Page 46 - DCAP306_DCAP511_E-COMMERCE_AND_E-BUSINESS

Unit 4: Electronic Data Interchange to E-Commerce

EDI is a subset of electronic commerce that encompasses the exchange of business information in a
standardized electronic form like layout of information for an invoice or purchase order.

EDI can reduce costs, workforce requirements, and documentation errors related to retyping orders,
invoices, and other documents. Using EDI, the computer data already entered by an organization is
made available to a business partner.

EDI is typically handled by using store-and-forward technologies which is similar to an e-mail. A third
party like General Electric Information Service (GEIS) often serves as a middleman to help
organizations establish business relationships and handle business transactions.

There is an interpretation that EDI constitutes the entire electronic data interchange
paradigm, including the transmission, message flow, document format, and software
used to interpret the documents.

4.2 EDI
EDI is an inter-organizational transmission of business documents in a structured format. Many
companies use EDI facility to trade with each other. Important messages related to the trade such as
purchase orders, delivery instructions, and remittance advice are the typical messages sent between the
trading partners. These messages can be effectively communicated between the user companies because
they are structured according to various standards.
Earlier, a particular format of agreement between two trading partners was used for electronic
interchange of data. But, the differing document formats made it difficult for companies to exchange
data electronically with many trading partners. Therefore, a standard format was necessary to exchange
data.
The first attempt to produce a common data format was done in the 1960s by the cooperative effort
between industry groups. The format, however, was only for purchasing, finance, and transportation
data and it was used only for intra industry transactions. The actual work for national Electronic Data
Interchange (EDI) standards began in the late 1970s. The set of standard data format was created by
considering both users’ and vendors’ requirements. The features of the standard data formats are:
1. It is hardware independent.
2. It is unambiguous such that, they can be used by all trading partners.
3. It reduces the labor-intensive tasks of exchanging data.
4. It allows the sender of the data to control the exchange, including acknowledging if and when the
receiver received the transaction.
Today, a number of formats are available for EDI. The two most widely recognized and used formats
are X12 and EDIFACT.
Some of the essential elements of EDI are the use of an electronic transmission medium rather than
using physical storage system such as magnetic tapes and disks. The EDI message is well structured
and formatted. EDI enables direct communication between applications and increases the speed of
document transfer from the sender to the receiver. It depends on a sophisticated information technology
infrastructure that includes data processing, data management, networking capabilities that provide
efficient and reliable data transmission between remote sets.
An EDI message can be easily translated into various formats which are suitable for application
software right from controlling the production in a factory to giving future orders to the retailers. The
structure permits the trade related operations to be automated with data, from serving customer to the
relevant department for automatic action.
The EDI process is initiated either by downloading a file, or by an operator entering data into a
computer with necessary instructions on the screen. The EDI system can send one or more orders at a
time and different companies can receive the order at the same time. Once a company sends a message,
it is transferred through a telephone line either to a Value-Added Network (VAN) or directly to the

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