Electronic Data Interchange (EDI)

SUPPLIERS END: The order received had to be manually entered into the system, an invoice had to be prepared upon the completion of the order, and then posted to the customer for payment. This system works well for smaller no. of transactions but when the transaction size increases, discrepancies, margin of error also increases because of a lot of paperwork. The system is plagued with errors due to re-keying of data at the manufacturers end. With the Japanese concept of JIT, the streamlining of SCM has assumed great importance. Technical innovations of the past decades have tried to curtail the cycle time of inventory fulfillments so that the engaged WC be used in a proficient manner.

Automation of inventory management in 70s and 80s speeded up the processing, computation and matching of suppliers for the required parts, but produced paper output. Then came the in-house systems, which served the purpose of data entry and online enquiries. Still immense amount of paper was used, decision-making in organization was delayed, mistakes were made in transcription, and costs added up due to the rising use of paper and its transmission.

CONVENTIONAL TRADING PROCESS

The typical trading process b/w two organizations remained more or less similar to what has been in use for over a century now. It consists of the following steps: Requirement of items is raised. The information on the requisition forms is entered into the purchase processing system. The Purchase Management System scans the suppliers databases for potential suppliers and prints the purchase requisitions, requesting the price and delivery quotation in the name of screened suppliers. These PRs are then transmitted to the suppliers, either through phone/fax or through mail/courier service. The information on PRs are then keyed in by the suppliers in their computerized systems for processing, and a quotation against the PR may be printed. The quotation from the supplier is then transmitted using traditional paper mechanisms. All quotations received are then entered into the manufacturer's automated system and most suitable candidate is selected. The order is then printed on a standardized order form along with the terms and conditions for delivery and payment. The printed order is then mailed, couriered, or faxed to the supplier. The supplier, on receiving the order, enters it into the computer system and matches with the quotation that has been submitted.

10.

11.

12. 13. 14.

15. 16. 17.

If everything is found in order, it raises an internal sales-order requires data entry / editing of the information from the received purchase order, and then printing of the internal sales order, it often becomes a source of delay. In extremes cases, if the prices do not match, it may require repetition of some of the earlier steps, or re-negotiation / clarifications, causing further delays. The internal sales order is used for generating several documents and forms for locating and identifying the appropriate stocks. The appropriate stock is thus picked and packed for sending it to the buyer along with the packing list and advance shipping note and advice. With the goods, the internal sales-order processing system also prepares a delivery note. The delivery/dispatch note is sent to the buyer using postal mail/courier/fax services. The buyer compares and inspects the goods, and prepares a goods receipt note containing the purchase order no. and marks the acceptance and rejection of the items shipped. The suppliers computer, on completion of the order fulfillment, also generates an invoice by printing it, which, in turn, is dispatched to the buyer/manufacturer. The suppliers computer also generates a financial statement at the end of the trading month for the payments. They also sends reminder for payments. The buyers computer checks all the details on his computer and if everything is found to be in order, the buyers computer processes the ordered payment.

Here, in the process, computerization has helped only in managing and processing of records of the traditional supply chain management. The whole process remains burdened with exhaustive paperwork, repetitive entry of data, making it prone to errors, and is still dependent on the postal communication of the document. Now, through Internet, requisite information is interchanged without paper. It has led to Increased speeds Avoidance of errors due to re-entry, Accuracy, Cost reductions due to reduced cycle time.

EDI
So, EDI is a paperless mechanism that addresses the problems of the traditional systems by electronic interchange of documents.

In the EDI envt.

Buyers create purchase requisitions in their computers. With the help of suppliers database, the purchase system creates calls for quotations to suppliers.

The calls for quotations are transferred electronically.

The suppliers computerized system prepare the quotation record which is submitted to the buyers computer electronically. Now, the electronically generated PO is automatically transferred to the buyer with the push of a button. So, the transmission of the data b/w two trading partners happens in electronic form.

DEFINING EDI

EDI is the exchange of business documents b/w any two trading partners in a structured, machine-readable form. It can be used to electronically transmit documents such as Pos, Invoices, shipping bills, receiving advices, and other standard business correspondence b/w trading partners. EFT used by financial institutions are a prime example of the application of EDI in the banking & financial sector. Acc. to the Data Interchange Standards Association, EDI is the computer-to-computer exchange of business data in std. formats. In EDI, information is organized acc. to specified format set by both the parties, allowing a hands-off computer transaction that requires no intervention or re-keying on the other end. All information contained in an EDI transaction set is, for the most part, the same as on a conventionally printed document.

DEFINING EDI

The National Institute of standards and Technology says that, EDI is the computer-to-computer interchange of strictly formatted messages that represent documents other than monetary instruments. EDI implies a sequence of messages b/w two parties, either of whom may serve as originator or recipient. The formatted data representing the documents may be transmitted from originator to recipient via telecommunications or physically transported on electronic storage media. Acc. to the International Data Exchange Association, Electronic Data Interchange is the electronic transfer from one computer to another of computer processable data using an agreed standard to structure the data.

Information Flow without EDI

BUYER
Purchase request initiated in the organization

SELLER

Finance Department
Payment Bill

Finance Department

Purchase Department

Order delivery

Paper-based mailroom

Paper-based mailroom

Order Confirmation

Sales Department

Inventory and Warehousing

Receiving Department

Shipping Department

Manufacturing Department

Product delivery

Information Flow with EDI

BUYER
Purchase request initiated in the organization

SELLER

Finance Department
Payment details

Finance Department

Purchaseorder delivery

Purchase Department

EDI-capable computer

EDI-capable computer

Sales Department

Automated-order confirmation

Inventory and Warehousing

Receiving Department

Shipping Department

Manufacturing Department

Product delivery

Layered Architecture Of EDI

(Building Blocks of EDI Systems)

EDI Semantic Layer

Application Level Services EDIFACT Business Form Standards

EDI Standard Layer

ANSI X12 Business Form Standards Electronic Mail X.435, MIME

EDI Transport Layer

Point-to-Point
World Wide Web

FTP, TELNET
HTTP

Physical Layer

Dial-up Lines, Internet, I-way

The EDI Semantic Layer

It describes the business application that is driving EDI. For a procurement application, this translates into requests for quotes, price quotes, purchase orders, acknowledgements, and invoices. This layer is specific to a company and the software it uses. In other words, the user interface and content visible on the screen are tailored or customized to local environs. To facilitate the transfer of computer files between two trading partners requires that the computer applications of both sender and receiver use a compatible format for EDI. The sender must use software application that creates an EDI file format similar to what the recipients computer application can read. It is not mandatory that both have identical processing systems. When the trading partner sends a document, the EDI translation software converts the proprietary format into a std. mutually agreed on by the processing systems.

The EDI Standards Translation Layer

Two competing standards that define the content and structure of EDI forms: 1. The X12 Standard, developed by American National Standards Institute (ANSI) in 1979 to develop cross-industry standards for exchanging electronic documents for use by all businesses. It devised the standards to deal with transactions such as PO placement, order processing, shipping, invoicing, and payments, etc. 2. EDIFACT (EDI For Administration, Commerce and Trade) developed by United Nations Economic Commission for Europe, Working party for the facilitation of International Trade Procedures.

This layer specifies the business form structure and to some extent influence content seen at the application layer.

The EDI Transport Layer

It corresponds closely with non-electronic activity of sending a business form from one company A to company B. The business form could be sent via regular postal service, registered mail, certified mail, or private courier service or simply faxed b/w the companies. Here, EDI documents are exchanged rapidly over electronic networks using the existing e-mail programs and infrastructure.

The EDI Physical Network Infrastructure Layer

It includes the dial-up lines, Internet, I-way.

EDI Layered Architecture

X.435: It eliminates duplication and therefore allows EDI transactions to take

advantage of all X.400 capabilities. It has following features: 1. Data Encryption. 2. Integrity (proof documents have not been altered) 3. Notification of message delivery and non-delivery 4. Non-repudiation of delivery (ability to prove the delivery of documents) Purchase orders, Invoices, Drawings, e-mail- all could be sent with end-to-end acknowledgement of message receipt. For example, a purchase order can move with CAD/CAM drawing attached to it in the same envelope, with the PO sent to the EDI system and the CAD/CAM drawing to the design application.

EDI Layered Architecture

Multipurpose Internet Mail Extensions (MIME)

It dictates how multimedia message attachments such as spreadsheets, word processing documents, etc. can be sent as enveloped messages using the Internet Simple Mail Transfer Protocol (SMTP).
SMTP provides the common specification for the exchange of e-mail messages b/w systems and networks. MIME allows users to create and read e-mail messages containing the following: 1. Character sets other than ASCII such as Arabic, Kanji, Mandarin, 2. Enriched text with special symbols such as mathematics 3. Graphics Images 4. Audio Files or Sounds 5. Binary Files 6. Other not-yet-invented data or information types.

BENEFITS OF edi
1. REDUCES LEAD TIME. The process of transferring the documents/information is instantaneous, offering weeks of time savings compared to the traditional environment. The direct electronic transfer of documents b/w inter-organizational systems eliminates the chances of error due to re-keying of data printed on paper from one system to another. As it streamlines the information flow, the cycle time is reduced drastically. 2. REDUCED PAPER-BASED SYSTEMS. Electronic transactions take over most of the functions of paper forms and through automation drastically reduce the time spent to process them. EDI can also reduce postage bills because of the amounts of paper that no longer need to be sent. 3. EXPANDED CUSTOMER/SUPPLIER BASE. Many large manufacturers and retailers are ordering their suppliers to institute an EDI program.