependency
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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

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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

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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
• From 95 of all EDI traffic in 1997 to 50 in 2002

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Direct Connection EDI vs. Indirect Connection
EDI through a VAN Figure 9-7
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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

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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

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Electronic Data Transmission Migration
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Internet EDI

• First waveuse of internet to send EDI
  transaction set data to and from a VAN
• Second wavetransmission of EDI transaction set
  data over public Internet
• Third wavetransmission of electronic data over
  public/private internet

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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

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Open Architecture of the Internet

• A new ASC X12 Task Group has been charged with
  several broad objectives
• Converting the ASC X12 EDI data elements and
  transaction set structures to XML, retaining
  one-to-one mapping
• Developing XML data element names consistent with
  existing ASC X12 transaction sets
• Meeting the needs of app-to-app and human-to-app
  interfaces

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Hybrid EDI Solutions

• Utilize the Internet for only part of an EDI
  transaction, ones where the transactions are not
  considered a negotiable instrument
• Bottomline Technologies PayBase package allows
  hybrid EDI
• NetTransact provides an interface for smaller
  businesses connected to the Internet, but do not
  have EDI capability

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NetTransact EDI-HTML Conversion Service Figure 9-8
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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-invoices850, 855- POs)

• INTERNET STANDARDS
• SSL (Secure Sockets Layer)
• SET (Secure Electroic Transactions) - protocol
  proposed by Visa/MC for Net
• No transaction standards

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Changes on the Horizon

• S/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
• XML
• Exchanges
• Vertical
• Horizontal

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Definition Exchange

• Web-based real-time transaction systems
  characterized by industry-specific alliances,
  standard-setting bodies and marketplaces.

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Products to Smooth EDI Wrinkles

• GEISs TradeWeb - an entry-level forms-based
  service with which subscribers can send up to 30
  EDI documents a month over the Internet using a
  standard Web browser for flat fee (75/mo) (and a
  35 initiation fee)
• PO, PO acknowledgement, Invoice, Functional
  acknowledgement
• GEISs services available in English, French,
  German and Italian
• GEISs Trading Process Network for posting
  EDI-based forms on the Web

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Products to Smooth EDI Wrinkles (Light EDI)

• Other Vans with Internet Browser Interfaces
• http//www.simplix.com
• Simplex - 200 registration fee and 75/mo
• http//www.bid-search.com/cedis
• Creative EDI Solutions - 50 registration fee and
  service charge (min. 15 with 4 transactions)

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Financial EDI

• A trading partners 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