Electronic Data Interchange

Electronic Data Interchange

My goal in writing this paper is to explore more deeply the topic of Electronic Data Interchange, which was discussed briefly in our text in Chapter 8. In short, EDI is a broad term that can be summed up as the paperless business transactions in a standard format called ANSI X-12. (2) EDI has become an essential piece of the e-commerce puzzle for businesses in the information age. Having a more thorough knowledge of the working of EDI is important for knowledge workers and managers alike. In the rest of this paper I will try to expand upon the topic of EDI and highlight some examples of how it is being used in industry.

The benefits of EDI are many. EDI cuts the costs involved in processing for instance a purchase order from a supplier to a manufacturer. A typical purchase order can produce up to 15 pages of paper and cost the company as much as $125 if you include all of the costs involved with creating and transmitting the document; labor, postage, faxing. Etc. Using automated EDI transactions, the cost can be cut to as low as 30 cents with no paper used at all. (Marks, 15.) Another benefit of EDI is that once the data is keyed in to the information system it does not have to be re-keyed, cutting down on errors in the data. EDI also drastically shortens the time from when an order is placed to when it is shipped and when it is paid for.

EDI can be found in almost every industry imaginable. For example if you are shipping a package from UPS, it can be scanned at various points during delivery and that information can be automatically transmitted to the merchant's website where the item was purchased. EDI is also vital in "Just in Time" inventory management. It allows for real- time data to be exchanged between manufacturer and supplier to reduce costs incurred from maintaining inventories. The case of the partnership between the retailer Wal-Mart and its supplier Proctor and Gamble is an excellent example.

One recent trend in EDI technology is making documents available over the web through the XML language. Before most documents were transmitted via secure private corporate networks or PCN's for short facilitated by a VAN or Value Added Network who would act as the intermediary between two "trading partners" (2). One company, BorgWarner Air Fluid Systems, an automotive supplier has integrated its supply chain with multi-level suppliers over the Internet with the help of an EDI giant, GE's Global Exchange Services' TradeWeb technology. All concerned parties can view purchase orders and invoices over the web on a case by case basis without incurring the costs of subscribing to a VAN (3).

EDI has become the standard over the last 20 years in transportation, banking, retailing, and manufacturing and now the media industry is starting to use EDI for billing. One highlight of EDI for invoicing is that it cuts down on the cost of having to rectify discrepancies. In the cable industry the normal order process would involve a media buyer having to check the invoice against actual airtime with a 70% to 80% discrepancy rate. With shifting to EDI the invoice and the actual airtime are matched against one another and any differences are caught and billed accordingly (4). This has dramatically improved the efficiency of the transactions between these two types of trading partners.

Another aspect of the real-time information environment is the power it offers organizations in negotiating prices from its suppliers. A case in point is that of Premier Health Partners of Dayton, Ohio. They are now saving over $1 million annually by using web based EDI and they can see what other competitors are paying for the same products which they estimate is saving them $250,0000- $500,000 annually. The return on investment has already outreached the expenditure on new labor, software, and hardware (5). This is a great example of how EDI can effect the efficiency of an organization.

The biggest change in the use of EDI today is the use of the extended markup language or XML to transmit EDI documents over secure Internet connections. This is reducing the start up costs associated with implementing EDI, allowing smaller companies to reap the benefits of seamless information exchange (6). Some experts thought that XML would completely replace EDI, but although it has gained popularity especially with smaller suppliers who cannot afford VAN's and it is seen as better for real-time situations such as the changing of prices in a catalog or replenishing inventories, EDI is still seen as by the larger companies as there option for the time being. Overall though Internet EDI transactions are growing at an annual rate of 50% - 60% (7).

Another major development in EDI is the formation of the Applicability Statement 2 (AS2) which is outlines how data should be sent and secured over the Internet using HTTP protocol whereas the previous AS1 standard made provisions for using the Simple Mail Transfer protocol (SMTP). Another feature of the new standard is that it can provide details of the transfer such as proof of who initiated it and at what time through the use of receipts. The AS2 format is more flexible as well and is being widely used in inter-company Intranets (7).

Implementing EDI has its complications. One example is the Scotts Company, a Marysville, Ohio producer of lawn-care products.

At the insistence of Wal-Mart, Scotts' biggest customer the company implemented the AS2 web based EDI technology but it isn't saving them any money because Wal-Mart insists that they keep using a VAN to monitor their EDI traffic and make sure that transactions are completed (8).

This new trend is said to be the future of EDI. EDI is not as good at adjusting to real-time changes but offers more options for fixing problems when orders don't get sent. VAN's are more capable at monitoring errors and making sure that data gets delivered properly. Also VAN's may be around for quite some time because of their ability to work with any kind of standard that a document might be sent in, XML, EDI, AS2, etc. The receiver is able to automatically integrate the data into "back-end" systems like Decision Support Systems (8).

Recently WebMD the online source for everything medical, purchased Medifax-EDI. In doing this WebMD hopes to cash in on the upcoming standardization requirements set forth by the Health Insurance Portability and Accountability Act (HIPAA). Right now providers send medical claims in thousands of different formats. WebMD is using EDI technology to check in real-time a patient's eligibility for insurance and hoping that they can provide healthcare providers with the service of standardization. Processing