Introduction to EDI

Electronic Data Interchange - EDI

Introduction to EDI

The Electronic Data Interchange (EDI) is the exchange of business documents between one trade partner and another electronically. It is transferred through a dedicated channel or through the Internet in a predefined format without much human intervention.

It is used to transfer documents such as delivery notes, invoices, purchase orders, advance ship notice, functional acknowledgements etc. These documents are transferred directly from the computer of the issuing company to that of the receiving company, with great time saving and avoiding many errors of traditional “on paper” communications.

Before the popularization of Internet-based E-Commerce, it was a major E-Commerce model. EDI includes data exchange between buyers and sellers, trade partners, and also internal data exchange within departments of a company. There are many internationally accepted EDI standard e.g. EDIFACT, XML, ANSI ASC X12, etc. See Figure 18.1

EDI is “Paperless Trade” and EFT (Electronic Transfer) is “Paperless Payment”

History of EDI

With the popularity of computers, many companies and organizations use computers to store and process data. However, different organizations use different application systems, and the format of the data generated is not the same. When organizations need to communicate for their business needs they have to rekey. This was time consuming and a major obstacle in the business operations. In order to solve this problem, some enterprises have agreed a specific standard format, which can be regarded as the origin of the EDI application concept.

Like many other early information technologies, EDI was also inspired by developments in Defense Research Organization. Ed Guilbert, is called as the father of EDI. He manifested shipping standardized format (much like the 856, or ASN) during the 1948 Berlin airlift. Guilbert with his team developed the first standardized system for business documents, that later influenced how documents would be passed from computer to computer. This standard helped to track “what was contained in the shipment”, “who was delivering the cargo”, while not allowing language barriers or confusing formats to delay the shipment.

Soon, businesses began to realize that using EDI will smoothen the business transactions and increase the profit. These standardizations made ordering and shipping faster, more organized, and less expensive. Earlier, EDI documents were transmitted electronically by the use of Radio teletype, telex messages, or telephone.

In late 1960s, shipping line, railroads, airlines, and truck companies of USA were exchanging electronic messages for their businesses. These messages were in different formats, and it resulted in problems in transfer of goods. In 1968, these companies grouped together among themselves and formed the Transportation Data Coordinating Committee (TDCC) to develop EDI standard formats.

In 1975, first EDI standards were released by TDCC, of which Ed Guilbert was a major contributor. In 1977, a group of supermarket companies and their business partners begin drafting and using an EDI project. The TDCC is renamed as Electronic Data Interchange Association (EDIA) in 1978. Later in that year, the EDIA was undertaken by the American National Standards Institute and becomes the ANSIX12 committee. Since then this committee is responsible for the publication of EDI standards.

Later in 1985, UN created the EDIFACT to assist with the global reach of technology in E -Commerce. EDIFACT is the most widely used EDI.

The first EDI messages was sent in 1965 from the Holland-American steamship line to Trans-Atlantic shipping company using telex messages. The computer had sent a full page of information in roughly 2 minutes. These messages were then written on the magnetic tapes that could be loaded onto another computer.