What is ELECTRONIC DATA INTERCHANGE (EDI) standard? Discuss the working concepts of ELECTRONIC DATA INTERCHANGE (EDI).

What is ELECTRONIC DATA INTERCHANGE (EDI) standard? Discuss the working concepts of ELECTRONIC DATA INTERCHANGE (EDI).

Q3: 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 from your company to your bank). The problem was that the all employed proprietary used unique formats to pursue this task. The absence of a standard format led to the condition where computers could no 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. To avoid the above condition ANSI formulated a committee for the entire world to have standardized format for the electronic transaction.
What is the name of the standard? Discuss the working concepts of that standard.

Answer:

The name of the standard referenced in the above passage is called: ELECTRONIC DATA INTERCHANGE (EDI).

 

Electronic Data Interchange (EDI) is defined as an inter-organizational transmission of business documents in structured, machine process, which is able to format through telecommunications from computer to computer.

The components of Electronic data Interchange is represented in the following diagram:

 

Consider the scenario when a buyer visits an e-commerce website and buys something. By simply placing the order or entering information in the buyer’s computer, the data will be electronically transmitted to the seller’s computer without re-typing the information.

Working concepts of ELECTRONIC DATA INTERCHANGE (EDI):

• The EDI process is started by either downloading a file, or by an operator keying data into a computer by following instructions on the screen. 
• The system can send one or more messages. 
• Different companies can receive the order at the same time.
• Once a company sends a message it is transferred through a telephone line either to a value-added network or directly to the trading partner. 
• The message received is placed in an electronic mailbox in a computer by the VAN and it logs the time and details. The message received will be normally checked by the recipient.
• The receiving computer automatically translates the message to the required format and transmits to the computer or applications software of the relevant department.
• If EDI is used correctly, there is no need for the message to be printed. The instructions are acted upon by the computer system with no human involvement. 
• EDI automates business communications between trading partners.

1. Preparation of electronic documents:

The first step in any sequence of Electronic Data Interchange is the collection and organisation of data by ABC’s internal application systems. Instead of printing out purchase orders, ABC’s system builds an electronic file of purchase orders.

2. Outbound translation:

The electronic file is then translated into a standard format. The result is a data file that contains a series of structured transactions related to the purchase orders. ABC’s EDI translation software will produce a separate file for each manufacturer.

3. Communication:

ABC’s computer automatically makes a connection with its Value Added Network, and transmits all the files that have been prepared. Each file is processed by the Value Added Network and is routed to the appropriate electronic mailbox for each manufacturer. Several manufacturers do not subscribe to the ABC’s VAN, so files are automatically routed to the appropriate network service.

4. Inbound translation:

The manufacturers retrieve the files from their electronic mailboxes at their convenience, and reverse the process that ABC went through, translating the file from the standard format into the specific format required by the manufacturer's application software.

5. Processing electronic documents:

Each manufacturer will process the purchase orders received in their internal application systems.