; chap03EDI
Learning Center
Plans & pricing Sign in
Sign Out
Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>



  • pg 1
									          Chapter 3

          Learning Objectives

•   Introduction to conventional purchasing
•   What is Electronic Data Interchange?
•   Building Blocks of EDI systems
•   Value Added Networks
•   Benefits of EDI Systems

                Conventional Trading Process
Either the inventory management system based on re-order policy on the
     examination of the stock levels raises the purchase requisition for the
     item or, a department raises the requirement for some items.
The information on the requisition forms is entered into the purchase
     processing system.
Many a times there are transcription errors in the process. Thus, editing and
     correction of the data is needed.
Once the correct requisition information has been updated in the
     computerized purchase system, the purchase management system
     scans the suppliers’ databases for the potential suppliers and prints the
     purchase requisitions (PRs), requesting the price and delivery
     quotation in the name of screened suppliers.                          3
             Conventional Trading Process- contd.
The purchase requests are transmitted to the suppliers either through phone/fax or
     through mail/courier service.
The information printed on the purchase requests may be keyed in by the suppliers in
     their computerized systems for processing and, a quotation against the purchase
     request may be prepared and printed.
The quotation from the supplier is transmitted using the traditional paper transmission
     mechanisms such as fax/couriers/mail services.
All quotations received from suppliers against a purchase request are entered into the
     manufacturer’s automated system and edited and corrected to remove any
     transcription errors.
Based on the quotations received, the systems may process using structured (automated)
     or semi-structured (generate output to assist the decision-maker) mechanism and
     select the candidate for ordering.
             Conventional Trading Process- contd.
The purchase requests are transmitted to the suppliers either through phone/fax or
     through mail/courier service.
The information printed on the purchase requests may be keyed in by the suppliers in
     their computerized systems for processing and, a quotation against the purchase
     request may be prepared and printed.
The quotation from the supplier is transmitted using the traditional paper transmission
     mechanisms such as fax/couriers/mail services.
All quotations received from suppliers against a purchase request are entered into the
     manufacturer’s automated system and edited and corrected to remove any
     transcription errors.
Based on the quotations received, the systems may process using structured (automated)
     or semi-structured (generate output to assist the decision-maker) mechanism and
     select the candidate for ordering.
              Conventional Trading Process- contd.
The order is then printed on a standardized order-form along with the terms and
      conditions for delivery and payment.

The printed order is mailed, couriered or faxed to the supplier.

The supplier, on receiving the order, enters it into the computer system and matches the
      order with the quotation submitted.

If every thing is found in order, it raises an internal sales-order. Since, the raising of
      internal sales-order requires data entry/editing of the information from the
      received purchase-order, matching and processing of the order and then printing
      of the internal sales-order, it often becomes a source of delay.

In extreme cases, if the prices/terms on quotation and the purchase order do not match,
      it   may   require    repetition   of   some    of   the     earlier   steps,   or       re-
      negotiation/clarifications causing further delays.                                   6
              Conventional Trading Process- contd.
The internal sales-order is used for generating several documents and forms for
      locating and identifying the appropriate stocks.

In cases where such stocks are not readily available, it may lead to the raising of a
      work-order or schedule to the production shop.

The appropriate stock is thus picked and packed for sending it to the buyer along with
      the packing list and advance shipping note and advice.

The process, at times, may lead to a partial fulfillment of the order. In that case, the
      customer needs to be informed of the short-delivery and order-status in writing.

With the goods, the internal sales-order processing system also prepares a delivery
      note. The goods packed in the previous step are sent using an appropriate
      dispatch mechanism.

The delivery/dispatch note is sent to the buyer using postal mail/courier/fax services.
          Conventional Trading Process- contd.
The buyer-receiving yard, on receiving the goods and advices, compares and
     inspects the goods, and prepares a goods-receipt note, containing the
     purchase-order number against which the goods are received, marking
     the acceptance and rejection of the items shipped.

The information on goods-receipt note is transcribed at the computer
     department, edited and matched against the outstanding purchase-order.

The information on the pending quantity against a purchase-order and the
     stick levels in the inventory management system are updated.

In case of partial delivery, steps 9-14 are repeated several times until the
     quantities on the order are fulfilled.

The supplier’s computer, on completion of the order fulfillment, also generates
     an invoice by printing it, which, in turn, is dispatched to the
            Conventional Trading Process- contd.
The supplier’s computer also generates a financial statement at the end of the
     trading month for the payments.

At times, it also keeps on sending the reminders for the payment till complete
     payments have been received from the buyer.

The buyer’s computer enters the information on the payment (demand)
     statement, matches it against the purchase order, and also matches it
     against the information provided by goods-receipt note or, in other words,
     ensures that the order has been fulfilled and has been inspected and

If every thing is found in order, the buyer’s computer processes it for the

                             What is EDI?
Electronic Data Interchange (EDI) is the exchange of business documents between
     any two trading partners in a structured, machine-readable form.

It can be used to electronically transmit documents such as purchase-orders,
     invoices, shipping bills, receiving advices and other standard business
     correspondence between trading partners.

EDI can also be used in exchanging financial information and payments in
     electronic form.

The Electronic Fund Transfer (EFT) systems used by the financial institutions are
     a prime example of the application of EDI in the Banking and Financial
     sector.                                                               10
                         What is EDI?
The Webopedia defines it in the following form:

•   “Electronic Data Interchange, the transfer of data between
    different companies using networks, such as the Internet. As
    more and more companies get connected to the Internet, EDI is
    becoming increasingly important as an easy mechanism for
    companies to buy, sell, and trade information. ANSI has
    approved a set of EDI standards known as the X12 standards.”

                        What is EDI?
By National Institute of Standards and Technology:

•   “EDI is the computer-to-computer interchange of strictly
    formatted messages that represent documents other than
    monetary instruments. EDI implies a sequence of messages
    between two parties, either of whom may serve as originator or
    recipient. The formatted data representing the documents may
    be    transmitted   from    originator   to    recipient   via
    telecommunications or physically transported on electronic
    storage media.”                                            12
                       What is EDI?
The Electronic Commerce Technical Assistance Group defines it in
    the following manner:

•   “Electronic Data Interchange (EDI) is the computer-to-
    computer exchange of business data in standard formats. In
    EDI, information is organized according to a specified format
    set by both parties, allowing a "hands off" computer transaction
    that requires no human intervention or re-keying on either end.
    The information contained in an EDI transaction set is, for the
    most part, the same as on a conventionally printed document.”
key features
•    The electronic exchange of information
     The electronic exchange of information requires presence of direct or indirect
     interconnection between the involve partners.

•    Standard formats or business forms.
     The typical business forms used in the EDI include, Schedules, Purchase Orders,
     Acknowledgements, Delivery related documentations, Receipt notes, Invoices,
     Remittance requests, payments through Electronic Fund Transfers, Bills of Lading,
     Manifests and Reconciliations and many others depending upon the application area.

     Among the trading partners the above mentioned documents have to follow some
     standard format. The standardization of the format helps in exchanging these
     documents with trading partners that may have heterogeneous computing
Building Blocks of EDI Systems: Layered

         Application/ Conversion Layer

            Standard Formats Layer
             EDIFACT or ANSI X12

             Data Transport Layer
            Email, FTP, Telnet, HTTP,

              Interconnection Layer
        Dial-up lines, Internet, I-way, WAN
                         Application Layer
It consists of the actual business applications that are going to be connected
     through the EDI systems for exchange of electronic information.

These applications may use their own electronic record formats and
     document formats for storing, retrieving and processing the information
     within the company systems.

For EDI to operate, they need to convert the internal company document
     format to a format that can be understood by the system used by the
     trading partner. When the trading partners are small in number, then
     the converters for various partner formats can be built.

But, as the number of partners with different internal formats increase, the
     task of building converters for each proprietary format to other format
     becomes overwhelming.                                              16
Converters : Many to Many Approach

Format-1                       Format-2

Format-3                       Format-4

       Converters between formats

                   Standard Format Layer
The application layer relies on common agreed formats for operation.
    Thus, the second important and critical building block of the EDI
    system is standards for the business documents/forms. Over a
    period of time, two major EDI standards have evolved.

The first, commonly known as X12, was developed by Accredited
    Standards X12 committee of American National Standards
    Institute (ANSI) and

The second, the International Standard was developed by United
    Nations EDI for Administration, Commerce and Trade (EDIFACT)
           Standard Format Approach

Format-1                                Format-2

                 Common Formats

Format-3                                Format-4

              Common Formats Approach

                         ANSI X12 Standard
X12 devised the standards to deal with transactions such as purchase-order
     placement, order-processing, shipping, invoicing and payments etc.

The paper documents related to particular business activities are mapped
     into a transaction set.

The X12 standard defined a set of documents, referred to as transaction sets,
     for a wide range of business transaction forms. Each transaction set is
     given a numeric code which is similar to the way in most of the paper
     forms where form numbers are assigned.

A transaction set is a term used in X12 standard for defining the transfer of
     single document (purchase order, Manifest etc.) between the
     computers of two trading partners.
                 Document Title          Transaction Set   Specifications
                 Purchase Order               850              X12.1
                     Invoice                  810              X12.2
           Request for Quotation (RFQ)        840              X12.7
ANSI X12        Response to RFQ               843              X12.8

Standard     P.O. Acknowledgement             855              X12.9
              Ship Notice/Manifest            856             X12.10
              Order Status Inquiry            869             X12.11
                Receiving Advice              861             X12.12
               Price Sales Catalog            832             X12.13
           Planning Schedule/Material         830             X12.14
             Trading Partner Profile          838             X12.17
              Shipment Information            858             X12.18
               Order Status Report            870             X12.23
               Price Authorization            845             X12.27
            Inventory Inquiry/Advice          846             X12.28    21
                           EDIFACT Standard
Promoted by United Nations Economic Commission, which is responsible for adoption
     and standardization of the messages. The International Standards Organization
     (ISO) has been entrusted with the responsibility of developing the syntax and
     data dictionary for the EDIFACT.

The EDIFACT serves the purpose of trans-border standardization of the EDI messages.

It combines the efforts of American National Standards Institute’s ASC X12, Trade
     Data Interchange (TDI) standards developed and deployed by much of Europe
     and United Kingdom.

The GE.1 group of UNECE/EDIFAC deals with data elements, and rules and formats for
     automated data exchange. The GE.1 group coordinates the six EDIFACT boards
     set up for Western Europe, Eastern Europe, Pan America, Australia/New Zealand,
     Asia and Africa. Asia EDIFACT board (AEB) consists of members like India, Japan,
     Korea, Hong Kong, China, Singapore, Taiwan and Malaysia.                  22
                 Data Transport Layer
The data transport layer consists of services that automate the task of
    electronic transfer of messages.

The Electronic Mail exchanged through the network infrastructure has
    emerged as the dominant means for transporting the EDI

The electronic mail is used only as a carrier for transporting the
    formatted EDI messages by the EDI Document Transport Layer.

ITU-T has adopted X.435 (X.400-based) standards to support electronic
    data interchange (EDI) messaging.

                                              Data Transport Layer
X.435 standard consists of definition of normal EDI messages and a set of EDI
     "notifications" to address the security requirement.

In order to achieve equivalence to the security control offered by the paper-
     based systems, it has three types of notifications.

•    A positive notification – It indicates that the recipient has received the
     document and accepts the responsibility for it;

•    A negative notification- It indicates that the recipient received but
     refused to accept the document. The reason for refusal is attached with
     the notification.

•    A forwarding notification- It indicates that the document was received,
     but forwarded to another recipient.
                  Inter Connection Layer
It refers to the network infrastructure that is used for the exchange of
      information between trading partners.
 In the simplest and most basic form it may consist of dial-up lines,
      where trading partners dial-up through modem to each other and
      connect to exchange the messages as illustrated in the following:


                                        Inter Connection Layer
The leased lines and I-way, Internet or any reliable network
    infrastructure that can provide ability of interconnection can be
Through the interconnection, the EDI partners are able to achieve
    document exchanges between themselves:

                 Dial up/leased line


                                            Dial up/leased line

            Value Added Network (VAN)
VANs are third-party communication networks established for exchanging
    EDI traffic amongst the partners.

Various businesses (trading partners) subscribe to the VAN services. For
    every subscriber, the VAN maintains an account, which serves as an
    electronic post office box for the subscriber, for sending and receiving
    the EDI messages.

The subscriber’s account receives and accumulates all incoming mail from
    other partners that can be viewed by the account owner as and when
    they connect to the VAN account.

There are a number of third-party Value Added Network providers in the
    market place. Many of the VANs today, also offer the document
    exchange ability of EDI documents with other VANs.
         Value Added Network (VAN)
            Dial up/leased line
                                  Translation, Editing,
                                  Compliance checking,
                                   verification, Format
                                  translation, Alerting
                                  services, Storage and
Trader                                    Mailbox

                                  Value Added Network                  Transport
                                                      up/leased line

                Trader                           Trader

                        Services Provided By The VAN
Document conversion from one standard to another; typically required when two trading
      partners use different standards for EDI Exchanges i.e. ANSI ASC X12 to EDIFACT or
      TDCC to ANSI ASC X12;

Converting one ANSI ASC X12 document to another ANSI ASC X12 documents; often within
      the same system the documents may need to be converted to another type. For
      example, a Motor Carrier Details & Invoice (210) document may need to be converted
      to Generic Freight Invoice (859).

The sender may follow certain conventions that are different from receiver. Translation from

      a sender's conventions of a standard document to the receiver's conventions; i.e

         •    translate field separators,

         •    discard unwanted characters

         •    format translation from EDI standard to or from flat file, flat file to flat
              file, XML, and other formats

         •                                                                       29
              data translation among the PDF, XLS, MDB or other web-based documents
                                                                  Value Added Network (VAN)
The appropriate customer data can be saved in the VAN account and later appended on
      messages where needed. For example, sender’s Bill of Lading (BOL) number can be stored
      in the account and upon receipt of the BOL acknowledgment (997), an acknowledgment
      message including BOL number can be created and transmitted to sender.

VAN provider’s computers also store data such as customer profiles, repetitive waybill codes, etc
      which can be used for filling up the EDI transaction document help of customer profile code.
      The customer profile stored on the VAN can be accessed using the customer profile code
      and the data from the profile stored on the VAN can be used for completing the EDI

The subscribers can interactively enquire about the status of any EDI transactions made by them.

Subscribers can receive “verify acknowledgments” in the mailbox even when they are not online.

The VAN can alert the subscriber (receiver) that there is data in their mailbox to be picked up
      through means such as:

          •    By sending a fax notification

          •    By calling a pager or other alerting device that signals users about the waiting mail
               in the mailbox                                                                30
                    Value Added Network (VAN)
•   The VAN can capture the specified data from transaction which, in turn, can be
    used for generating customer-specified reports.

•   The subscriber may specify the editing requirements, VAN can edit for
    completeness and correctness as per requirements. For example, it can verify that
    the line item charges on an invoice add up to total value shown on the EDI invoice

•   In situations where such missing or mismatching data is found during the edit
    process, the VANs usually send messages to the originator informing it about the
    missing/mismatched data and request re-transmission of the same; For example
    in ASC X12, upon receipt of Shipment Status Message (214) with missing data,
    send a Status Inquiry (213) transaction to carrier requesting correction and re-

•   Validate and verify the information stored in customers’ databases for missing
    data and send messages to appropriate firms requesting correction of the missing
                       Third Party VAN Providers.
GEIS- Operated by General Electric of USA, has presence in over 50 countries.
Cable & Wireless- Highly reliable with a subscriber base of over 2000 top companies of the
     world, holds nearly 8% market share of global VAN market.
GNS – It is one of the largest Value Added Network and has presence in 36(? Check internet)
Transpac – A France based EDI VAN provider owns the largest domestic VAN market share and
     has strong presence in Europe. It uses Infonet for offering VAN service outside the
     domestic domain.
Infonet- VAN service jointly owned and operated by WorldComm, Singapore Telecom and
      Transpac. The owning organizations themselves offer VAN services in the local domains
      and cover rest of the world through the Infonet.
Satyam Infoway – The private national Internet Service Provider (ISP) offers EDI VAN services
     in India, in association with the Sterling Software of USA. In addition to the standard VAN
     services, it offers Web EDI VAN services as well.
NICNet – The National Informatics Center, has established connectivity through 600 points of
    presence in India. The NICNet in late 1999 started offering Value Added Network (VAN)
    Services to facilitate and encourage the EDI adoption in India. Some of
    implementations of EDI in India: Indian Customs, Port Trust and Apparel Export
    Promotion Council use the NICNet VAN.
            Benefits of EDI-

•   Reduces Lead Time
•   Improves Coordination with Suppliers
•   Reduces Redundancy
•   Expands the Market Reach
•   Increases revenue and sales


To top