Put simply, EDI is about doing business and carrying out transactions with your trading partners electronically. EDI covers most things that are done using paper based communication, for example placing orders with suppliers and carrying out financial transactions. This is why the term `paperless trading' is often used to describe EDI.
More formally EDI is described as the interchange of structured data according to agreed message standards between computer systems, by electronic means. Structured data equates to an unambiguous method of presenting the data content of a document, be it an invoice, order or any other document type. The method of ensuring the correct interpretation of the information by the computer system is defined by the standard. Electronic exchange of information in the context of pure EDI effectively means without human intervention.
EDI may seem difficult to distinguish from electronic mail (e-mail) as both involve the transmission of electronic messages between computer systems. What differentiates EDI from e-mail is the internal structure and content of the data message. The content of an e-mail message is not intended to be processed in any way by the receiving system, whereas EDI messages are intended for and are therefore structured for automatic processing.
It should be realised that EDI is not a revolutionary concept. As the powers of computing and telecommunications have grown, EDI technologies have evolved as a natural data carrier replacing the paper document. Nor is EDI a new concept or a new practice. It has existed for over two decades in Europe and North America in industry sectors with products or services having a short shelf life but a high unit price. The airline industry is a classic example of this type of industry - empty seats mean lost revenue opportunities.
More recently however the profile of EDI has been increasing, it would appear at the moment to be very much `flavour of the month'. In fact the situation amounts to much more than this. A number of factors, including drastically reduced costs of computing hardware, software and telecommunications combined with the lifting of trade barriers across Europe mean that EDI is moving from an embryonic, innovative phase into a phase of exponential global growth, a classic market life cycle. Another major factor is the increasing realisation of the role of EDI as a business enabler in increasingly competitive and dynamic markets.
Increasingly EDI is seen as much more than a way of automating tedious, manual, `paperladen' processes. EDI is a tool which allows business processes to be executed using more effective but totally different approaches.
There is no doubt that EDI can bring significant benefits to organisations.
These can generally be classified into strategic, operational and opportunity benefits and will vary in emphasis across different organisations, depending on why and how EDI has been implemented. Initial EDI applications have concentrated on corporate efficiency by improving data flow and error reduction. In these instances the business case for EDI was based primarily on direct cost savings.
With EDI businesses can eliminate the need to re-enter data from paper documents and thus prevent clerical errors. Estimates suggest that 70% of all computer input has previously been output from another computer. Each re-entry of data is a potential source of error. It has also been estimated that the cost of processing an electronic requisition can be one tenth the cost of handling its paper equivalent. In addition EDI can reduce the need for personnel involved in orders and accounts processing.
EDI systems can shorten the lead time between receipt and fulfilment of orders. When scheduling information is transmitted with ordering data, companies can plan production more accurately and thus reduce stock inventories. Reduction in inventory can result in major savings.
Use of EDI to transmit invoice data and payments can improve a company's cash flow and may increase the amount of working capital as accounts can be dealt with more efficiently.
Trading information obtained from historical data built up from EDI transactions is an invaluable source of market research and strategic planning information. The process of working with trading partners to implement EDI can also result in the benefit of closer working relationships with trading partners.
It has now become apparent that the greatest value of EDI will emerge in strategic areas such as the provision of better levels of customer service and improved marketing competitiveness.
In short, the field of application of EDI extends to all trade and trade related activities. It is relevant to everything from printing to shipbuilding. Activities can be categorised into three main areas:
Where a transaction involves import or export, customs declaration documents can now be submitted using EDI messages which greatly expedites the whole process. For example, Singapore harbour implemented EDI techniques in the 80's. Now renowned for its competitiveness, customs transactions which previously took a day to complete can now be done in minutes.
Banks and other financial institutions are supporting usage of EDI in the area of Electronic Funds Transfer (EFT). EDI enables these organisations to operate much more efficiently by eliminating significant amounts of paperwork. This of course results in a beneficial `knock-on' effect on their customers.
Governments view EDI as an enabler to help manage such areas as procurement, taxation, logistics and so on. Government departments deal with vast quantities of information, EDI can facilitate the tracking and therefore management of this information. Governments are increasingly using EFT to process payments such as social insurance and unemployment benefit to individuals and other organisations.
EDI involves five main processes:
1. Standards EDI standards define the techniques for structuring data into the electronic message equivalents of paper based documents. In other words there are standardised methods for describing the components that make up a trading document, e.g. product code, price, name, address etc.
2. Software EDI management or translation software is designed to translate messages as they move from standard to internal formats and vice versa. Trading partners EDI messages can move directly to the application software.
3. Communications The communications infrastructure required for electronic trading is analogous to the pipework of the process, that which enables messages to flow between trading partners. Different options are available, such as exchange of discs or tapes, private networks etc, although most UK organisations now engage the services of third party network operators known as VANs (Value Added Networks).
What is just as important as these technical considerations is the fact that EDI implementation is primarily a managerial activity and therefore requires buy in at management level. The technical elements of EDI are relatively straightforward and easy to implement. Realisation of strategic gains through EDI will not be achieved from the elimination of paper flow within individual processes. The real opportunity depends upon the original analysis of the business and how EDI has been implemented so as to change the way the organisation does business.
Once management commitment to move forward with EDI has been gained the next step is to establish a phased plan for EDI implementation. The following gives an idea of how to approach this planning activity:
Once the business is ready for full implementation of EDI there are further considerations in relation to interchange agreements with trading partners, specific responsibilities of each trading partner etc. These issues will be addressed in a future issue of EDI Aware.
One of the key components of EDI is the communications medium used to enable
the electronic transmission of business documents, between a large number of
different organisations, throughout the country or indeed the world. In the
early days of EDI, organisations like the Article Number Association evaluated
the most appropriate means to support electronic communications between
companies.
As a result of their deliberations, it was determined that the use of
magnetic tapes or disks for the exchange of data was limited in potential and
would inevitably cause problems when the volumes of data exchange grew. They
also decided that direct communications links between organisations would be
difficult to manage in large numbers. They therefore determined that the way
forward was to use a VAN (Value Added Network) to support the communications
requirements of industry and commerce.
The result of this initial EDI activity, driven by the ANA, was that ICL was
asked to develop an EDI service. This service known as TRADANET has become the
most widely used VAN in the UK. Subsequently, ICL set up a joint venture company
with GEIS (General Electric
Information Services) to focus on the electronic messaging services business.
This company, INS, is now completely owned by GEIS, between both companies they
claim to support the largest community of EDI users in the world.
Another VAN which was originally UK based was Istel. Istel developed a
substantial user community initially in the automotive and engineering sectors.
It was then acquired by global communications company AT&T. Thus both of the early market leaders
in EDI are now part of international organisations offering global messaging
services.
The other main contenders in the UK market are BT and IBM. IBM has had a presence in the
market for some time and in particular has established a niche for itself in the
insurance business. More recently the company's presence has developed in other
industry sectors and in particular, it has developed its European base of users.
The last major player to enter the market was BT. It's presence within the
messaging business was also enhanced by it's acquisition of Tymnet. Tymnet was
one of the leaders in the US marketplace and gave BT a source of EDI products
and services from which to evolve and expand into other markets including the
UK.
All of the above companies are expanding their market presence in an
increasingly wide variety of industry sectors.
In addition there are some smaller organisations which offer niche services
in particular industries e.g. AutoLink and DIALnet. These are often targeted at
the smaller companies.
It was clear from the outset that any organisation, committed to EDI, would
have a requirement to communicate with a large number of different
organisations, whether these be suppliers, distributors, banks etc. The function
of the VAN therefore was to provide a single channel to facilitate this type of
communication.
The VANS support links to their networks for all of the main computer
hardware and software operating environments. When you join a VAN you need only
be concerned about your link to the network whether it be from a PC, mini or
mainframe computer. What your customers or suppliers use to connect to the
network need not concern you at all, as the VAN will take care of all these
individual connections to their services.
Until recently, there was a limiting factor, in that there were no
connections between networks. As a result, the early development of user
communities tended to focus around a particular VAN. If you are in the retail
sector the most widely used VAN is the INS TRADANET service, the automotive
industry on the other hand developed around the AT&T Easylink network. If
your organisation had trading partners on different networks you had no option
other then to join more than one.
Now all of the networks support interconnections with each other. It is
possible, therefore, to join one network and communicate with trading partners
on any of the networks via these interconnections. It should be noted, however,
that the current nature of these interconnections means that the full end to end
Audit Trail capabilities of VANS outlined below do not exist when you send data
across more than one network.
In addition to providing the benefits of a single communications link to
multiple trading partners VANS fulfil the following functions:
Mailboxing At it's core the VAN is essentially an electronic
post office. It receives electronic messages which may be orders, invoices etc.,
reads the addressing information contained in the EDI envelope surrounding these
messages and posts them into the mailbox of the recipient.
All of this can be accomplished within a matter of seconds ensuring that
critical business documents can be received by trading partners within minutes.
Security Because of the commercial sensitivity of some of the
documents transmitted e.g. invoices, the VANS suppliers have ensured that high
levels of security are maintained. Access to VANS services are password
controlled and most VANS offer Trading Relationship validation as a means of
ensuring that only authorised messages or documents may be transmitted.
Therefore if you wish to send an order electronically to a supplier you will
have to specify this in detail and set it up on the VAN. Equally your supplier
will have to set up his side of the relationship and thus accept receipt of that
order document. Only once matching relationships have been set up will the
network allow transmission and receipt of the document by the consenting
parties.
In addition to password and trading relationship control, some networks check
the integrity of each transmission into their service. This level of checking
ensures that the transmission conforms to the mandatory data elements of the EDI
standard being used (see the article on EDI Standards). Also if the transmission
is incomplete, perhaps due to failure of the communications link, it is usually
possible either to re-send the missing data or to re-send the whole
transmission. The networks do not allow duplicate transmissions and will
therefore automatically discard any of the data which has previously been
delivered to the recipients mailbox.
Audit Control It will be obvious from the above that it is
essential for the VANS to provide the end user with a full audit trail, so that
users have information at their disposal with which to manage their use of such
services. These facilities are now generally available as a function both of the
networks themselves and the software packages that are available for connection
to the networks. As previously stated, however, detailed end to end audit is not
available via most of the available network interconnections.
In general there can be no doubt that the overall levels of security
maintained by the VAN operators is very high and that sending important business
documents electronically is much more secure than using paper based systems.
The network services outlined above are similar for most VANS, to explore the
differences in service levels etc. you will need to study the information
published by each of the VANS suppliers.
The main differences between the networks tend to relate more to their
expertise and involvement in the management of EDI Roll-Outs to suppliers and
their implementation and support services.
Some of the VANS, notably INS, deliver all aspects of these services
themselves. Others like BT and IBM tend to involve software houses and
consultancies to a greater degree when they put together a complete Roll-Out
project.
INS has also adopted a slightly different position in that it owns and
markets a range of software products known as the INTERCEPT product range. Some
of the other VANS offer their customers a choice from a range of approved
software packages.
The VANS also offer training, implementation and Help Desk facilities to
support the introduction of EDI products and service into an organisation and
their on-going use.
In general, a company should not expect any more from the VANS. They tend not
to get too involved in the specific details of individual companies EDI
implementation needs. VANS are geared up to support a large volume of EDI
implementations to the point where a company has an operational EDI system,
normally for a limited number of documents and often in support of the needs of
one major customer.
As a result there are many companies who use EDI in a very limited sense. If
they are to evolve from this point they often need the support of a software
house or consultants who can help them on an individual basis.
In reality, most first time EDI users will be influenced by factors other
than the variations between VANS services. One of the main factors which
influences most companies is an analysis of which VANS are used by their main
trading partners. As stated earlier different industries tend to have developed
their use of EDI around a particular VAN therefore a useful starting point is to
evaluate which of your key trading partners are on which network. It is also
often the case that if your interest in EDI is being driven by a request to
trade electronically with a particular customer that this organisation will have
developed a start up package for you with a particular network. This again will
influence your decision.
If you are not influenced by either of the above factors, you can evaluate
each of the VANS in turn and make up your own mind. There are differences in
approach and the costs associated with joining each network and you should
therefore determine which VAN best supports the needs of your organisation. Your
local Awareness Centre will help you if you need further information about VANS.
In particular we hold stocks of literature, community lists and in some cases
examples of the implementation documents prepared by the VANS in conjunction
with their major customers.
Of the three components that make up the EDI triangle, standards, software
and communications, it is the software that will present the greatest number of
variables and must be carefully selected to accommodate the way EDI systems are
used.
In terms of basic functionality, for messages to be transmitted, an EDI
software package must be able to perform two fundamental tasks, it must
incorporate a facility to allow data to be entered and encoded into an EDI
standard format. Conversely, for incoming messages the software must allow data
to be decoded and entered into an in-house format. These two features define EDI
software.
The choice of software is of crucial importance to the effectiveness of an
EDI system. The process of software selection cannot, however, be made in
isolation from the rest of the EDI system and should be viewed in parallel with
intrinsically related business and technical issues.
Many SMEs currently using EDI will have been advised by a major EDI user,
commonly known as a `hub', to purchase a `preferred' pre-packaged solution.
While the larger company in this scenario may enjoy the multiple benefits of
EDI, the smaller partner's sole motivation for implementation is usually to
fulfil it as a condition of trading. This arranged solution usually specifies
the hub's preferred software supplier, a VAN, and can sometimes impose an
uncomfortably short timescale for implementation. The software supplier will
already be familiar with the hub's messaging requirements and will therefore
`personalise' the software to the specific nuances of the established user.
Examples of this are the EDI rollout programme of Marks & Spencer which
specifies a pre-configured version of Kewill-Xetal's EDI
software for use by SMEs or Safeway's policy of recommending Meadowhouse Bar
Laser as its preferred software supplier.
The advantage of this type of system are that the software development costs
are shared by the hub's supplier network. Conversely the disadvantage of this
type of software can be network connectivity restrictions that may become a
limiting factor, if further expansion is required. As a result of the time
restraint, in this situation, the SME often has very little time to investigate
alternative options and will usually adopt the suggested solution while keeping
the system as open as possible in order to accommodate further trading partners
or networks.
Some large hubs are not so aggressive in their EDI rollout programmes and
will offer SMEs some general advice and a more reasonable timescale in which
suppliers can decide how they may most effectively incorporate EDI into their IT
systems. In this case the SME will have some time to analyse the EDI software
market and select the system that is not only suitable for present but also
future business needs.
The process if singling out one piece of software is a time-consuming task
and can be a major exercise in decision making. The main reason for this is that
there are now over 40 EDI software packages available in the UK market alone. To
most companies, in particular the relatively computer illiterate SME, this often
presents the single most difficult decision to be made as part of the EDI
implementation process. For the typical SME one question for software selection,
`Make or Buy?', will already be answered by the limitations of in-house
resources and so the question will become, `Which off-the-shelf package to
buy?'.
Since it is never the case that any two EDI system's configuration will be
identical, there are no hard and fast rules for software selection. However, by
considering a number of criteria, a shortlist of prospective suppliers can be
drawn up. In some ways the process of EDI software selection is similar to
choosing from a range of software for any other application.
Number of installations: This provides prospective purchasers with a
yardstick for measuring the implementation experience of a software house. The
popularity of a particular piece of software should be investigated in the
context of a sectoral breakdown of installations. This becomes particularly
important when dealing with some software houses which are targeting specific
sectors for their products e.g. TSI International is used mostly in the
transport sector.
INS-Intercept has a majority of retail users, Perwill's package has a
cross-sectoral usage and Telesmart has a cross-sectoral usage and is a preferred
supplier for IBM's rollout. It may also be useful to obtain references for
companies which have a similar sectoral profile or to get an insight into the
practical operation of a system.
Financial stability of software house: This factor is
particularly important when considering the ability of a software house to
honour any support or maintenance contracts. With the inevitable need for
regular amendments to software this should be a priority requirement.
Ease of use of software: Some software packages are more
user-friendly than others, e.g. Windows-based or menu-driven, and this will have
a cost effect on the number of days lost to training staff on the new system.
Hardware compatibility: & requirements Some software houses
specialise in providing software for certain hardware platforms or operating
systems. This can even be applicable for PC-based products with some packages
requiring a minimum of a 386 chip. Consideration of this factor will rule out
specialist hardware-specific software packages.
There are some factors which are specific to the requirements of EDI, which
software must comply with.
Ease of upgrade: As an EDI trading relationship matures there
is likely to be a requirement for enhancement of the existing system. This may
arise as a result of additional messages, changes to existing messages or
standards, addition of new trading partners and their individual messaging
requirements, inclusion of additional network connections or an increase in the
number of business applications to be integrated.
Network connectivity: Some EDI software packages are
restrictive since they do not allow users to be connected to all of the major
EDI networks. This is the exception to the rule since most of the most popular
packages have multi-network connectivity.
Multi-standards capability: In cases where a supplier is faced
with a situation in which two or more trading partners require EDI messages to
be transmitted using different standards the software must be able to
accommodate this need. Print/report generator: Many SMEs will not
be integrating their EDI application with their in-house systems and will
require a hard copy print of any incoming EDI messages. This facility must be
available on the software under consideration.
Many SMEs have adopted an EDI system which simply allows them to receive say
an EDI order which is printed out as a hard copy and then processed by manually
entering this data into their in-house sales order processing system. This is
not `pure' EDI, it is partial i.e. one trading partner - the sender - is using
EDI and the other - the receiver - is not. In this scenario it is difficult to
see any tangible benefit that has been gained by the SME. In effect the EDI link
is reduced to being an expensive sort of fax machine.
Furthermore, the likelihood is that the SME has been forced to incur a
substantial cost in purchasing the EDI software in order simply to maintain its
status, in terms of sales turnover, with its dominant trading partner. EDI has,
in this case, added no value to the business.
According to several of the largest EDI software suppliers only about 50% of
their sales of PC-based EDI packages are integrated with in-house systems. The
Awareness Centres are therefore endeavouring to promote the use of full scale
machine-to-machine EDI thus enabling the SME company to share in the benefits of
an EDI trading partnership. In the order receipt scenario above, true EDI would
be achieved by marrying the data contained in the order message with the
appropriate in-house business application. This process of matching up data is
known as systems integration.
The issue of systems integration is probably the single most important aspect
of EDI. While systems integration can often be the most expensive component of
an EDI implementation it is certainly the most beneficial. If the SME is to
realise any demonstrable benefits from an EDI implementation then it must
integrate its existing systems with the EDI application. Thus EDI is only a
means to an end, it is an enabler of the numerous benefits that arise through
its integration.
Since the configuration and use of IT systems in any two companies is
unlikely to be the same, it follows that the integration of a new component to
the existing in-house system will also differ from company to company. The
upshot of this is that there can be no standard for systems integration and in
this respect every implementation will differ according to the requirements of
the business process and the IT facilities. Some EDI installations may need
extensive systems integration and this may require the services of specialist
consultants for the development of the necessary interfaces between systems. In
this situation the integration can become a significant cost factor in the total
implementation so it becomes important to purchase software with a view to
minimising the complexity of integration.
For an SME receiving EDI orders the software package will receive the order
message in an EDI file. This file must be modified to extract only those pieces
of data that are required by the SME for order processing and to place each of
these data items in a resultant flat file. This process is facilitated by a tool
which is often incorporated in PC versions of EDI software and is known as a
data-mapper. After data-mapping the flat file will be configured in a profile
that is acceptable as an input file for the corresponding in-house business
application.
For some companies, which rely on little or no computer systems in order to
operate their business, the question of systems integration will have no
significance to their immediate needs. In these cases cost and support will
become the major criteria for software selection.
The EDI Awareness Centres endeavour to help SMEs to shortlist software
packages that will be most suitable for the needs of individual companies.
Value Added Network Services (VANS)
The Major VANS
Benefits of a VAN
Additional Products and Services
How do I choose a VAN ?
EDI Software
Which Software for the SME?
Common Software Selection Factors
EDI Software Selection Factors
To Systems Integrate or not to Systems Integrate?
