Essay on ECommerce1

This essay has a total of 2475 words and 9 pages.


Everything You Ever Wanted to Know About Electronic Data Interchange
By: Brian Harris

Every Thing You Ever Wanted to Know About EDI By Brian Harris December 1, 1998 ISDS 4800
Sec. 001 Introduction First of all what is EDI? Well EDI, or Electronic Data Interchange,
is the transfer of business documents such as sales invoices, purchase orders, price
quotations, etc. using a pre-established format in a paperless electronic environment.
Usually this transfer occurs over VANs, Value Added Networks, but it is becoming
increasingly popular over the Internet because of cost savings and ease of use. EDI has
been around for approximately 30 years. "The true genesis of EDI occurred in the
mid-1960s, as an early attempt at implementing the fictional "paperless" office by
companies in transportation, grocery and retail industry segments. Although EDI never
eliminated paper documents, it decreased the number of times such documents were handled
by people. Reduced handling resulted in fewer errors and faster transfers" (Millman, 83).
EDI technology is rapidly changing the way business is conducted throughout the world.
Firms that use EDI are more efficient and responsive to the needs of customers and
partners and in many cases have jumped out ahead of the competition. Many businesses are
already using EDI with suppliers and customers, and if your firm wants to do business with
companies involved in Government Dealings EDI must be part of your business no later than
January 1, 1999. In May of this year, the major industrial groups in charge of standards
setting for EDI, have united behind a set of standards that will allow for seamless
web-based forms using extensible markup language, similar to HTML, thereby increasing the
accessibility of EDI for small businesses on the Internet (Campbell, 28). An example of an
application for EDI is filing tax returns with the Internal Revenue Service. The IRS
offers several options for filing your tax return, one of which is filing electronically
and receiving your refund by electronic funds transfer or "direct deposit." The forms used
are available in tax preparation software, which can be downloaded off the Internet or
purchased by retail. The forms are filled out directly on a PC then transmitted to another
computer, which acts as a midpoint to the IRS. The IRS receives your forms and can issue a
refund without ever having to reprocess the data. By using this method you save yourself
and the IRS time and money (Campbell, 28). How EDI Works Table came from Information
Technology for Management by Turban, McLean and Wetherbe page 244. Information, such as
purchase orders for medical supplies, flows from the hospital's information system into an
EDI station, which consist of a PC, an EDI translator and a modem. From there, the
information moves to a VAN (Value Added Network). The Van transfers the formatted
information to the vendor, where the vendor side EDI translator converts it to a desired
format (Turban, 244). An EDI translator does the conversion of data into standard format.
An example of such formatting is shown below. Table came from Information Technology for
Management by Turban, McLean and Wetherbe page 243. "An average hospital generates about
15,000 purchase orders each year at a processing cost of about $70 per order. The health
Industry Business Communication Council estimates that EDI can reduce this cost to $4 per
order, potential yearly savings of $840,000 per hospital. The required investment ranges
between $8,000 and $15,000. This includes the purchase of a PC with an EDI translator, a
modem, and a link to the mainframe-based information system. The hospital can have two or
three ordering points. These are connected to a value-added network (VAN), which connects
the hospitals to its suppliers. (See figure on previous page) The system can also connect
to other hospitals, or to centralized joint purchasing agencies." (Turban, 244). Benefits
of EDI There are numerous benefits associated with the adoption of EDI. Probably the most
important and largest benefit is efficiency. By utilizing EDI businesses are able to
streamline their whole supply chain process. Whether it is upstream to suppliers or
downstream to customers, EDI eliminates repetitive tasks such as entering data multiple
times and cuts costs of printing hard copies and transportation costs. EDI also allows you
to send and receive large amounts of data quickly to or from anywhere in the world.
Anywhere that there is access to the Internet there is access to EDI. For example a
supplier could be located in Taiwan while the customer is sitting in Memphis, TN and in no
more than a few seconds thousands of product order forms could be sent between the two
without any errors or lost data. Companies in partnership agreements can gain access to
one another's shared databases to retrieve and store regular transactions. These
partnerships tend to last for a long time as well because of the commitment of a long term
investment and refinement of the system over a period of time. EDI creates a complete
paperless Transaction Processing System environment, which saves money and increases
efficiency. Collecting bills and making payments can be shortened by several weeks because
the data doesn't have to be reentered several time (Turban, 245). There are other benefits
to using EDI - security and validation. Using EDI is secure as long as it is not conducted
over the Internet. The information is transmitted over a VAN and on to your partner, but
never enters the realm of the World Wide Web. There are only three points of contact
versus the millions of interconnections and links over the Internet. The use of EDI also
provides a means of validation through time code embedded in the string of electronic
codes that are attached to each file. It is time coded at every step in the transmission
process. Imagine no longer having to rely on postmarks or call a package delivery service,
or check to make sure a fax went through (Campbell, 28). Disadvantages of using EDI
Despite all of the benefits of EDI there are still some disadvantages that have caused
much criticism. First and foremost is the cost, the only companies that can really afford
to utilize EDI to its fullest potential are the Fortune 1,000 and Global 2,000 firms
(Millman, 83). "Traditional EDI works fine in the larger enterprises because they have IS
professionals to maintain the system," says Dennis Freeman, director of product marketing
at Harbinger, an EDI software and services supplier in Atlanta. "Those companies exchange
business documents with their trading partners and save themselves a huge amount of money
by not using paper," Freeman continues. "For smaller companies, that process becomes much
more daunting. They don't want - nor can they afford to own a full-blown EDI server. For
them, Internet-based EDI is a low-cost answer" (Millman, 38). Another disadvantage of EDI
is there could be communication problems with trading partners who use different EDI
Continues for 5 more pages >>