An Introduction to Electronic Data Interchange
by Lucy Bottomley
Network Notes #6
ISSN: 1201-4338
Information Technology Services
National Library of Canada
February 1995
Commercial activity on the Internet is increasing rapidly as organizations begin to use the Internet to reach their business partners. Electronic Data Interchange (EDI) is a tool that can be used for the transmission of business transactions through these electronic networks.
What is EDI?
Electronic Data Interchange, or EDI, is the automated exchange of structured business documents, such as purchase orders or invoices, between an organization and its trading partner(s). The structured, machine-readable format allows business documents to be transferred, without re-keying, from an application in one location to an application in another location, without human intervention or interpretation. EDI is intended to replace paper documents and eliminate the inefficiencies of manual systems.EDI is not a new concept. It is based on the notion that original data should be entered only once and subsequently passed electronically between relevant parties. In the most common EDI scenario, the EDI cycle begins when the purchaser sends the supplier an EDI purchase order. The supplier returns a purchase order acknowledgment to the purchaser. Next, at shipping time, the supplier sends the purchaser an EDI advance shipping notice. An EDI invoice follows and, finally, the purchaser sends payment information to his bank and the funds are transferred electronically to the supplier's bank account through electronic fund transfer (EFT) or financial EDI. The EDI cycle is now complete. There are other uses for EDI:
- universities use EDI to exchange transcripts quickly
- manufacturers use EDI to transmit complex engineering designs
- consumers use EDI for credit card and banking transactions
- governments are beginning to use EDI to support the electronic filing of income tax returns
EDI was first introduced in North America in the 1970s. It was implemented first in the transportation sector, followed by the food and drug distribution, the automotive, and the banking and financial sectors. Electronic processing and transfer of information was significantly faster, more efficient and more accurate than the manual exchange of paper. This translated into increased productivity and faster order fulfillment, and thus provided a competitive advantage. Industry estimates indicate that processing a paper purchase order costs about $70, whereas an EDI purchase order costs about $1. EDI has been a part of Canadian business landscape since the early 1980s. The book and serials industry, which includes libraries, entered the EDI scene only recently.
What EDI is not
In EDI, the emphasis is on the automation of business transactions. Therefore, EDI is not electronic mail, fax or tape transfer because in all of these transactions a human- to-machine interface is involved, at least at one end of the interchange, and usually someone has to interpret and re-key the exchanged information.
How does EDI work?
For EDI to work, the industry must agree on standard formats for messages and the way in which they are applied. It is not necessary for trading partners to have identical systems since standardization makes the process independent of any specific hardware or software. The linkage of heterogeneous systems is achieved through the use of a common format for data transfer. In North America, the agreed upon standard is ANSI X12 for the North American traffic, whereas UN EDIFACT is the preferred standard for international traffic. Translation software is usually required to interpret the data extracted from local systems.
Communications
The delivery of these standardized data to their destination (trading partner's application) may be achieved in a number of ways. The most common methods are:- Point-to-point or direct EDI
Direct EDI , as the name implies, is a direct link between two computers. Direct EDI typically requires considerable expertise to incorporate EDI translation software into an organization's computing environment but it is also considerably cheaper than other methods and as such is often preferred to support high-volume ordering. - Value-Added-Network (VAN)
A VAN provides an electronic mailbox with a store-and- forward facility as well as other added services for which the subscriber is charged a monthly and/or per use fee. However, using a VAN as a communications component can greatly facilitate EDI and is often critical to the success of the EDI implementation. Therefore, the use of a VAN is often the recommended delivery method for EDI messages. - Internet
The Internet has shown potential as a way to deliver EDI messages because it allows a fast and economical delivery of these messages, either through electronic mail or file transfer. The issues of authentication, access control, data integrity, and confidentiality on the Internet are currently being addressed.
Integration of standardized data into existing or re- engineered processes is crucial to a successful EDI implementation. Hence, the major task in implementing EDI is the process of mapping the proprietary format data (extracted from a local system) to the prescribed structured format.
EDI and libraries
In the library environment, EDI can be applied primarily to the acquisitions process, with EDI considered an ordering mechanism. Many libraries send or receive acquisitions data electronically but generally some human intervention (rekeying, tape load, special processing) is required. The issues associated with the implementation of EDI in libraries will be addressed in greater detail in a future Network Backgrounder.EDI Information on the Internet
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