Introduction to EDI

EDI (Electronic Data Interchange), in its many forms, is fast becoming an acceptable way for both the private and public sectors to do business. This white paper is geared to someone who has not been exposed to EDI, in order to give them a basic understanding of what EDI is all about and how it works.

The Basics  

EDI is, in its simplest form, a way for companies to transmit business documents electronically -- replacing the need for manual input or mountains of paper. These documents can include such things as purchase orders, invoices, shipping notifications, financial payments, and monthly statements (to name just a few).

A basic example of EDI would be where a company "A" wants to order products from company "B". In the EDI world, company "A" creates the purchase order on their computer system, sends it to company "B"s electronic mailbox, company "B" retrieves the purchase order from their mailbox, creates an order on their system, ships the product to company "A", electronically advises company "A" that the product is on its way, and also electronically sends company "A" an invoice. All of this requiring little human intervention.

EDI first came about with the U.S. transportation industry in the early 1970's. The practice was then embraced by U.S. grocers and then the automotive industry. Needless to say, the major drivers of EDI in the 90's, at the distribution level, has been the retail giants; i.e. Wal-Mart, JC Penny, Price Costco, Office Depot, Canadian Tire, Sears, Eaton's, The Bay, and K-Mart. For these companies, EDI has meant better information flow, improved inventory management, reduced costs, and more accurate accounting. By saving millions of dollars at the administration level, they are better able to compete in the dog-eat-dog retail world.

Suffice it to say that the transmission of EDI documents is not as simple as transferring data files back and forth via modem. EDI is based on a set of standards, known as X12, which are used for document content and structuring. Each industry publishes its own set of guidelines on how to implement X12. Ensuring that everyone is working on a level playing field.

EDI Terminology  

Before we discuss the implementation of EDI within the Samco Power Accounting system, we must first look at some key parts that make up EDI transaction processing:
 

TRADING PARTNERS.... A trading partner is an organization who uses EDI. They are assigned a trading partner ID number which is their generic "customer number". This ID will be used by anyone they do business with. If you decide to go EDI you will register your company with your service provider (VAN) who will provide you with a trading partner ID number.

VAN (VALUE ADDED NETWORK).... Service provider who stores your EDI mail from your trading partners, and transmits your EDI documents to your trading partner's mailbox. There are a number of different VANs, all of whom are linked together.

TRANSLATION SOFTWARE.... Software used to send and receive EDI documents with you VAN. Many translation packages also offer a mapping or integration component for importing and exporting X12 documents.

GLOBAL/DX.... The link between your Samco Power Accounting System and the world of EDI. This module takes the output from the translation software and creates the necessary transactions, and also creates files for the translation software to send to your trading partners. An extensive amount of features and enhancements are added by Global/DX to make your Samco Power Accounting System EDI OK !

How EDI Works  

The easiest way to understand EDI is to follow an example of how EDI is implemented within Samco's Power Accounting System using the Global/DX module. In this example XYZ Co. is sending you a Purchase Order.

  1. XYZ Co. transmits a PO in X12 format to their VAN. In EDI terms the PO is called an 850.

  2. The customers VAN reads the X12 document, determines who its for, and then transmits the document to your VAN who in turn stores it in your mailbox.

  3. Your system's translation software dials into your VAN and picks up the X12 document. The document is then converted and exported to a flat ASCII file in a predefined sub-directory with a pre-defined name.

  4. Samco's system is set up to automatically poll the sub-directory. When it finds a file it parses out all of the documents into smaller files. In this case only one document is detected so it will create one file for the PO.

  5. Global/DX then reads the file and determines that it is a PO for XYZ Co. The PO is then run through a template that was set up specific to XYZ Co. Any errors are reported, and depending on how errors are dealt with certain measures are taken. Some vendors like to have a PO confirmation sent back to them. This would be handled automatically at this stage.

  6. Once step 5 is complete, an order is created in the system for XYZ Co. and, optionally, a picking ticket is generated in the warehouse for shipping. Hand-held data collectors could also be used to download the order for picking.

  7. After the order is picked, shipping enters in the product shipped and other shipping related pieces of information in an "Order Packing" function. With hand-held data collectors the information would have been entered as the order was being picked. Once the order is identified as ready to go, Global/DX creates an Advanced Shipping Notice (ASN) and adds it to the outbound documents folder.

  8. When the order is invoiced, an EDI invoice is created in the outbound documents folder, and an optional hard copy is generated for your records.

  9. The EDI translation software will then transmit the ASN and invoice to their VAN who in turn transmits them to XYZ Co.'s VAN.

  10. XYZ Co. will load the documents transmitted into their system. When the invoice becomes due they could transmit a funds transfer transaction to their bank depositing payment into your bank account. An EDI document is then sent to your mailbox for loading into Accounts Receivable.

Global/DX allows you to automate most processes. By limiting user intervention, Global/DX further increases the benefits of EDI by reducing entry errors and streamlining the ordering cycle.