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Unit 13: Supply Chain Management and JIT

average truck costs. At C, the average waterway ton-kilometer costs become lower than rail Notes
costs. Transport by truck in the short haul is cheapest with low fixed cost relative to the operating
cost, while waterway transport is cheapest in the long haul with high fixed costs and low
operating cost. For intra-city transport small transport units are most economical. There are a
host of options, depending on the volume and weight of the shipment.

13.4 Electronic Data Interchange (EDI)

EDI (Electronic Data Interchange) is a standard format for exchanging business data.
Electronic data interchange (EDI) is the electronic exchange of business information – purchase
orders, invoices, bills of lading, inventory data and various types of confirmations – between
organizations or trading partners in standardized formats. EDI also is used within individual
organizations to transfer data between different divisions or departments, including finance,
purchasing and shipping. When the focus of EDI centers on payments, especially between banks
and companies, the term financial EDI (FEDI) is sometimes used. Along with digital currency,
electronic catalogs, intranets and extranets, EDI is a major cornerstone of e-commerce overall.

Two characteristics set EDI apart from other ways of exchanging information. First, EDI only
involves business-to-business transactions; individual consumers do not directly use EDI to
purchase goods or services. Secondly, EDI involves transactions between computers or databases,
not individuals. Therefore, individuals sending e-mail messages or sharing files over a network
does not constitute EDI.
While the concept of e-commerce did not receive widespread attention until the 1990s, large
companies have been using EDI since the 1960s. The railroad industry was among the first to
adopt EDI, followed by other players in the transportation industry. By the early 1980s, EDI was
being used by companies in many different industry sectors. In the beginning, companies using
EDI transferred information to one another on magnetic tape via mail or courier, which had
many drawbacks including long lead times and the potential for a tape to be damaged in transit.
During the 1980s, telecommunications emerged as the preferred vehicle for transferring
information via EDI.
By the new millennium, EDI was used widely in many industries including manufacturing,
finance, and retail. Some large retailers, among them Sears and Target, required suppliers to use
EDI in order to engage in business transactions with them. Additionally, the Federal Acquisition
Streamlining Act of 1994 (FASA) required all agencies within the United States government to
use EDI.

Communication Methods

After identifying trading partners, entering into TPAs with them and purchasing the necessary
hardware and software, a means of communication must be chosen. EDI can occur point-to-
point, where organizations communicate directly with one another over a private network; via
the Internet (also known as open EDI); and most commonly, via value-added networks (VANs)
provided by third-party value-added-network services.

VANs are networks dedicated exclusively to EDI. Not only do they function like telephone lines
by allowing for the transfer of information, they also contain storage areas, similar to e-mail
boxes, where data sent from one party can be held until it is scheduled to be delivered to the
receiver. VANs are able to provide translation services to small organizations that find it too
cost prohibitive to do in-house with their own software. Companies may need to join more than
one VAN because their partners belong to more than one. However, by the early 2000s most
VANS were able to communicate with one another.

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