Electronic Data Interchange (EDI) and SCM

1. Electronic Data Interchange (EDI) and SCM • Define Electronic Data Interchange • Give characteristics of EDI • Discuss benefits of EDI, as well as barriers to its implementation • Describe how EDIt works, and how it is moving to the Internet • Contrast common (ANSI) EDI with Internet EDI • Internet improvements to supply chain management

2. Electronic Data Interchange (EDI) • Strategic Impact of EDI • Definition of EDI • Example of EDI • How EDI works • Benefits of EDI • Direct and Process • Barriers to EDI Adoption • Advantages, Disadvantages and Characteristics of VANs • EDI Implementation Model • EDI migration to the internet

3. Strategic Impact of EDI • Business processes can become more efficient • Customer-supplier relationships may change • more trust and collaboration • Market structure changes

4. Definition of EDI • The direct computer-to-computer transfer of business information between two businesses that uses a standard format. • Focus on trade data interchange • Often use VANs (Value-added networks) • Use of standards

5. EDI Standards • Companies speak precisely the same language • Same codes in same places • Proprietary codes --> to standards (X12, EDIFACT,X400) • Different computers can communicate with one another

6. EDI Standards • In 1968, the Transportation Data Coordination Committee was formed, charged with exploring ways to reduce the paperwork burden • American National Standards Institute (ANSI): coordinating body for standards in the United States since 1918 • Accredited Standards Committee X12 (ASC X12) chartered by ANSI in 1979 to develop EDI standards • The current ASC X12 standard includes specifications for several hundred transaction sets

7. Types of EDI Benefits • Direct • Process • require reengineering • can only be realized with all trading partners are on EDI • can revolutionize the way business is done

8. Barriers to Adoption • Trading partners not knowing benefits • Hardware costs • Interfacing translator, software costs • Need for software modifications • Network (VAN) service charges • Costs and effort for trading partner conversion

9. Trading Partner Concerns in EDI Implementation Benefits Costs EDI Trust Dependency

10. Value Added Networks • Trading partners can implement the EDI network and EDI translation process in several ways, each using one of two basic approaches • Direct connection • Indirect connection

11. Direct Connection BetweenTrading Partners • Requires each business in the network to operate its own on-site EDI translator computer • EDI translator computers are connected to each other using modems or dedicated leased lines • Trading partners using different protocols can make direct connection options difficult to implement

12. Indirect Connection BetweenTrading Partners • Companies use the services of a value-added network (VAN) • The VAN provides communications equipment, software, and skills needed to receive, store, and forward electronic messages containing EDI transaction sets • The VAN often supplies the software needed to connect to its services

13. Advantages of Using aValue Added Network • Users support only one communications protocol • The VAN records activity in an audit log, providing an independent record of transactions • The VAN can provide translation between different transaction sets • The VAN can perform automatic compliance checks to ensure the transaction set is in the specified EDI format

14. Disadvantages of Using aValue Added Network • Most VANs require an enrollment fee, a monthly maintenance fee, and a transaction fee • VANs can be cumbersome and expensive for companies with trading partners using different VANs • Inter-VAN transfers do not always provide a clear audit trail

15. EDI on the Internet • Viewed as a replacement for expensive leased lines and dial-up connections • Small companies can get back in the game of selling to large customers the demanded EDI capabilities of their suppliers • Concerns about security and lack of audit logs continue to be a major roadblock • Takes advantage of open architecture

16. EDI STANDARDS (ASC/ANSI) Security provided by private networks EFT (Electronic Funds Transmission) - standard for wire payments between client and vendor Transactions sets (810-invoices;850, 855- POs) INTERNET STANDARDS SSL (Secure Sockets Layer) SET (Secure Electroic Transactions) - protocol proposed by Visa/MC for Net No transaction standards Comparison of EDI Standards

17. Current Internet EDI Usage • Much EDI traffic carried over private networks • scalability • reliability • processing power • in 1996 EDI Group study • 85% of respondents using some form of EDI • only 3-4% were using Internet EDI

18. Changes on the Horizon • S/MIME protocol which enables e-mail applications to verify transmission and receipt of EDI messages • Products to map Web EDI transactions sent in multiple formats to legacy EDI applications • New (but potentially competing) technologies • XML • OBI

19. Products to Smooth EDI Wrinkles • GEIS’s TradeWeb - an entry-level forms-based service with which subscribers can send and receive four basic EDI documents over the Internet using a standard Web browser for flat fee ($50/mo) • purchase order (PO), PO acknowledgement • invoice, functional acknowledgement • GEIS’s Trading Process Network for posting EDI-based forms on the Web

20. Financial EDI • A trading partner’s bank is called a Financial EDI (FEDI) • Many trading partners are reluctant to send FEDI transfers for large sums of money over the Internet • Companies may opt to establish an indirect connection through a VAN for the added security for FEDI transaction