04 Electronic Data Interchange.pdf - UNIT 4: Electronic...

UNIT 4: Electronic Data Interchange (EDI)
Course outline :
Introduction to EDI
EDI vs. E-mail
EDI benefits
How EDI works
EDI application in various fields
Security and privacy issues of EDI
EDI for e-commerce
Introduction to Electronic Data Interchange (EDI)
As a cost-conscious, highly competitive electronic commerce environment comes of age,
businesses are looking at electronic data interchange (EDI) in a new light. EDI is defined as
the inter-process communication (computer application to computer application) of business
information in a standardized electronic form. In short, EDI communicates information for
business transactions between the computer systems of companies, government organizations,
small businesses, and banks.
Using EDI, trading partners establish computer-to-computer links that enable them to exchange
information electronically. This allows businesses to better cope with a growing avalanche(too
many) of paperwork: purchase orders, invoices, confirmation notices, shipping receipts, and
other documents. With the aid of EDI, all these documents are in electronic form, which aliases
more work automation to occur and even alters the way business is done.
Many industries see EDI as essential for reducing cycle and order fulfillment times.
Manufacturers work with customers and suppliers to convert to an electronic exchange the huge
volume of orders and records that now crawl back and forth on paper. In retailing, EDI can
provide vendors with a snapshot of what stores are selling, enabling them to recognize and meet
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their customer's needs much faster than in the past. In addition, it enables retailers and vendors to
place orders and pay bills electronically, reducing time and the expense of paperwork.
The primary benefit of EDI to business is a considerable reduction in transaction costs, by
improving the speed and efficiency of filling orders. Studies show that it takes up to five times as
long to process a purchase order manually as it does electronically.
Ironically, despite these advantages, EDI is not (yet) widely used. It is estimated that out of
millions of businesses in the United States, only 44,000 companies exchange business data
electronically. Only about 10 percent of these companies use EDI for financial transactions.
Moreover, no more than fifty banks have the capability of providing complete financial EDI
services to their corporate customers. The joke in industry is that most companies are so
unfamiliar with EDI they don't even know how to spell it.
Background of Electronic Data Interchange: EDI developed in the 1960s as a means of
accelerating the movement of documents pertaining to shipments and transportation. Not until
the mid-1980s, however, was the technique used in a wide range of industries—automotive,
retail, transportation, and international trade. Its use is growing and it is set to become the
standard by which organizations will communicate formally with each other in the world of
electronic commerce.