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E-Commerce and E-Business

trading partner. VAN stores the received message in an electronic mailbox and simultaneously registers
the time and details in a computer. Then, the recipient checks the received message. VAN can also be
programed to inform the recipient’s computer whenever a new message is received.
The computer which receives the message translates it automatically to the required format. Then, the
computer transmits the message to the computer or applications software of the relevant department.
EDI automates the business communications between the trading partners.
Figure 4.1 shows a typical EDI system.

Figure 4.1: EDI System

The speed of creating invoices, purchase orders, receiving tickets, and so on has drastically increased
with the advent of computers. Although these documents are produced by high speed printers, there
still arises a need to burst, insert, distribute (usually mailed), and file copies of the documents. In
traditional systems, the original message had to be manually transported to the receiver, opened,
carried to the appropriate individual within the addressee organization and processed, which
essentially means manually typing the data into a management information system.
The use of EDI removes many of these problems associated with traditional information flow.

Consider a purchase order between a buyer and a seller. By simply placing the
order or entering the information into the buyer’s computer, the data can be
electronically transmitted to the seller’s computer without re-typing the
information. This process of data transfer is called application to application EDI.
4.2.1 EDI Communication

Data transfer in a one-to-one EDI relationship can be as easy as connecting a modem and transferring a
file. This becomes impractical with more number of vendors. If a manufacturer has to send out
hundreds of purchase orders each week to hundreds of suppliers, it would require many employees
and a very tight schedule to process their purchase orders. Even if the manufacturer had an extensive
private network available for successful transmission, it would be necessary that all vendors be linked
with the network.
These problems can be avoided by allowing receivers to access the senders’ systems and collect the
necessary data. However, the process could have a serious security issue. With careful control this
method can be adopted, but it will work only on temporary basis by installing the separate hardware to
isolate the system being accessed by third parties. Some companies might accept these approaches, but
since the process is complex most EDI users would quickly start preparing printed documents,
depending on the mail to distribute all their documents.
To overcome these issues, EDI users can make use of third-party network services, commonly referred
to as "Value Added Networks" or VANs. The VAN works as a clearing house for electronic transactions,
serving as a private electronic mail service. A company can send their purchase order files to a single
destination. Each vendor's data is routed to their own electronic mailbox by the VAN. If the recipient of
the file does not subscribe to the particular VAN used by the sender, then the transaction can be routed
from one VAN to the other.
The security issue is resolved by using a VAN. It allows trading partners to trade information and at the
same time avoid giving information away. Although both the parties cannot access each other’s

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