1. Electronic Commerce: EDI & Financial EDI
Ned C. Hill
Dean, Marriott School of Management
Brigham Young University
EDI and its subset Financial EDI is becoming very important to First Union customers.
In this session we introduce you to EDI so you will understand what it can do for businesses and why they are moving forward fairly rapidly to adopt it.

2. Electronic Commerce: A Quick Overview
What’s wrong with paper?
How does EDI/FEDI work?
How are they changing business?
What does this mean for you?

3. What’s Wrong with Paper?

4. The Paper-based Transaction
Seller
Mail
Mail
Check
Check and Remittance Advice
Request for Quote
Purchase Order
Banking
System
Quote
Invoice
Carrier
Bill of Lading
Mail
Mail
Mail
Buyer

5. Keying in the Paper World
Seller’s Computer System
Keying
Keying
Keying
Keying
Postal System
Keying
Keying
Keying
Keying
Buyer’s Computer System

6. What’s Wrong with Paper?
Labor intensive
Slow
Error prone
Uncertain
Excessive inventory (and cash)
Bottom Line: IT’S EXPENSIVE
What are the problems with paper transactions?
Could give examples of each if time.

7. What Can We Do? Option 1: Make paper work harder
Option 2: Get rid of the paper altogether
Option 1: Courier services (FedEx, etc.)
Fax, lockboxes, optical scanning, magnetic ink, etc.
But a better solution is to scrap the paper processing system altogether.
Let’s see what happens if we do away with the assumption that information must reside on wood fibers. Just move the data from my computer to yours. That is what EDI is all about.

8. What is EDI? EDI is the use of computers and telecommunications
to exchange data between computer applications in
a structured format that does not require manual
intervention.

9. What EDI Is and Isn’t Electronic Messaging Facsimile Transmission
Highly Unstructured Highly Structured
Electronic Messaging
Facsimile
Transmission
Electronic
Mail
EDI
(Internet)
In addition: EDI is not electronic order entry

10. An EDI-based Transaction
Seller
Bill of Lading
Request for Quote
Quote
Payment and Remittance Advice
Banking
System
Purchase Order
Invoice
Carrier
Goods
Buyer

11. Keying in an EDI World Seller’s Computer System Value Added Network
Translation
Translation
Translation
F.A.
F.A.
F.A.
Value Added Network
(GEIS, Advantis, ATT, Internet)
EDI
P.O..
EDI
Invoice
EDI RA
Translation
Translation
Translation
Keying
Buyer’s Computer System

12. Benefits of EDI Lower personnel costs Reduced error rates
Faster cycle time
Improved customer service
Reduced inventory
Fewer stock-outs
Reduced paper handling costs
Faster payments
Better control over information
SuperValu says they save $1,000,000 per year in personnel they don’t need for processing invoices.
Surveys show a 60% reduction in error rates using EDI. Grocery industry finds even greater amount: 20% invoice errors(paper) drop to less than 1% errors (EDI). Not all keying errors--also includes manual promotion announcements that often get confused.
Cycle time down by at least 50% according to surveys. Faster, improved customer service and response to changing markets.
Number 1 reason for EDI: satisfy a major customer (mention that lots of firms now require EDI, such as, automotive mfgrs., WalMart, PacBell, Bergen Brunswig) Dillard’s doesn’t require but charges $50 per piece of paper they have to process! You choose.
Chrysler claims to have saved $1 billion in parts inventory. JIT is impossible without EDI.
Levi Strauss has 25% retail inventory while at the same time selling 25% more product with very few stock-outs. Why? (Order cycle starts at checkout counter and new stock delivered within a week. Used to be 8 weeks.)
Faster payments: invoice gets there faster and is not in error.
Better info for management.

13. How fast is EDI growing?

14. Why EDI now? Labor costs Paper costs Computer costs
Telecommunication costs
Competitive pressures

15. Faster and Faster! Time Required to Transmit the 32 Volume New Encyclopedia Britannica
1200 bps modem……………………..…28 days
9600 bps modem………………….……3.5 days
28.8 Kb modem………………………..28 hours
Basic Rate ISDN…………..……….…6.3 hours
T-1 line………………….……….….31 minutes
T-3 line………………………………..1 minute
ATM-SONET (OC-3)…………… seconds
ATM-SONET (OC-12)………… seconds

16. Potential is Enormous Over 65 billion paper checks per year
25% are corporate-to-corporate
Each check is preceded by at least 5 other transactions
100 billion corporate-to-corporate transactions
Most can be handled by EDI

17. Three Pillars of EDI Generic Format Standards Value Added Networks
Translation Software
Generic Format Standards
Micro Computers

18. I. Generic Format Standards
American National Standards Institute
About 300 documents standardized
Many industries represented
Many financial transactions
EDIFACT to eventually become world-wide EDI standard

19. Sample ANSI X12 Transactions
104 Air Shipment Information
204 Motor Carrier Shipment Information
300 Booking Request
417 Rail Carrier Waybill Interchange
814 Residential Mortgage Loan Application
832 Price/Sales Catalog
846 Inventory Inquiry/Advice
850 Purchase Order
855 Purchase Order Acknowledgment
856 Advanced Ship Notice
860 Purchase Order Change
997 Functional Acknowledgment

20. Sample X12 Finance-Related Transactions
810 Invoice
811 Consolidated Service Invoice (Telephone bill)
812 Credit/Debit Adjustment
813 Electronic Filing of Tax Return Data
820 Payment Order/Remittance Advice
821 Financial Information Reporting
822 Customer Account Analysis
823 Lockbox
824 Application Advice
826 Tax Information Reporting
827 Tax Return Notice
828 Debit Authorization
829 Payment Cancellation Request
ANSI X12 documents have been defined for many transactions relating to banking and finance. Go over the list briefly.

21. II. Value Added Networks
Overcome technical communication barriers
Internet would give universal access
Security problems must be overcome
VAN/
Internet

22. Value Added Networks Who are they? What services do they provide? GEIS
IBM
MCI
AT&T
Ordernet (Sterling Software)
Harbinger
What services do they provide?
Protocol matching - Implementation assistance
24-hour service - Standards conversion
Closed system security - Interface assistance
Audit trail - Compliance checking

23. III. Translation Software
Off-the-shelf
Low cost
Seventy firms produce it
7cnt/000567/
$25.64/qlz
IT1*1*7*EA*25.6
**VC*0567
ANSI X12 Generic
Format
Seller’s Unique
Format
Buyer’s Unique
Format

24. Translation Software Who provides it? What does it do?
Sterling Commerce (Gentran)
GEIS
Harbinger
Supply Tech
Prememos
TSI International
What does it do?
Maps into/out of data bases
Translates into/out of EDI standard
Handles communication with VAN/Internet
Provides security and audit functions

25. What is Needed to Move EDI Forward?
Low-cost, user-friendly translation software
Availability of EDI on the Internet
Removal of security concerns
EDI that works automatically with other business applications

26. What are the Barriers to EC?
People!
Organizational structures
Legacy systems
Compensation structures
Conversion cost barriers
Lack of understanding

27. Business Use of Internet for Electronic Commerce
Source: EDI Group Ltd., 1/97

28. CONCLUSIONS Know something about EC!
EC brings substantial benefits to users
EC over the Internet will enable all firms to participate
The cyberworld will touch your family and your business--learn to use it!

29. FEDI Payments 1:
Payor
Payee
Bank
820
820

30. FEDI Payments 2:
Payor
Payee
820
820
Payor’s
Bank
Payee’s
Bank
CTX

31. FEDI Payments 3: Payor Payee 820 820 Dep. Report Payor’s Bank Payee’s
CCD

32. FEDI Payments 4: EDI-Enabled Outsourcing of Payables
Supplier 1
Check
Customer
820’s
ACH
Supplier 2
820
Value Added Bank (VAB)
Supplier 3

33. FEDI Payments 5: (Debit)
Payee
Payor
820
820
First
Union
Payee’s
Bank
CTX
(Debit)