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Electronic commerce is the communication of business information through the sending and receiving of electronic messages between trading partners. Various types of electronic exchanges fall within this definition of electronic commerce. One form of electronic commerce is Electronic Data Interchange (EDI) which is the computer-to-computer exchange of business documents between companies, using a public standard format. EDI is a vital tool available to every business which increases efficiency and productivity, and replaces the traditional processes of preparing data in paper form and sending it by mail or by facsimile.
The use of EDI is not limited by differences in computer or communications equipment among trading companies. It bridges the previous information gap that existed between companies with different computer systems.
EDI is also independent of users' internal computerized application systems, since it interfaces with those systems rather than being integrated into them. However, the degree of effectiveness of the EDI operation itself, as well as the internal management information available from its use, will certainly be greater if application systems are up-to-date and efficient.
EDI is based on the use of message standards, ensuring that all participants use a common language. A message standard consists of uniform formats for business documents, which have been adopted for electronic transmission purposes. It also includes security and control elements and other rules and conventions relating to the use of transaction sets that all users agree to follow.
How do EDI standards actually work? EDI supports the transmission of data from one company to another in a single direction, e.g. a buyer generates a purchase order and transmits it to a supplier; the supplier receives the purchase order and returns a confirmation of receipt. Subsequently, the supplier can send an invoice to the buyer. All transmissions travel in a single direction – from the buyer to the supplier, then from the supplier back to the buyer.
EDI transmission typically involves the following process. The sender uses internal computer files to assemble the data needed for the transaction. This data file then becomes input to a software module that generates the transaction into the EDI standard format. The resulting data file is then transmitted to the receiver. At the receiving end, this data file is input to a software module that translates the data from an EDI format into a file that can be entered into the receiver's computer application systems.
The above process includes a number of control and security procedures. Data security is maintained through the use of user identification numbers and passwords. EDI generation/translation software that is available from commercial suppliers typically includes extensive data editing and error-checking routines. This ensures that the data is valid at the time of transmission, and that it is also valid when it is received. EDI standards also allow the receiver to acknowledge successful receipt of the transmission by sending an acknowledgment message back to the sender. EDI, then, is at least as secure and accurate as your present method of exchanging paper documents.
Through electronic commerce, business information can be communicated through standard electronic messages to your trading partners. With your accurate electronic messages in their computers and your bar codes printed on your products and shipments, your trading partners are able to directly connect your products and shipments to information about them as they travel through the supply chain.
Benefits of Implementing EDI
The benefits available by using EDI are being realized by a large number of companies, many of which transmit a substantial percentage of their transaction volume via EDI. For companies using I/C EDI, UCS or VICS EDI on a volume basis, the realization of available benefits can result in a definite competitive advantage.
Users report benefits in the following major areas.
Reduced Lead Time/Quick Response
EDI can provide a direct reduction in the ordering/shipping time cycle. This benefits both customer and supplier.
- Reduced Inventory Levels
- Inventory Cost Reduction
- Increased Warehouse "Turns"
- Better Use of Warehouse Space
- More Accurate Inventory Projections
- Fewer Out-of Stock Conditions
- Fewer Expedite Situations
- Lower Freight Costs (better shipping arrangements)
Warehouse Efficiencies
In addition to the benefits cited above relating to warehouse operations, the following benefits are also being realized in this traditionally high-cost area:
- Improved Planning for Receiving/Shipping
- More Efficient Deployment of Personnel
- More Effective Use of Dock Space
Transaction Handling/Processing Accuracy
The automated procedures associated with EDI result in a reduction in transaction errors and resulting corrective action, including the following:
- Less Time Spent in Reconciling Differences/Errors
- Preparation of Fewer Credit/Debit Adjustments
- Fewer Back Order Situations
- Fewer Product Returns
Increased Salesman/Buyer Productivity
The use of EDI provides the opportunity for major productivity improvement in this pivotal area of the retailing business. Both buyer and seller benefit.
- Reduction in Buyers' Clerical Time Requirements
- Better Buyer Decisions
- More Time for Salesmen to "Sell" (versus order taking)
- Less Time Spent in Resolving Order/Invoice Discrepancies
- Better Order Status Information
- Increased Opportunities for Alternative Buying
Administrative and Clerical Costs
One of the major goals in creating EDI was to reduce the great volume of business paperwork and many of the clerical tasks involved in handling the processing of paper documents. Many users have realized substantial productivity improvements and/or direct cost savings in their office operations by reducing or eliminating the time required for the following tasks.
- Document Editing and Checking
- Document Filing and Retrieval
- Document Matching
- Manual Document Preparation
- Key Entry for Computer Input
In addition to the above cost benefits, direct savings can also be realized in the areas of paper, mailing, fax and other physical costs.
GS1 US EDI Implementation Guidelines
GS1 US manages and administers the following EDI implementation guidelines through the X12 Requirements Group (XRG). These guidelines are industry specific guidelines of ASC X12 standard
INDUSTRIAL/COMMERCIAL (I/C) EDI – used by providers and users of raw materials, packaging materials and maintenance-repair-operations (MRO) products.
UNIFORM COMMUNICATION STANDARD (UCS) – used primarily by the grocery industry.
VICS EDI – used by the general merchandise retailing industry.
For copies of the guidelines and standards go the the Solutions Center or the GS1 US Product Catalog. |
