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Introduction to Electronic Data Interchange |
EDI industry links |
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EDI (Electronic Data Interchange) is simply the means to communicate between companies from one computer to another. For many years companies have been using computers to send business documents instead of mailing paper documents (i.e. most of our pay checks are directly deposited into our bank accounts). This transfer of funds is accomplished by the use of an electronic file being sent form your company to your bank). The problem was that the all efforts employed proprietary or unique formats. The absence of a standard format led to the condition where computers could not longer "talk" to one another without a great deal of effort by programmers. For example, Supplier X could recognize an electronic Purchase Order from Retailer A but not from Retailer B. In 1979 the American National Standards Institute (ANSI) formed the Accredited Standards Committee (ASC) X12 to rectify this situation. This committee was to standardize the format of electronic documents to allow for easy movement of information between computers. From this humble beginning has led to the establishment of standards for over 400 business documents. In the late 1980's there was a drive to standardize file formats in the rest of the world. This drive resulted in the UN/EDIFACT standard being adopted. For most transactions outside of North America, the UN/EDIFACT standards are used.
A typical EDI transaction involves the following processes (this example is using a Purchase Order being created by a retailer and the vendor receiving the Purchase Order and sending an Acknowledgement document back to the retailer):
Comment: Let's gets something straight, EDI is not some incredibly difficult process. All it is doing is taking something that is already existing (in our example the issuance of a Purchase Order and changing the method of transfer from paper-based to electronically based).
EDI was originally designed to formalize the electronic transfer of information from one trading partner to another. This idea is not new, companies have been transferring information via mail, and phone, in-person or using proprietary electronic formats for years. Industry groups pushed the standardization of business documents into electronic format. Individual companies realized that they were sending similar documents to their trading partners. It is this fact that spurred companies in the same industry to meet to create formalized EDI standards. In many cases the standards that were developed met the needs of that group of companies. Over time each committee added various codes and documents to meet their industries needs. Each committee designed slightly different formats for their "flavor" of EDI. By the late 1980's these industry-based committees realized that to increase the use of EDI throughout the whole of industry, these committee's standards would have to be amalgamated. By 1994, all industry committee's EDI standards were to be incorporated in one North American standard. This was accomplished but what resulted wasn't a rationalization of the standard it was simply an accumulated of all of the industry committee's EDI standards. The North American Standard (ANSI) has over 400 documents defined. It is important to note that no one wanted to eliminate any transactions from the standard as companies had developed their interfaces to match the various documents. In addition that umbrella organization (ANSI) have kept all of the committee (it seems to have a lot to do with everyone in the Committee wants to go to Washington D.C. to drink). In any case it is important to note that in the rest of the world there are 40 transactions defined (the rest of the World uses a standard called UN/EDIFACT that was created much later that the North American standards), whereas in North America there are over 400 transactions. In fact there are 9 different Invoices (all slightly different) and 10 different Purchase Orders. The Key thing to note when people refer to EDI, what "flavor" of EDI is used will be important. (Its also worth noting that TradeLink EDI has the ability to handle any "flavor" of EDI and the majority of old Proprietary standards without an issue.)
EDI is really just taking existing business practices and putting them into an electronic format. An EDI Envelope is analogous to a Paper Envelope. Lets now review our completed EDI Envelope and compare it to our paper document:
The key is to realize that the structure of EDI is to mimic paper processes. In addition, the transferring of EDI data is standardized so that computer to computer exchange of data can be accomplished.
Now lets review the structure of an EDI transmission. To ensure that information is not lost in the electronic Mailbox, an EDI Batch Envelope is created. This EDI Batch Envelope is similar to a courier envelope. If you were to courier important documents to a trading partner, you require certain pieces of information on the outside of the courier envelope. On the courier you enter:
This is required by the Courier Company to ensure that the documents are sent to the correct person. In EDI, the same approach is used. Instead of a name, address and phone number, you specify:
This information allows the information to electronically be mailed to your Trading Partner. In addition there are control numbers sent with the EDI Batch Envelope to ensure that the complete information is received by your trading partner (this is similar to gluing the courier envelope shut to ensure that none of your documents are lost in the mail). The following is a representation of this envelope structure:
There are many types of EDI Envelopes but they all contain the same type of information carried on a Paper Envelope. The main piece of additional information kept on an EDI Envelope is a control number. This control number ensures that if the EDI Envelope was lost or somehow ripped up, that there would be a record of the envelope. The structure of EDI always has checks and balances to ensure that information are not "Lost in the Mail". A further check that EDI uses is a trailer record that keeps a record of the number of documents in the EDI Envelope and the control number (to ensure that all documents sent were received by your trading partner. It's very important that if your company sends out an Invoice that your Trading Partner receives that Invoice or you don't get paid !!!!).
A group envelope is a method to Group documents together. For example, when a number of business documents are to be couriered together, a clerk will group the Invoices together and then group the Monthly Sales Records together etc. This allows your trading partner to send:
In EDI, the Electronic Invoices are grouped together and the Electronic Sales Records are grouped together. This allows your trading partner to send:
Lets review the structure of the Courier Envelope with Invoices vs. the EDI Envelope:
There are two types of EDI Envelopes but they both contain the same type of information carried on a Paper Envelope. The main piece of additional information kept on an EDI Group Envelope is a control number. This control number ensures that if the EDI Group Envelope was lost or somehow ripped up, that there would be a record of the envelope. The structure of EDI always has checks and balances to ensure that information is not "Lost in the Mail".
A set envelope is just how each Invoice is structured. In our paper example an Invoice has a statement that this is an Invoice, an Invoice number and then the actual invoice. With EDI, the same concepts are kept except that of course there is an extra control number just in case the document is lost or mangled. Let's review the structure of the Envelope now:
Within a Paper Invoice, there is Header, Detail and Summary level information. In an Electronic Invoice, the information is grouped into data elements and these are grouped into Data segments. A data element is just like a piece of the Invoice. The Invoice Date would be one element, the Invoice Number would be another. The elements, which normally go together on a paper document, are also grouped in an EDI Document. For example the Terms of Sale are all grouped on an Invoice as say: 1 % 10 Net 30 Within EDI, Terms of Sale information is grouped into one Segment. This segment contains the same information. The difference is that the information is structured to ensure that a person is not required to translate it.
Now that we all know the concept of EDI, lets look at reality. The following is a standard checklist when starting any EDI program. Lets do a quick review of it (if you are EDI experienced or already has been working on this, ignore the checklist and go to EDI THE EASY WAY): The following is a generalized list of major points for consideration when undertaking an EDI project: 1. Obtain commitment from all areas of management Involvement from all impacted departments is essential. Each department should be included in the analysis, testing and implementation to validate the testing and to ensure that the resulting system meets the objectives. I know that you have already obtained this but it is good to emphasize it again. 2. Establish a plan Develop a work plan, which identifies the tasks required and provides initial time estimates. This plan should also provide a direction of what type of documents you wish to trade. 3. Establish a Project team The team should establish a responsibility list for each identified task. The deliverables from each task should be defined. The team should consist of representatives from all affected areas. 4. Establish EDI Business Contacts These people are essential when working with other companies to ensure that the business needs are met. 5. Establish EDI Technical Contacts These people will work in concert with the EDI Business Contacts and your Trading Partners to ensure that the stated process flows as expected. 6. Review Internal Systems and Business Procedures A through current system analysis should be done. The present process that creates the business documents and the flow of the documents should be recorded. The next step is to determine how EDI should be integrated into existing systems. 7. Conduct a Trading Partner Survey This survey will provide you with a listing of your potential trading partners:
This point is critical if possible you want to start your EDI program with a trading partner who has as much as experience as possible with EDI, documents that you are sending and have a commitment to continued working with you in the future. (Its is similar to your first kiss, make sure you aren't kissing a toad.) 8. Decide on EDI Translation Software If you have chosen TradeLink, this is a fully featured EDI Management System. 9. Review data contained in the documents to be exchanged A review of the data to be transmitted and received is essential to ensure that integration will proceed normally. 10. Decide on a Network Provider Suppliers of these services have standard contracts and commercial price lists. The timing of this decision should be made early as it will influence many of the future decisions that you will make. As there are various services available from Network providers it is important to determine what services are to be purchased. 11. Code and Test Interface to in-house systems The maximum benefit of EDI is derived from integration of information so that information can flow directly in/out of in-house systems without human intervention. TradeLink has many tools to help you with this interface. 12. Implementation of your Translation software If you have already installed TradeLink, in the next few days you will be configuring it to send and receive data to/from your pilot-trading partner. 13. Implement and test the network connection with the translation software This process will test the connection to the network provider from the translation software's scripts. 14. Conduct system testing with the "pilot" Vendor The purpose of this is to verify the sending and receiving of transmissions from your "pilot" vendor. This allows data to be processed to determine if any changes are necessary. Extensive testing should be done prior to implementation. Most company's conduct parallel testing with EDI and paper documents until they are sure that the information received meets their needs. 15. Decide on a production cutover date Develop a signoff document that includes all the participants in the project. 16. Implementation It is recommended that you collect data during the first few months to use to access what savings/costs your company is experiencing. This information is useful for your management and future trading partners. 17. Post Implementation Review Review the results after six months to determine if the planned benefits/costs meet the actual benefits/costs.
Now that we have looked the theoretical models of EDI, lets look at the way to make it easy: 1. When choosing a pilot-trading partner try to pick one with the following "perfect" profile: a) experienced in the use of EDI It is critical to make your job easier to pick a vendor who has gone through the issues of EDI before. EDI is tough enough without having to worry about your trading partner's learning curve. b) experienced in the documents that you want to trade Your job becomes much easier if a trading partner has already traded the documents that you want to trade. c) a trading partner that you will "do business with" in the future EDI is a long term relationship, do not pick trading partners that you do not have a long-term relationship with or will be "doing business with" in the future. Try to get a firm commitment from management on both sides (you and your trading partner) to do this pilot. Your trading partner's technical contact may have many priorities, it is important to have commitment from management if it is required to solve "issues" in the future. d) a trading partner who is willing to work with you on the EDI pilot and realize that you are just starting out This may sound silly but it is important to realize that the "pilot" process will have issues that you didn't anticipate. Be honest with your trading partner about your expertise. In most cases your lack of experience will work in your favor as your trading partner will give you the benefit of the doubt. e) use the same Network Provider that you use It is easiest to track "lost" transactions to go through the same network. It's not critical, but it will help in case of problems. The bottom line is to try to get as "perfect" a vendor as possible. It is all trade-offs. Experience has taught the KISS (Keep It Simple Stupid) is critical.
2. Don't re-invent the wheel. When you are deciding on what data to send and receive, use existing sources. If you have been mandated by a major customer to do EDI, 9 times out of 10 they are going to give you their implementation guide. Depending on your relationship with that partner you may or may not change the information exchanged. If you are controlling what is to be sent, Do Not Re-Invent the Wheel. The best implementations of EDI have used existing implementation guidelines and slightly modified them for their use. If in your industry most people use one standard and follow an implementation guideline use it. If you don't you may force your poor trading partner to create a new interface just for you. If you want to find implementation guidelines, try your trading partners, contact local EDI Users groups, the ANSI X12 committee have published guidelines their numbering the United States is 1-800-334-4912 or Internationally 1 - 216 - 974 - 7650. In addition if you belong to industry groups they may have implementation guidelines. 3. Decide on your Network ID's and Mailbox numbers as soon as possible. Make sure that your Network communications set-ups are understood. If you do not understand the network requirements ask the network to explain it to you. There is no shame in asking the experts. 4. Once you have implemented your "pilot" transaction, decide if you want to horizontally integrate or vertically integrate EDI. When you horizontally integrate EDI, you add documents with a limited number of pilot vendors. In vertical integration you are trying to expand the use of one or two "key" documents. If one customer is 90 % of your business it would be advantageous to add as many documents as you can with that customer. If you have a multitude of partners, the advantage swings to integrating a few documents with a lot of partners. 5. 80/20 Rule As a rule of thumb in business 80 % of your business is done with 20 % of your customers. Try to focus in on the big win for your business. 6. Never Argue or Complain and ALWAYS document. As EDI is cross organizational, you will have the occasional problems, always consult the experts, know what the problem, document it and keep everyone informed. If you have a network problem, call the network first and explain in a rational way what the problem is and what you know. If you know nothing, explain that, people will always help you out if they feel you are trying. No one has ever solved a problem by arguing ! 7. EDI is not rocket science. As you go through the process, you will find that once you have a little experience in EDI, the problems will become routine. At one major retailer, they found that the first trading partner of a pilot takes up to 10 times longer than subsequent vendors. It will get easier. It is very important to learn the basics and then EDI becomes a snap.
For more information
about SoftCare, TradeLink EDI Management System, Web: www.softcare.com Tel : 1-888-SoftCare (604) 983-8083 email: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||