Ecommerce

1. Chapter 3
ELECTRONIC DATA INTERCHANGE
INTRODUCTION, STANDARDS AND
IMPLEMENTATION
1

2. Learning Objectives
• Introduction to conventional purchasing
process
• What is Electronic Data Interchange?
• Building Blocks of EDI systems
• Value Added Networks
• Benefits of EDI Systems
2

3. Conventional Trading Process
Either the inventory management system based on re-order policy on the
examination of the stock levels raises the purchase requisition for the
item or, a department raises the requirement for some items.
The information on the requisition forms is entered into the purchase
processing system.
Many a times there are transcription errors in the process. Thus, editing and
correction of the data is needed.
Once the correct requisition information has been updated in the
computerized purchase system, the purchase management system
scans the suppliers’ databases for the potential suppliers and prints the
purchase requisitions (PRs), requesting the price and delivery
quotation in the name of screened suppliers. 3

4. Conventional Trading Process- contd.
The purchase requests are transmitted to the suppliers either through phone/fax or
through mail/courier service.
The information printed on the purchase requests may be keyed in by the suppliers in
their computerized systems for processing and, a quotation against the purchase
request may be prepared and printed.
The quotation from the supplier is transmitted using the traditional paper transmission
mechanisms such as fax/couriers/mail services.
All quotations received from suppliers against a purchase request are entered into the
manufacturer’s automated system and edited and corrected to remove any
transcription errors.
Based on the quotations received, the systems may process using structured
(automated) or semi-structured (generate output to assist the decision-maker)
mechanism and select the candidate for ordering.
4

5. Conventional Trading Process- contd.
The purchase requests are transmitted to the suppliers either through phone/fax or
through mail/courier service.
The information printed on the purchase requests may be keyed in by the suppliers in
their computerized systems for processing and, a quotation against the purchase
request may be prepared and printed.
The quotation from the supplier is transmitted using the traditional paper transmission
mechanisms such as fax/couriers/mail services.
All quotations received from suppliers against a purchase request are entered into the
manufacturer’s automated system and edited and corrected to remove any
transcription errors.
Based on the quotations received, the systems may process using structured
(automated) or semi-structured (generate output to assist the decision-maker)
mechanism and select the candidate for ordering. 5

6. Conventional Trading Process- contd.
The order is then printed on a standardized order-form along with the terms and
conditions for delivery and payment.
The printed order is mailed, couriered or faxed to the supplier.
The supplier, on receiving the order, enters it into the computer system and matches the
order with the quotation submitted.
If every thing is found in order, it raises an internal sales-order. Since, the raising of
internal sales-order requires data entry/editing of the information from the
received purchase-order, matching and processing of the order and then printing
of the internal sales-order, it often becomes a source of delay.
In extreme cases, if the prices/terms on quotation and the purchase order do not match,
it may require repetition of some of the earlier steps, or re-
negotiation/clarifications causing further delays. 6

7. Conventional Trading Process- contd.
The internal sales-order is used for generating several documents and forms for
locating and identifying the appropriate stocks.
In cases where such stocks are not readily available, it may lead to the raising of a
work-order or schedule to the production shop.
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.
The process, at times, may lead to a partial fulfillment of the order. In that case, the
customer needs to be informed of the short-delivery and order-status in writing.
With the goods, the internal sales-order processing system also prepares a delivery
note. The goods packed in the previous step are sent using an appropriate
dispatch mechanism. 7

8. Conventional Trading Process- contd.
The buyer-receiving yard, on receiving the goods and advices, compares and
inspects the goods, and prepares a goods-receipt note, containing the
purchase-order number against which the goods are received, marking
the acceptance and rejection of the items shipped.
The information on goods-receipt note is transcribed at the computer
department, edited and matched against the outstanding purchase-order.
The information on the pending quantity against a purchase-order and the
stick levels in the inventory management system are updated.
In case of partial delivery, steps 9-14 are repeated several times until the
quantities on the order are fulfilled.
The supplier’s computer, on completion of the order fulfillment, also generates
an invoice by printing it, which, in turn, is dispatched to the
buyer/manufacturer.
8

9. Conventional Trading Process- contd.
The supplier’s computer also generates a financial statement at the end of the
trading month for the payments.
At times, it also keeps on sending the reminders for the payment till complete
payments have been received from the buyer.
The buyer’s computer enters the information on the payment (demand)
statement, matches it against the purchase order, and also matches it
against the information provided by goods-receipt note or, in other words,
ensures that the order has been fulfilled and has been inspected and
accepted.
If every thing is found in order, the buyer’s computer processes it for the
payment.
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10. What is EDI?
Electronic Data Interchange (EDI) is the exchange of business documents between
any two trading partners in a structured, machine-readable form.
It can be used to electronically transmit documents such as purchase-orders,
invoices, shipping bills, receiving advices and other standard business
correspondence between trading partners.
EDI can also be used in exchanging financial information and payments in
electronic form.
The Electronic Fund Transfer (EFT) systems used by the financial institutions are
a prime example of the application of EDI in the Banking and Financial
sector. 10

11. What is EDI?
The Webopedia defines it in the following form:
• “Electronic Data Interchange, 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. ANSI has
approved a set of EDI standards known as the X12 standards.”
11

12. What is EDI?
By National Institute of Standards and Technology:
• “EDI is the computer-to-computer interchange of strictly
formatted messages that represent documents other than
monetary instruments. EDI implies a sequence of messages
between 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.” 12

13. What is EDI?
The Electronic Commerce Technical Assistance Group defines it in
the following manner:
• “Electronic Data Interchange (EDI) is the computer-to-
computer exchange of business data in standard formats. In
EDI, information is organized according to a specified format
set by both parties, allowing a "hands off" computer transaction
that requires no human intervention or re-keying on either end.
The information contained in an EDI transaction set is, for the
most part, the same as on a conventionally printed document.”
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14. key features
• The electronic exchange of information
The electronic exchange of information requires presence of direct or indirect
interconnection between the involve partners.
• Standard formats or business forms.
The typical business forms used in the EDI include, Schedules, Purchase Orders,
Acknowledgements, Delivery related documentations, Receipt notes, Invoices,
Remittance requests, payments through Electronic Fund Transfers, Bills of Lading,
Manifests and Reconciliations and many others depending upon the application area.
Among the trading partners the above mentioned documents have to follow some
standard format. The standardization of the format helps in exchanging these
documents with trading partners that may have heterogeneous computing
environments. 14

15. Building Blocks of EDI Systems: Layered
Architecture
Application/ Conversion Layer
Standard Formats Layer
EDIFACT or ANSI X12
Data Transport Layer
Email, FTP, Telnet, HTTP,
X.435(MIME)
Interconnection Layer
Dial-up lines, Internet, I-way, WAN
15

16. Application Layer
It consists of the actual business applications that are going to be connected
through the EDI systems for exchange of electronic information.
These applications may use their own electronic record formats and
document formats for storing, retrieving and processing the
information within the company systems.
For EDI to operate, they need to convert the internal company document
format to a format that can be understood by the system used by the
trading partner. When the trading partners are small in number, then
the converters for various partner formats can be built.
But, as the number of partners with different internal formats increase, the
task of building converters for each proprietary format to other format
becomes overwhelming. 16

17. Converters : Many to Many Approach
17
Format-1
Format-3 Format-4
Format-2
Converters between formats

18. Standard Format Layer
The application layer relies on common agreed formats for operation.
Thus, the second important and critical building block of the EDI
system is standards for the business documents/forms. Over a
period of time, two major EDI standards have evolved.
The first, commonly known as X12, was developed by Accredited
Standards X12 committee of American National Standards
Institute (ANSI) and
The second, the International Standard was developed by United
Nations EDI for Administration, Commerce and Trade (EDIFACT)
standard.
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19. Standard Format Approach
19
Format-1
Format-3 Format-4
Format-2
Common Formats Approach
Common Formats

20. ANSI X12 Standard
X12 devised the standards to deal with transactions such as purchase-order
placement, order-processing, shipping, invoicing and payments etc.
The paper documents related to particular business activities are mapped
into a transaction set.
The X12 standard defined a set of documents, referred to as transaction sets,
for a wide range of business transaction forms. Each transaction set is
given a numeric code which is similar to the way in most of the paper
forms where form numbers are assigned.
A transaction set is a term used in X12 standard for defining the transfer of
single document (purchase order, Manifest etc.) between the
computers of two trading partners.
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21. ANSI X12
Standard
Document Title Transaction Set Specifications
Purchase Order 850 X12.1
Invoice 810 X12.2
Request for Quotation (RFQ) 840 X12.7
Response to RFQ 843 X12.8
P.O. Acknowledgement 855 X12.9
Ship Notice/Manifest 856 X12.10
Order Status Inquiry 869 X12.11
Receiving Advice 861 X12.12
Price Sales Catalog 832 X12.13
Planning Schedule/Material
Release
830 X12.14
Trading Partner Profile 838 X12.17
Shipment Information 858 X12.18
Order Status Report 870 X12.23
Price Authorization
Ack/Status
845 X12.27
Inventory Inquiry/Advice 846 X12.28 21

22. EDIFACT Standard
Promoted by United Nations Economic Commission, which is responsible for
adoption and standardization of the messages. The International Standards
Organization (ISO) has been entrusted with the responsibility of developing the
syntax and data dictionary for the EDIFACT.
The EDIFACT serves the purpose of trans-border standardization of the EDI messages.
It combines the efforts of American National Standards Institute’s ASC X12, Trade
Data Interchange (TDI) standards developed and deployed by much of Europe
and United Kingdom.
The GE.1 group of UNECE/EDIFAC deals with data elements, and rules and formats
for automated data exchange. The GE.1 group coordinates the six EDIFACT
boards set up for Western Europe, Eastern Europe, Pan America, Australia/New
Zealand, Asia and Africa. Asia EDIFACT board (AEB) consists of members like
India, Japan, Korea, Hong Kong, China, Singapore, Taiwan and Malaysia.
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23. Data Transport Layer
The data transport layer consists of services that automate the task of
electronic transfer of messages.
The Electronic Mail exchanged through the network infrastructure has
emerged as the dominant means for transporting the EDI
messages.
The electronic mail is used only as a carrier for transporting the
formatted EDI messages by the EDI Document Transport Layer.
ITU-T has adopted X.435 (X.400-based) standards to support electronic
data interchange (EDI) messaging.
23

24. Data Transport Layer
X.435 standard consists of definition of normal EDI messages and a set of EDI
"notifications" to address the security requirement.
In order to achieve equivalence to the security control offered by the paper-
based systems, it has three types of notifications.
• A positive notification – It indicates that the recipient has received the
document and accepts the responsibility for it;
• A negative notification- It indicates that the recipient received but
refused to accept the document. The reason for refusal is attached with
the notification.
• A forwarding notification- It indicates that the document was received,
but forwarded to another recipient.
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25. Inter Connection LayerInter Connection Layer
It refers to the network infrastructure that is used for the exchange of
information between trading partners.
In the simplest and most basic form it may consist of dial-up lines,
where trading partners dial-up through modem to each other
and connect to exchange the messages as illustrated in the
following:
25
Phone
Exchange

26. Inter Connection LayerInter Connection Layer
The leased lines and I-way, Internet or any reliable network
infrastructure that can provide ability of interconnection can be
used.
Through the interconnection, the EDI partners are able to achieve
document exchanges between themselves:
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Communication
Network
Dial up/leased line
Dial up/leased line

27. Value Added Network (VAN)
VANs are third-party communication networks established for exchanging
EDI traffic amongst the partners.
Various businesses (trading partners) subscribe to the VAN services. For
every subscriber, the VAN maintains an account, which serves as an
electronic post office box for the subscriber, for sending and receiving
the EDI messages.
The subscriber’s account receives and accumulates all incoming mail from
other partners that can be viewed by the account owner as and when
they connect to the VAN account.
There are a number of third-party Value Added Network providers in the
market place. Many of the VANs today, also offer the document
exchange ability of EDI documents with other VANs.
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28. Value Added Network (VAN)
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Translation, Editing,
Compliance checking,
verification, Format
translation, Alerting
services, Storage and
Mailbox
Value Added Network
VAN
Dial up/leased line
Dial
up/leased line
Producer
Transport
Bank
Trader
TraderTrader

29. Services Provided By The VAN
Document conversion from one standard to another; typically required when two trading
partners use different standards for EDI Exchanges i.e. ANSI ASC X12 to EDIFACT or
TDCC to ANSI ASC X12;
Converting one ANSI ASC X12 document to another ANSI ASC X12 documents; often within
the same system the documents may need to be converted to another type. For
example, a Motor Carrier Details & Invoice (210) document may need to be converted
to Generic Freight Invoice (859).
The sender may follow certain conventions that are different from receiver. Translation from
a sender's conventions of a standard document to the receiver's conventions; i.e
• translate field separators,
• discard unwanted characters
• format translation from EDI standard to or from flat file, flat file to flat file,
XML, and other formats
• data translation among the PDF, XLS, MDB or other web-based documents29

30. Value Added Network (VAN)
The appropriate customer data can be saved in the VAN account and later appended on
messages where needed. For example, sender’s Bill of Lading (BOL) number can be stored
in the account and upon receipt of the BOL acknowledgment (997), an acknowledgment
message including BOL number can be created and transmitted to sender.
VAN provider’s computers also store data such as customer profiles, repetitive waybill codes, etc
which can be used for filling up the EDI transaction document help of customer profile code.
The customer profile stored on the VAN can be accessed using the customer profile code
and the data from the profile stored on the VAN can be used for completing the EDI
transaction.
The subscribers can interactively enquire about the status of any EDI transactions made by them.
Subscribers can receive “verify acknowledgments” in the mailbox even when they are not online.
The VAN can alert the subscriber (receiver) that there is data in their mailbox to be picked up
through means such as:
• By sending a fax notification
• By calling a pager or other alerting device that signals users about the waiting mail
in the mailbox 30

31. Value Added Network (VAN)
• The VAN can capture the specified data from transaction which, in turn, can be used
for generating customer-specified reports.
• The subscriber may specify the editing requirements, VAN can edit for
completeness and correctness as per requirements. For example, it can verify that
the line item charges on an invoice add up to total value shown on the EDI invoice
• In situations where such missing or mismatching data is found during the edit
process, the VANs usually send messages to the originator informing it about the
missing/mismatched data and request re-transmission of the same; For example in
ASC X12, upon receipt of Shipment Status Message (214) with missing data, send a
Status Inquiry (213) transaction to carrier requesting correction and re-transmission.
• Validate and verify the information stored in customers’ databases for missing data
and send messages to appropriate firms requesting correction of the missing data.
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32. Third Party VAN Providers.
GEIS- Operated by General Electric of USA, has presence in over 50 countries.
Cable & Wireless- Highly reliable with a subscriber base of over 2000 top companies of the
world, holds nearly 8% market share of global VAN market.
GNS – It is one of the largest Value Added Network and has presence in 36(? Check internet)
countries.
Transpac – A France based EDI VAN provider owns the largest domestic VAN market share
and has strong presence in Europe. It uses Infonet for offering VAN service outside the
domestic domain.
Infonet- VAN service jointly owned and operated by WorldComm, Singapore Telecom and
Transpac. The owning organizations themselves offer VAN services in the local domains
and cover rest of the world through the Infonet.
Satyam Infoway – The private national Internet Service Provider (ISP) offers EDI VAN services
in India, in association with the Sterling Software of USA. In addition to the standard
VAN services, it offers Web EDI VAN services as well.
NICNet – The National Informatics Center, has established connectivity through 600 points of
presence in India. The NICNet in late 1999 started offering Value Added Network
(VAN) Services to facilitate and encourage the EDI adoption in India. Some of
implementations of EDI in India: Indian Customs, Port Trust and Apparel Export
Promotion Council use the NICNet VAN. 32

33. Benefits of EDI-
• Reduces Lead Time
• Improves Coordination with Suppliers
• Reduces Redundancy
• Expands the Market Reach
• Increases revenue and sales
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