Assignment No.

1 Electronic data interchange

Submitted to : MAM MADHIA

Submitted by :

Shujah tahir uppal

10012720-002

Dicipline
Section A

MBA 3rd

Faculty of Management and Administrative Science

Electronic data interchange

Electronic data interchange (EDI) is the structured transmission of data between organizations by electronic means. It is used to transfer electronic documents or business data from one computer system to another computer system, i.e. from one trading partner to another trading partner without human intervention. It is more than mere e-mail; for instance, organizations might replace bills of lading and even cheques with appropriate EDI messages. It also refers specifically to a family of standards. EDI can be formally defined as the transfer of structured data, by agreed message standards, from one computer system to another without human intervention. Example: US Customs accepts electronic customs documentation, in advance of goods shipments. This reduces port delay and provides a competitive advantage for those ports of entry that support EDI.

EDI benefits and drawbacks

The EDI process provides many benefits. Computer-to-computer exchange of information is much less expensive than handling paper documents. Studies have shown that manually processing a paper-based order can cost $70 or more while processing an EDI order costs less than one dollar. Much less labor time is required Fewer errors occur because computer systems process the documents rather than processing by hand Business transactions flow faster. Faster transactions support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs through fewer emergencies expedites.

One drawback to EDI is that companies must ensure that they have the resources in place to make an EDI program work; however, the need for buying and hiring these resources or outsourcing them may be offset by the increased efficiency that EDI provides.

History:
Rapid and accurate exchange of information is critical for effective business transactions between companies. Each new communication technology that evolved was adapted for business purposes. The telegraph, radio, telephone and now the Internet have all been recruited to improve business communication. The roots of EDI can be traced to the 1948 Berlin Airlift. There was an enormous problem in coordinating the consignments of food and other consumables that were arriving by air from many different origins. Around 1960, a number of different businesses in the transportation and retail industries began exploring the application of electronic communication to improve the processing and transfer of business documents to speed up transportation of goods and reduce transportation and administrative costs. This type of operation came to be known as Electronic Document Exchange or EDI. In 1968, a group of railroad companies formed an organization to study the problems with the quality of inter-company exchanges of transportation data and to improve it. This organization was called the Transportation Data Coordinating Committee (TDCC). In 1978, the TDCC was renamed the Electronic Data Interchange Association (EDIA) and chartered by the American National Standards Institute (ANSI) to work on a national standard for EDI. In 1979, it became the Accredited Standards Committee (ASC) for EDI X.12 format development. In 1985, The United Nations Joint European and North American working party (UN-JEDI) was created and which began the development of the Electronic Data Interchange for Administration,

Commerce and Transport (EDIFACT) document translation standards. In 1986, an EDIFACT standard was released. Today, analysts estimate that businesses already trade well over hundred billion in goods and services using EDI. It is predicted that this number will increase as new technologies such as the Internet and XML (Extensible Markup Language) make EDI more accessible to businesses.

How EDI works:

Electronic data interchange (EDI) is the electronic transfer of various types of company information, such as invoices, purchases, bills, and inventory and order confirmations. EDI can be used between organizations or within organizations to exchange information between departments. While generally used as a means of communication between companies and banks, EDI is primarily a cornerstone of e-commerce. Here is an example of how the electronic data interchange process works. A buyer prepares an order in his or her purchasing system and has it approved. Next, the EDI order is translated into an EDI document format called an 850 purchase order. The EDI 850 purchase order is then securely transmitted to the supplier either via the internet or through a VAN (Value Added Network). If the purchase order is sent using a VAN, then the buyers VAN interconnects with the suppliers VAN. The VANs make sure that EDI transactions are sent securely and reliably. The suppliers VAN ensures that the supplier receives the order. The suppliers computer system then processes the order. In the case of Covalent Works clients, we provide VAN transportation and our servers provide all of the software and hardware required to process EDI documents. Only internet access and email are needed.

Data security and control are maintained throughout the transmission process using passwords, user identification and encryption. Both the buyers and the suppliers EDI applications edit and check the documents for accuracy. The below diagram explain better EDI cycle:

The sender creates the application file using their own Business Application System. The file is then translated into an EDI standard format, and transmitted either through a value added network or direct connection. The receiver takes the transaction set and translates the file from the EDI standard format to a file that is usable by their own Business Application System. Thus the cycle of EDI continues. EDI capability involves either buying or outsourcing the following components:

Software for communications, mail boxing of EDI transactions, mapping and translation. VAN and Internet communications as required by various partners. Hardware including a server or PC, communication devices and peripherals Secured office space and monitored security Data backups and redundant power for reliability Additional software will be needed if integration of the EDI transactions with back office systems is desired. A VAN will need to be contracted for ongoing EDI transmissions. Personnel must be trained in how to use the software and communication devices.

 Maps will need to be developed for each EDI document type to be exchanged with each partner. Maps translate the encoded EDI record into a useable format.

Edi standards:
In EDI, all software, hardware and network must work together so that the information flows from one source to another. The advantages of standardization are numerous. The standardization is expected to promote interoperability between EDI implementations. The two major EDI standards are: ASC X12 EDIFACT

ASC X12:
ASC X12 (also known as ANSI ASC X12) is the official designation of the U.S. national standards body for the development and maintenance of Electronic Data Interchange (EDI) standards. The group was founded in 1979, and is an accredited standards committee under the American National Standards Institute (ANSI). The acronym stands for "American National Standards Institute Accredited Standards Committee X12", with the designation of X12 being a sequential designator assigned by ANSI at the time of accreditation with no other significance. The X.12 committee develops standards to facilitate EDI relating to such business transactions, order placement and processing; shipping and receiving; invoicing, 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 move easily over telecommunication networks. Each transaction format includes many data segments needed for the business

function as well as instructive information to ensure that the telecommunication system routes the data correctly.

Examples of ANSI ASC X.12 transaction includes: Vendor Registration -form no. 838 Request for Quotation form no 840 Response to request for quotation form no. 843 Purchase order or Delivery order form No.850 Purchase order acknowledgement form no. 855 Functional acknowledgement form no.997 These X.12 transactions are transmitted to the trading partner through either X400 e- mail protocol or the Multipurpose Internet mail extensions (MIME) protocols.

EDIFACT:
United Nations/Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT) is the international EDI standard developed under the United Nations. The work of maintenance and further development of this standard is done through the United Nations Centre for Trade Facilitation and Electronic Business under the UN Economic Commission for Europe, in the Finance Domain working group UN CEFACT TBG5. EDIFACT has been adopted by the International Organization for Standardization (ISO) as the ISO standard ISO 9735. EDIFACT is the standard ensuring that many business operations between companies, sectors and countries, and particularly the routine transactions undertaken thousands of times every day, can be handled electronically regardless of the hardware and software used by either side.

The EDIFACT standard provides:

a set of syntax rules to structure data an interactive exchange protocol (I-EDI) standard messages which allow multi-country and multi-industry exchange

Some other standards EANCOM:

This standard was originally conceived in 1987 by the EAN General Assembly and was to be developed on the then emerging international UN/EDIFACT standard. The EANCOM messages, maintained by GS1, are more detailed in nature compared to the TRADACOMS message set. EANCOM was originally developed for the retail sector and has subsequently grown to become the most widely used UN/EDIFACT subset and is now found in a variety of other industry sectors such as healthcare, construction and publishing.

HIPAA:
The Health Insurance Portability and Accountability Act were enacted by the U.S congress in 1996. A key component of HIPAA is the establishment of national standards for electronic health care transactions and national identifiers for providers, health insurance plans and employers. The standards are meant to improve the efficiency and effectiveness of the North American health care system by encouraging the widespread use of EDI in the U.S health care system. The HIPAA EDI transaction sets are based on X12 and the key message types are described below.

ODETTE:
The Organization for Data Exchange by Tele Transmission in Europe is a group that represents the interests of the automotive industry in Europe. They are the equivalent of the Automotive Industry Action Group (AIAG) in North America. The organization develops tools and recommendations that improve the flow of goods, services product data and business information across the whole automotive value chain. ODETTE has been responsible for developing

communications standards such as OFTP and OFTP2.0, constant improvement processes such as Materials Management Operations Guideline / Logistics Evaluation (MMOG/LE) and automotive specific document standards as defined via the link below.

Rosetta Net:
This consists of a consortium of major computer, consumer electronics, semi-conductor manufacturers, telecommunications and logistics companies working together to create and implement industry wide, open e-business process standards. These standards form a common ebusiness language, aligning processes between supply chain partners on a global basis. The Rosetta Net document standard is based on XML and defines message guidelines, business processes interface and implementation frameworks for interactions between companies. Using Rosetta Net Partner Interface Processes (PIPs), trading partners of all sizes can connect electronically to process transactions and move information within their extended supply chains. Further information about Rosetta Net PIP documents can be found from the link below.

Tradacoms:
This is an early standard for EDI and was primarily used in the UK retail sector. It was originally introduced in 1982 as an implementation of the UN/GTDI syntax, one of the precursors of EDIFACT and was maintained and extended by the UK Article Numbering Association, now called GS1 UK. The standard is more or less obsolescent since the

development of it effectively ceased in 1995 in favor of the EDIF.

VICS:
The Voluntary Inter-industry Commerce Standard is used by the general merchandise retail industry across North America. It is a subset of the ANSI ASC X 12 national standards. VICS EDI is being utilized by thousands of companies, department and specialty retail stores, mass merchandisers and their respective suppliers. In 1988 GS1 US became the management and administrative body for VICS EDI. GS1 US also manages the ASC X12 derived Uniform Communication Standard (UCS) for the grocery industry and Industrial/Commercial Standard (I/C) for the industrial sector.

SWIFT:
The Society of Worldwide Interbank Financial Telecommunication was formed in 1973 and is headquartered in Brussels. SWIFT operates a worldwide financial messaging network which exchanges messages between banks and financial institutions. SWIFT Net is the infrastructure used to exchange these documents and FIN, Interact and File Act are used to encode the SWIFT documents for transmission. The majority of interbank messages use the SWIFT network. As of November 2008, SWIFT linked 8740 financial institutions across 209 countries. The SWIFT document standard is split into four areas, Payments, Trade Services, Securities and Trading.