Electronic data interchange - Sample Essay

Australia’s largest retailer has approached us, to submit a proposal on Electronic Data Interchange (EDI); what it is, how it would be implemented in their company, the benefits of implementing EDI, the internal restructuring of the company, the technologies involved, and the analysis of the derivatives of EDI. The resulting study reports that the potential benefits within the retail industry are high. EDI is ‘the exchange of documents in standardized electronic form, between organizations, in an automated manner, directly from a computer application in one organization to an application in another’.

EDI is 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. EDI allows new ways of carrying out tasks, as well as making provisions for new ways of working. Companies may wish to restructure in order to adopt and take full advantage of the new and more effective methods of operation that EDI enables. These organizational impacts may include workforce reductions and eliminating of certain tasks.

2. 0 HOW EDI WOULD BE IMPLEMENTED? Implementing EDI in your business will require broad participation. A number of preliminary steps need to be taken in order to implement EDI including; exploring the EDI, as well as deciding the direction the company wants to take the EDI to. The impact on business practice will be extensive. It will affect most, if not all areas of the company, including the existing computer system in place as well as current working procedures. Some procedures may be eliminated altogether due to the move towards paperless environment.

Implementing decisions will need to be taken, covering: a) Business Needs Analysis Analyze your business needs to correctly identify areas of your business where EDI will return the most benefit. b) Requirements Definition Carefully define the requirements, both internal and external, and understand the costs to insure that there are no expensive surprises. Carefully define requirements to help you focus on your objectives. c) Pilot Project Implementation Pick a pilot project for the first implementation, and then proceed to full implementation. d) Standards EDI standards should be looked at closely.

The initial step is to explore the EDI and look at the existing trading practices within the company and the state of EDI in the industry in general. In exploring EDI, the following questions will need to be addressed and answered: 1. What are the technical issues? 2. What are the potential benefits? 3. What are the start up and operation costs? 4. What is the current status within the company? 5. What is the current status within the industry? e) Network choices There are a number or rival vendors that should be consulted in order to choose an appropriate network for your company.

Different vendors will offer different services, and you will need to fist of all asses the needs of your company, then seek the services of a vendor that meets you needs closely. f) Hardware/Software Hardware issues include the decision on where and how to move from manual system to EDI and how this change will be implemented. Can you do EDI on your current system? If not, you will need to decide which hardware platform best suits the needs of your business. Software choice will center on whether to develop in-house or purchase third party coding.

A decision will need to be made whether to build EDI into existing computer application, or to adopt the simpler course of action and manually transfer data from the existing manual system to the EDI. g) Training and Education Training and education is the most important aspect of implementing EDI. It is most important that everyone involved in the new technology arrangement should understand it. This means that employees as well as employers should be trained in handling new document formats and operating computer workstations. 3. 0 THE BENEFITS OF IMPLEMENTING EDI a) Improved Speed.

The order time is reduced significantly. b) Improved Accuracy Every time data is keyed, there is an opportunity for error. In the EDI environment, since the data is keyed significantly fewer times, the chances of making errors are significantly reduced. c) Reduced Staff Levels & Higher Level of Productivity EDI enables the Staff to give attention to more productive work than re-entering orders that have already been entered into the system (One time Data Entry). In a way there is a higher level of productivity without increasing the staff. d) Smoothing The Warehouse Workload.

With EDI the inventory storage requirements are reduced. Edi helps flatten seasonal peaks, which lead to reduction in overtime, and providing improved customer service. The wholesalers’ ability to dispatch the goods efficiently and as per the requirements of the organization is also enhanced by the implementation of Electronic data Interchange. e) Up to Date Product Knowledge Because of the order acknowledge the number of enquiries to the concerned departments goes down and all the internal functions have the latest information. f) Reduced Administration.

The process of checking invoices to statements is a time consuming process. EDI enables the invoices to be passed for payments more quickly. g) Central Control Internal EDI is of great significance for retailers that have many branches. It enables them to deal with central buying and stock-control, on the basis of data received from the branches, very effectively. h) Reduced Costs In terms of costs involved, EDI is the cheapest alternative available for business messages to be passed between “trading partners” as it involves fewer staff and less time. There is an elimination of mail charges and courier services.

According to various organizations, for instance, Nissan, the implementation of EDI has to lead to reduced hardware, software and network costs. Companies using EDI have reported costs savings on data input. i) Reduction of Errors Organizations that have implemented EDI report that there has been a remarkable decrease in the number of human/manual errors. j) Increased Efficiency The delivery information is sent to the supplier base within no time. k) Competitive Advantage Having an EDI gives a company a competitive advantage over its business rivals, a fact stated by numerous organizations using EDI.

There is an improved ability to compete internationally. l) Time Saving Time adds costs. EDI helps organizations save non-value added time. For Example the amount of time a document spends in the postal system waiting to be worked upon and the time spent actually keying the data and making copies for other departments. With EDI the time delays created by manual transmission of data, the time involved in processing data, clerical tasks such as making copies, filing and reconciling various data are all significantly reduced. m) Complete Data.

Data entry is a manual and time consuming process, consequently it a common practice to minimize the amount of data that is captured; resulting in loss of important data. For instance, when a purchase order is received, only that information which is necessary to process the order will be kept the rest all discarded. This discarded data might be having some important information from company’s perspective. Since the EDI transaction is computer to computer every important but of information is kept. n) Improved Cash Flow Management Implementing EDI ensures improved cash flow management.

o) Stronger Relationship With Trading Partners With EDI the entire process of exchange of information between the trading partners becomes extremely quick. The margin of error is very little. Loss of data is negligible. It all leads to greater harmony and coordination between the trading partners (Customers, Suppliers, Carriers, Banks and financial institutions) p) Improved Ability To React To Market Changes Considering the benefits discussed above, an organization finds itself in a better position to react to the market changes in a positive manner. EDI greatly increases business opportunities.

q) Availability of Better Information For Management Decision Making In the final outcome of implementing EDI, the company will ultimately receive substantial benefits from the faster processing of the paper work that is usually involved prior to this new system. Not only will the ‘turnover rate’ of each individual task speed up, it will also enhance the quality control within it. 4. 0 THE INTERNAL RESTRUCTORING OF THE COMPANY Once the commitment is established to moved ahead with the implementation of EDI. The following listing will provide an approximate idea of how to approach such planning:

Assess and agree requirements for software, communications and standards Run pilot and subsequently evaluate outcome  Progress implementation to new business partners and new business functions EDI should be implemented in a similar methodology as with any other business strategy, that is in a piecemeal approach proving and evaluating each stage before progressing to the next. It is not advisable to convert to a fully functioning EDI overnight as that will disrupt the relevant processes. It takes time for employees, systems and process to adapt to the new technology. (http://www. edi-gym. freeserve. co. uk/) Human Resources.

The retraining of existing employees in the use of the EDI machinery. Furthermore, the employment of additional workers to complement the implementation of EDI. The accounts department as well as the purchasing department will be heavily involved in the implementation of EDI. Their computing knowledge will be expanded in the use of new software a well as the EDI format standards that accompanies it. Their processes will be very different however in principle it will be similar. As mentioned above, there will be the need to be have specialist available to maintain the EDI architecture and especially the system processes.

The adoption and usage of this system will take some time to work smoothly. Other staff involved or those with some association with the system will need to have some understanding of the workings of the EDI process. This will enable them to have a better understanding whenever decisions on any planning will be carefully thought out. More so when it has some connection to those departments.

5. 0 TECHNOLOGIES INVOLVED IN EDI a) Web-EDI Organizations can adopt this strategy to cut down cost and improve efficiency by dealing with other organizations using the web (e.g. suppliers, distributors, resellers). One approach is to perform all transactions electronically using Electronic Data Interchange (EDI) standards. Communication between organizations takes place typically via private networks that charge monthly and transaction-based fees. The popularity of the Internet is now prompting the shift from private networks to web-based EDI with secure, protected exchange of business documents. The major benefit to shifting from traditional EDI to web-based EDI is the reduction in operating costs.

According to E-Business Advisor, Web-based EDI can save users one-tenth to one-third the cost of traditional EDI. Internet-based procurement systems can dramatically reduce costs associated with procurement activities, such as processing purchase orders. Setting up electronic storefronts on the web can attract new customers and increase sales. (http://www. bdmp. com) b) XML-EDI According the XMI/EDI group [online: http://www. xmledi-group. org/]: XML is native language for the most of the popular WWW browsers. XML/EDI seeks to leverage the work and support (technically and financially), which XML is receiving.

With traditional EDI, the infrastructure was built from the ground up, without being able to share resources with other programs. This paradigm is no longer appropriate in today’s world of shared software development. By adopting XML/EDI, the EDI community can get to share the cost of extension and future development. XML can be integrated with existing EDI systems by:  providing application-specific forms that users can complete to generate EDI messages  generating EDI message formats for transmission between computers over the Internet, or through existing value-added networks (VANs).

Allowing data received in EDI format to be interpreted according to sets of predefined rules for display by the receiver on standardized browsers using a user-defined template, rather than having to rely on specially customized display packages. XML can extend existing EDI applications by:  allowing message creators to add application-specific data to standardized message sets where required  allowing message creators or receivers to display the contents of each field in conjunction with explanatory material which is specific to the application and the language preferences of the user.

Allowing system developers to customize the help information associated with the data for each field allowing field value checking to be integrated with checks on the validity of the data with respect to information stored on local databases. c) Lite-EDI Lite EDI is aimed specifically at small and medium size enterprises (SMEs) that do not have the time or expertise to set up a full solution. The EDI-solution must have low start-up and running costs. It should be possible to use the solution as an add-on to existing general-purpose document and form processing applications.

It should, moreover, be possible to use Lite EDI over a range of communications mechanisms, including on-line ordering and off-line, e-mail-based solutions. Creators of Lite EDI messages will be responsible for their formal definition. These definitions should be exchangeable in electronic form, ideally from a freely accessible repository. There should be a unique means of identifying each information object within a message. Messages must be transmissible in a secure form, with a method of authenticating both the sender and the receiver.

Archiving of data may need to be needed in secure format (for digitally signed received messages) and in plain format (for transmitted messages). (http://www. telin. nl/NetworkedBusiness/). d) SIMPL-EDI SIMPL-EDI is an attempt to reduce the set of concepts and messages available in EDI, by the ad hoc working group on SIMPL-EDI and forms and web based EDI (SIMAC). The basic idea is that a simple EDI solution (that is, one with low set-up costs) needs simple processes and procedures. When the processes and procedures are simplified, the messages can be simplified too. In future, the messages should contain only core data.

Therefore, new agreements on content are needed. SIMPL-EDI documents the use of UN/EDIFACT EDI messages to support the requirements of simplified basic business processes, and the core data to support the processes. It allows the linking of improved processes and procedures, organized with the maximum use of simple standard procedures and standard EDI with the maximum use of applicable coding systems and standard IT systems. (http://www. telin. nl/NetworkedBusiness/) e) Open-EDI Open EDI aims to make EDI available to all parties, according to standards and without requiring special bipartite agreements.

It tries to achieve this by introducing standard business scenarios and the necessary services to support them. Officially, Open EDI is defined as “EDI among autonomous parties using public standards and aiming towards interoperability over time, business sectors, information technology systems and data types, capable of multiple simultaneous transactions, to accomplish an explicit shared business goal” Key concepts of Open EDI are that:  information must be structured and predefined, there is no prior agreement between the trading parties,  no human intervention is involved in the exchange, the exchange is independent of any underlying information technology  systems, and  it supports cross-sectoral exchanges.

Since Open EDI takes a generic approach, it enables organizations to establish short-term relationships quickly and cost effectively. Exchanges of all information types are allowed thus the exchange of structured text and numbers in traditional EDI is extended with new data types, like CAD drawings, images, voice recordings, and video. In order to work effectively, Open EDI needs security mechanisms to allow identification of previously unknown trading partners, and trusted third parties.

(http://www. telin. nl/NetworkedBusiness/) f) Object-oriented EDI (OO/EDI) Object-oriented EDI is the application of object-oriented techniques to EDI. It adopts Open EDI. OO/EDI strongly uses business process and information modelling methodologies to design its objects. The resultant model specifies the business flow needs and identifies related object classes to the extent that production of off-the-shelf software to support EDI exchanges becomes feasible. It is not possible to convert existing EDI messages into OO/EDI(FACT) and OO/EDI will not use the EDI syntax. OO/EDI is still under development. (http://www. telin.nl/NetworkedBusiness/).

6. 0 THE DERIVITATIVES OF EDI The future of EDI would be more compliant and uniformed if the same standard was applied globally. That is, where all the nations were to implement the same standard format/software everywhere. Then EDI can be really implemented across the world. At the moment, there are several standards or syntax upon which EDI massages are built (www. edi-gym. freeserve. co. uk, 2. 09. 01). There are three syntaxes that are the main player in the EDI arena – ANSI X. 12, UNTDI2 and EDIFACT3. The former is the main standard used in North America as well as Australia and New Zealand.

UNTDI was the main standard in Western Europe until EDIFACT became the only international syntax standard (www. edi-gym. freeserve. co. uk, 2. 09. 01). ‘Traditional’ EDI will still exist now and in the near future and will most likely continue to proliferate. New and innovative uses of EDI technology such as OBI (Open Buying on the Internet that is a combination of Web-based and traditional EDI technologies. Its intended use was for high volume, low-dollar purchasing) will continue to emerge. In terms of data exchange between enterprises, things will probably get worse before they get better.

With the variations in existence on technology, the complexity will only increase. Nevertheless, as the confusion in technology outlook may be, the original concern of facilitating the business of commerce, it is most likely that we will see further improvement. Some of these technologies may not find much practical use nor the marketplace will tolerate inefficiency for long. Even with their diversity, these technologies will extend electronic commerce to new businesses and applications. In the end, commerce will be served (Rawlins, 11. 09. 01). 7. 0.

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