Preston
Institute of management, Science & Technology Sukkur Campus
Submitted
By
Name: KHALID AHMED ABRO
Class: BSIT-6th Semester
Subject: Electronic Commerce
Student ID No. BCIT02b-011
Assign By:
SIR IMRAN
AHMED MEMON
Electronic
Data Interchange (EDI)
Introduction
The
Electronic Data Interchange (EDI) is simply defined as the computer-to-computer
exchange of business documents in a structured, pre-defined standard format.
The main purpose of the EDI is to avoid and prevent additional human
intervention of reading and processing information between trading partners by establishing a standard
data transmission protocol. As a result traditional processing delays and
errors due to the document transfers and data re-entries can be eliminated.
Electronic
data interchange can be used to transmit documents electronically such as
invoices, purchase orders, receipts, shipping documents, and other standard
business correspondence between organizations and business partners. EDI can also be used to transmit financial information
and payment in electronic forms, which is usually referred as electronic funds
transfer (EFT). Because of these, the functions of
the EDI become more and more significant
nowadays especially with the growth of electronic commerce over the World.
Therefore, It is important for us to understand how the EDI works and improves the tradition way of exchanging
information between trading partners, so that the productivity
and efficiency can be increased.
This paper
describes the basic problem and solution in the traditional business
environments, which use paper-based system to exchange information. It
introduces some worldwide EDI standards. The paper also discusses how the EDI works and implements. Example uses of EDI and case studies will be provided as well. At the
end, it will describe how the EDI can be used over the Internet, and what the future
trends and developments of the EDI will be.
How does
EDI solve the problems
The use of
electronic data interchange can help to eliminate or significantly reduce the
problems found in the traditional information interchange system. For instance,
with the implementation of EDI in the previous example, the merchant can still
review their material requirements and create purchase order. However instead
of printing a hardcopy of the order and mailing it, the purchase order will be
transmitted directly to the supplier over an electronic network.
On the
supplier’s end, the transaction will be received and posted automatically. If
there is an available stock, the supplier can even deliver the items on the
same date they received the order. Furthermore, the supplier now can be able to
send its shipping document and notification electronically to the merchant,
providing the client with accurate receiving documents prior to the actual
arrival of the items. In addition, since the invoice can be sent directly to
the merchant’s accounts payable system through the EDI implementation, the supplier could receive its
payment sooner than before. Figure 2 illustrates the simplified information
interchange cycle after the use of EDI.
Information Interchange Using EDI
Consequently,
most of the problems and drawbacks, which are encountered in the traditional
system, can be solved. First, the delays associated with the physical
transmission of documents, and the time required for human to read and re-enter
data are eliminated and automated by electronic data transfer. Second, since
data are not repeatedly re-keyed, the chance for error is greatly reduced.
Third, labour costs can be reduced, as data are not required to re-enter
frequently and manually at each stage of the processing cycle. Fourth, because
of the reduce in time delays, more certainty can be obtained in the flow of
information.
In short, with the implementation
of EDI, the productivity, efficiency and
accuracy between business and trading partners can be greatly improved.
The
Benefits
The most general benefits of EDI are improved speed, economy
and accuracy in handling business documents. More specifically EDI offers:
- Convenient exchange of business documents during
business or non-business hours
- Reduced business transaction costs
- Reduced information float
- Improved customer service
- Faster inventory replenishment and better overall
inventory control
- Reduced inventory carrying costs
- Reduced safety stock
- Advanced notification of shortages, cuts and
substitutions
- More reliable forecasting at both supplier and vendor
ends
- Improved shipping, receiving, and cargo tracking
- Quick accurate and automatic reconciliation of
documents
- Opportunity to negotiate better discounts and payment
terms
- Improved cash flow management
- More efficient data flow at both intra- and
inter-company levels
- More productive trading partner relationships
- Stronger bottom line
EDI work
This
section simply describes five basic steps or processes, which will happen
during a typical EDI transaction. These steps together with
the EDI standards make the exchange of data
possible between two trading partners. Figure 4 shows an
overview of how EDI works.
EDI works
1 Preparation of electronic
documents
The first
step in the sequence of EDI is the collection of information and data. The way
to collect the required information should be same as the way to do it in the
traditional system. However, instead of printing out the data on paper in
tradition, the system has to build an electronic file or database to store
those data. In the case of companies who already use computer to issue their
documents like purchase orders, they may already have some sort of databases
which store those information, then they can start with the next step described
below.
2 Outbound translation
The next
step is to translate the electronic file or database into a standard format
according to the specification of the corresponding document. The resulting
data file should contain a series of structured transactions related to the
purchase order for example. If more than one company is involved in the
particular transaction, individual files should be produced for each of them.
3 Communication
Then the
computer should connect and transmit those data files to the pre-arranged Value
Added Network (VAN) automatically. The VAN should then process each file and route to the
appropriate electronic mailboxes according to the destination set in the file.
4 Inbound translation
The
destinated company should be able to retrieve the file from their electronic
mailboxes in a constant period, and then reverse the process by translating the
file from the standard format into the specific format required by the
company’s application software.
5 Processing the electronic
documents
The internal
application system of the designated company can process the received documents
now. All the resulted documents corresponding to the received transaction
should use the same processes or steps to transmit back to the transaction
initiator. The whole cycle of the electronic data interchange can then be
completed.
These Can
Be Exchanged Using EDI
|
Purchasing Finance and Accounting |
Logistics |