Electronic Data Interchange (EDI)

Concept of Electronic Data Interchange (EDI)

Traditionally, the transfer   of data from one company   to another   has been by paper documents. This is known as a paper-based system. These documents have to be manually forwarded and entered to the destination computer.

Electronic Data Interchange (EDI) is the electronic exchange of standard business   information, in standard formats, between computers. EDI eliminates   the need   for a paper-based system by providing an electronic link between companies. This   reduces   data entry   tasks and improves   business cycle times.

Electronic Data Interchange (EDI) is the electronic transfer of structured   business documents in an organization   internally   among   groups of departments or externally   with its   suppliers, customers and subsidiaries. The   documents likely   to be used in   EDI   are invoices, purchase orders, shipping   requests, acknowledgements and payments. EDI is   quite different   from generic correspondence   like e-mail and involves the exchange   of specific  documents   with management and tracking procedures designed to efficiency.

The information   that EDI handles includes, for example, purchase order   and invoices .However, any type   of business document can be sent, providing   it conforms to current industry, national or international   format standards.

Examples of current users of EDI   include automatic teller machine(ATMs) in banks   where EDI is used for transferring   and withdrawing funds between   different   bank   accounts, airline reservation systems, stock   exchange transactions and car   reservation systems.

Use of  Electronic Data Interchange (EDI)

The data   from one computer   is normally not in a form suitable to be entered directly   into   another computer. The data may have to be arranged   differently before   it can be  entered into another computer   or some items of   data may not be needed   at all. With   EDI, all the data   is converted   into an agreed standard format   before it is sent   over the network. The computer   that receives   the data can then   extract the information it requires.

Using EDI implies   three things:

1. Information   is transferred   electronically   rather than on paper. This   means that there is no need to enter   the data manually   in the destination computer.
2. Information   is transferred   between   trading   partners   who have negotiated   trading agreements and have formalized their   data   transfer system.
3. Information   that   is transferred   complies   with agreed standard for   the format   of the content   and the transmission   control mechanisms.

How  Electronic Data Interchange (EDI)  Works ?

Regardless of the format chosen, companies using Electronic Data Interchange (EDI) communicates   with their   trading   partners   in one of two ways:

1. They exchange data with several   trading   partners directly.
2. They   interact   with multiple   companies   through   a central   information       clearing-house.

Basically, here is how   EDI   works:

• Prior to any computer work, representatives of two companies   interested   in exchanging   data electronically   meet to specify   the applications   in the EDI standard , which they will implement.
• Each company adds Electronic Data Interchange (EDI) programs to its computer   to translate   company data into standard   formats for transmission, and   for the reverse translation on the data it receives.
• Then, as often as operationally required the two companies exchange data electronically in the standard formats.

The data transmitted originates   from records in the sender’s database after the sender conforms   that the receiver is an authorized recipient for such data. The   sender composes a transmission   formatted   in the EDI standards; the receiver translates   the formatted message   to a computer record to be processed and used internally. All transmissions are checked   both   electronically and functionally and the protocol   includes procedures   for error detection and correction. Once a company has established standardized communications with another company, it   is now in a position   to communicate with any other company that is also using the EDI standards.

Electronic Data Interchange (EDI)  Security

Today, in paper-driven systems there are many checks to ensure that the expected clerical errors are detected   and corrected   the scrutiny of the pieces of paper   by experienced clerical staff, for example, often identifies errors made by trading partners. In an Electronic Data Interchange (EDI)   system, it is necessary to replace these procedures with new procedures that are at least as effective. The replacement not only involves the trading partners but also   the other parties in the EDI system.

Security   procedures   will be in place for each party to the EDI system, it is   necessary to ensure that these procedures   when taken together   will provide   security   to the whole. Each   of the parties   contributing to the whole system   will have different priorities-security is more important   to some organizations   than to others. Absolute security   is impossibility, mistakes will happen, machines do break down, software does   contain bugs. Management therefore needs to determine how acceptable commercial security   can be achieved   in a cost-effective   way.