unit-3-2

Unit 3
Electronic Data Interchange(EDI)

Basic Concepts of EDI
• Electronic Data Interchange (EDI) is the computer-to-computer exchange of
business documents in a standard electronic format between business
partners.
• By moving from a paper-based exchange of business document to one that
is electronic, businesses enjoy major benefits such as reduced cost,
increased processing speed, reduced errors and improved relationships
with business partners.
• The information used in EDI is organized according to a specified format set
by both companies participating in the data exchange.
• It is the electronic transfer of information between two trading partner’s
systems using a set of transactions that have been adopted as a national or
international standard for the particular business function
Type of Data to be interchanged:
• Electronic data means information, facts or computer programs stored as
or on, created or used on, or transmitted to or from computer software, on
hard disk or floppy disks, CD-ROMs, tapes , data processing devices or any
other repositories of computer software which are used with electronically
controlled equipment. An interchange is the transfer of digital information
from one computer to another.
• Electronic data interchange is the virtual exchange of data or business
documents in electronic format between trading partners . This exchange
of documents is generally between buyer and supplier and consists of
transferring purchase orders, invoices ,payments , shipping notices and by
nature eliminates paper trails.
• With data interchange system, any company can virtually interact with
another organization anywhere in the world without the trouble of waiting
times and forecasting future procedures.
EDI vs E-mail
This system is automated system and no human This is not automated system and need the user
involvement in the processing of electronic interventions.
information.
The interchange and reply is composed by one The message is composed by human and reply is
software for interpretations by another software. composed by a human.
The speed and amount of transmission is huge. Limited data file can transmit at limited speed.
Use the VAN or can use internet as the network Use the internet as the network structure and needs
structure and needs additional standard translator the email software like outlook express, Eudora,
software with standard applications. internet bowser etc.
This application uses the communication software to Transmission is on the human to software interface.
software orientation interface.
EDI Benefits:
• It shortens the supply chain. Electronic Document Interchange allows documents to be
sent and received with high levels of accuracy and speed.
• It increases transaction accuracy. Electronic interchange enables the automation of a
significant portion of documentation management, which avoids carelessness, delays
and human errors.
• It expands the market for the company's activities. EDI is structured under a specific,
standardized format, which enables companies to reach more international partners and
share standards with them.
• It enables transaction tracking. A complete Electronic Document Interchange
system enables them to be traced.
• It reduces costs. The company can reduce costs by doing away with paper and associated
expenses: printing, storage, postage, etc.
• It improves communication with customers and suppliers. EDI is also a tool that makes
for smoother relationships with a company’s different audiences.
• It improves security. As opposed to options such as email - which can be easily altered -
EDI uses encryption systems that improve security of document interchange.
• It reduces paper usage.
How EDI works:
• The data or the information that one company sends the other first
gets prepared to be sent, then the information/document is
translated into EDI format. The document is then connected and
transmitted to the other business, the connection is direct and point
to point.
• Once a format is decided upon, the process follows three main steps:
• 1. Prepare the documents
• First, the information required to create the document needs to be
gathered and organized.
• 2. Translate the documents into the correct format
• Next, the internal document must be converted into the defined
format. To do this, you can either purchase and use your own EDI
translation software or utilize a service provider.
• 3. Connect and send the documents
• Your business documents are ready to go! There are multiple ways to
send them to your business partner:
 Direct connection using a secure protocol, also known as Point-to-
Point EDI
 Connection via an EDI network provider
EDI application in various field:
• Banking
• Finance
• National Trade
• International Trade
• Industry
• Manufacturing
• Transport
• Travel
• Warehousing
• Health care and Insurance
• Manufacturing: A manufacturer or a retail store might use EDI with its
suppliers to replace paper purchase orders, material releases,
shipping notices and invoices.
• Health care and Insurance : EDI is becoming a permanent fixture in
both insurance and health care industries for medical providers,
patients etc. Electronic claims processing is quick and reduce the
administrative costs of health care. To processing claims for billing
purpose EDI enables doctors to communicate with other physicians,
laboratories, hospitals and other health care setting.
• Financial EDI : Electronic transmission of payments and remittance
information can transform by using financial EDI. This has established
the relation between payer payee and their respective Banks .
Financial EDI helps to reduce paper work for invoice, payments, Bank
transfer.
Security and Privacy issues of EDI:
• Any transaction whether conventional or online has some security
issues involved in it. Here are some security issues in EDI which you
have to take into account.
a) There is no hard copy of a document that can be filed or
distributed.
b) There is no provision for signatures authorizing the transaction.
c) There is a need to verify that data was received exactly as it was
sent.
d) The data needs to be protected from intruders.
e) The activity needs to be tracked.
EDI for E-Commerce:
• EDI services for electronic commerce are seen as the future bridge
that automates external and internal business processes, enabling
companies to improve their productivity on a scale never before
possible. They present information management solutions that allow
companies to link their trading community electronically-order entry,
purchasing, accounts payable, funds transfer, and other systems
interact with each other throughout the community to link the
company with its suppliers, customers, banks, transportation and
logistics operations.
• EDI is a vital technology for businesses in eCommerce. It helps
increase business efficiency, improve accuracy, enhance customer
service, saves thousands of dollars, and provide a
competitive advantage.

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Unit 3

Electronic Data Interchange(EDI)

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