Electronic Data Interchange (EDI) Week 7

EDI Introduction Successful companies have been doing EDI for years; the Government is just beginning. Smart companies approach EDI as a business decision, not a technical one. Industries developed EDI standards for their own benefit, but their inner workings are generally not of concern to users. Implementing EDI with the Federal Government requires very few types of transactions, making EDI fairly easy in the short term. Adopting EDI as a business practice may make other changes necessary within a company.

What is EDI? EDI is the computer-to-computer exchange of business documents in a standard electronic format. Rather than mail or fax purchase orders, invoices, and the like, companies engaged in EDI, called trading partners, transmit electronic versions. In theory, trading partners may perform EDI directly, from one computer to another. In practice, EDI is more easily done through an intermediary called a value added network or "VAN." The VAN serves as an electronic clearinghouse or post office, routing messages between trading partners and holding them until the recipient is ready for them

EDI In a Sentence Electronic Data Interchange (EDI) is the electronic exchange of routine business transactions. These transactions include such documents as purchase orders, invoices, inquiries, planning, acknowledgements, pricing, order status, scheduling, test results, shipping and receiving, payments, and financial reporting.  

Who Uses EDI? Industries currently using EDI include retail, insurance, education, entertainment, mortgage banking, and numerous departments of the U.S. Government. Note, however, that this list is far from complete! As more and more businesses turn to EDI, several standards committees—including the Accredited Standards Committee X12 (ASC X12) and EDIFACT—are working to include appropriate transactions in its body of standards. In Hawke’s Bay Port of Napier and BAT are big users  

How EDI Works EDI permits hundreds of unrelated companies to communicate and process business transactions electronically. EDI works because it relies on a standard system that everyone can use, developed under the guidelines of the American National Standards Institute (ANSI), the coordinator for national standards in the United States. The ANSI committee ensures that everyone using a process such as EDI follows the same rules and methods, making the program universally accessible. As a result of the standard, all businesses share a common interchange language, which minimizes the need for users to reprogram their internal data processing systems.

EDI Standards EDI messages, known as "transaction sets," are arranged in formats determined by members of the EDI community -- typically businesses. Each industry represented creates the transaction sets it needs. For example, the health care industry has transaction sets for patient records and insurance claims, while colleges and universities have student transcript transaction sets. The standard for EDI in the United States, ANSI X12, defines hundreds of transaction sets for dozens of industries.

EDI Components The transaction set, the information required for a single, specific business transaction such as a purchase order or invoice. In X12, each transaction set carries a three digit identification number. Segments, logically defined structures containing specific information. Segments are the building blocks of transaction sets. Data elements make up the segments. Data elements are the most fundamental components of EDI messages. The X12 standard defines the permitted data elements, assigning each specific element a name and identifier. Envelopes group one or more transaction sets for transmission. An envelope is another group of segments which provide identification, addressing, control, and structure information about the contents. Envelopes provide this information at three levels: interchanges, which define an entire set of information moving between trading partners in a single session; functional groups, which contain the transaction sets of the same type within a session (e.g., all the purchase orders); and the individual transaction sets within a functional group.

Benefits of EDI EDI offers many significant benefits to those who fully implement and integrate it into other applications. EDI reduces reliance on paper, reducing company costs for purchasing and then storing paper. It moves product to market more quickly by accelerating the purchase order-invoice-payment order cycle from days or weeks to hours, even minutes. EDI offers process improvement and quality assurance benefits through improving the way in which companies handle information. EDI enables you to expand businesses with trading partners. As your use of EDI increases, and you establish EDI relationships with more clients, you may take advantage of EDI's true power: its ability to integrate information throughout a business.

Benefits of EDI EDI makes it possible to enjoy one-time data entry reduced errors on-line data storage faster management reporting automatic reconciliation EDI allows you to have uniform communications with all of your trading partners, including customers, suppliers, carriers, and financial institutions

EDI Communications EDI messages (or transactions) are usually delivered and received using one or more of the following communication methods: VANs (Value Added Networks): These are companies that provide communication services, electronic mailboxes, message forwarding and retrieving, and more for the transmission of EDI documents. Direct Communications: These are performed when a company transmits and receives documents directly between trading partners using a modem-to-modem connection. Internet Communications: Companies may elect to transmit documents using either e-mail or an FTP (File Transfer Protocol) method.

VANs Rather than deliver EDI messages directly to each other, EDI trading partners use Value Added Networks (VANs) as a sort of "post office" for holding and forwarding messages. This has distinct advantages for heavy users. Such large companies would require enormous resources to send and receive their EDI traffic in a timely manner. The VAN provides such services as: Storing and forwarding messages; Communications between standard data formats; Detecting and correcting errors; and Message encryption and decryption. A VAN should provide dependable and secure service.