FROM TRADI TI FRO TIO ONAL TO TO I NTE TERN RNET-BASED EDI
W5A
X I D N E P P A
T he va vas st majorit y of B2B transa transacti ctions ons are suppo upport rte ed by ED I , XM L , and extr extra ane nets. ts. I n this thi s appe ppendix, ndix, we des de scribe EDI and its i ts transi transi ti on to the t he I nterne nternett pl atf orm. Ext Extrane ranets ts are are cov cove ere red d in A ppe ppendix ndix 6A .
TRADITIONAL EDI EDI is a com ommu munica nicati tion on sta tanda ndard tha thatt ena nable bles s the ele lec ctronic tra trans nsfe ferr of rou routi tine ne do doc cum ume ents nts,, suc uch h as pu purrcha ch asing orders rs,, be betwe twee en busine ines ss pa part rtne ners rs.. I t forma formats ts these doc docume uments acc ccording ording to an agre gree ed-upon structure tur e. An EDI imp imple leme menta ntation tion is a pr pro ocess in wh whic ich h two or mo more re org rga aniz niza ation tions s de dete termin rmine e ho how w to wo work rk toge tog ethe therr mo more ree effec ffective tively ly throu throug gh the use of EDI . Fo Forr othe otherr org orga aniza nizations tions,, it is an inte interna rnall de dec cis ision ion spu purre rred d by the de des sire for co compe mpetitititivead veadva vantag ntage e. ED EDII is ba bas sica icallll y a comp ompute uterr-to-comp to-compute uterr me mes ssaging sys ystem tem with a minimum minim um of hu huma man n inte interve rvention ntion.. For a com ompa paris riso on of EDI vers rsusno usno EDI see Ex Exhib hibit it W5A.1. ED I of oftt en serves serves as a catalyst catalyst and a st st i mul mulus us t o impr i mprove ove t he busi busi nes ness s proces processe ses t hat fl f l ow between between organizations organizati ons.. I t re r educe duces s cost s, dela delays ys,, and errors inherent in i n a manua manuall document- deli delive verr y sys systt em. ◗
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prima mari rily ly is use used to t o electroni electronica callll y trans t ransfer repeti repeti ti ve bus busines iness s Busi usiness nesstransacti ction onmessages. ED I pri tra tr ans nsa acti ctions ons.. T he hes se include purcha purchas se orders, orders, in invoice voices s, cre credit dit approva pprovals, ls, shi hipping pping notice not ices s, co confi nfi rmati ons ons,, and so on. on. Dataformatti tting ngstandards. Beca Becaus use e EDI ED I mes mess sag ages es are repe repetti t i ve ve,, i t makes sens ense e to use form ormatt attii ng (coding) (codi ng) standards. standards. Standa Standards rds can can shorten short en the length lengt h of the mes message ges s and el elimi minate nate dat data ent ntrry err errors, ors, beca be caus use e dat dat a ent entry ry occ occurs urs only once. ED I deals with wi th st andard trans t ransa acti ctions ons,, where wherea as e- mail i s more open. ope n. ED I us uses es a spec pecii al standa andard rd l anguag nguage e and is i s secure cure,, whereas e- mail i s not not.. W hen a us user er ent ente ers data da ta into i nto t he EDI ED I sys ystem, tem, th the e data are are automati automatica callll y conve convert rte ed to t o EDI ED I language ge.. I f th the ere are are missi ng or incorre in correct ct data, th the e EDI ED I conv conve ert rte er off offe ers as assi stance. ED EDII foste fosters rs coll colla abora boratiti ve rela relatiti ons onshi hips ps and strategi strategi c part pa rtne nerships rships.. I n the t he Unit ed States States and Canada Canada,, da data ta are are formatte formatt ed according according to t o the th e ANS AN SI X.12 stanstandard da rd or t he UCS code code.. A n internati i nternationa onall standard standard developed by th the e Uni Unitt ed Na N ati ons is call ed ED I FACT (see bambooweb.com bambooweb.com). ). EDI translators. A n ED I tr tra ans nslator lator automatically tr tra ans nslates lates da data. ta. T he soft softwa ware re organi organize zes s informa inf orma-tion into a standard format.
ED I ha has s be bee en around around for about about 30 yea years in the th e nonnon-II nt nte ernet environment. environment. To distinguis disti nguish h it i t f rom I nterne nternett- ba bas sed EDI ED I , we call ED EDII on the non-I nterne nternett pla pl atf tform orm traditiona traditionall ED I .
HOWDOES EDI WORK? I ns nsight ights s and Additi Addi ti ons W 5A.1 ill i ll us ustr tra ates how ED I works in a hos hospit pit al. I nformati on flows fr from om the hos hos-pit al ’s i nformati nformation on sys systems tems in into to an EDI stati tation on that include i ncludes s a PC and and an an ED I tr tra ans nslator. lator. From there, there, th the e informati in formation on moves, us usin ing g a mode modem m if i f ne nece ces ssary, to a VA VA N . T he VA VA N tr tra ans nsfers fers th the e formatt formatt ed informati i nformation on t o a ve vendor( ndor(s s), where an ED I t rans ranslator lator converts it t o a de des si red f ormat.
APPLICA APPLI CATIONSOF TRADITIONAL EDI Tradit i ona Traditi onall ED I ha has s cha change nged d the t he bus busin ine ess lands landsca cape pe,, tr trigge iggeri ring ng new new defi defi nit ions of enti enti re industr industries ies.. I t i s use us ed ext ext ensively by large corpor corporati ations, ons, someti ometimes mes i n a gl gl oba oball ne n et work work,, such as as t he one ope operated rated by G enera nerall Electri E lectri c Infor In forma matiti on Sys System tem (which (whi ch has has ove overr 100,000 corporate corporate users). Well Well-- known retaile retail ers such as as H ome D epot and WalWal- M art would operate operate ve very di ff ffe erentl rently y without wit hout ED I , be beca caus use e it is an an integra i ntegrall and ess essent ntii al el ement of t heir bus busii ness st rategies. T hous housa ands of global manufacturers, manufacturers, i ncludi ng Procter & Gamble,, L evi Stra Gamble Str aus uss s, Toyo Toyota, ta, and Uni leve lever, r, ha have ve us use ed ED I to re r ede defifi ne relati relations onshi hips ps wit h the t heir ir cu cus stomers through th rough such such practi practice ces s as quick- respons ponse e reta retailil ing and justjust- in in-- ti me ( JI T ) manufacturi manufacturi ng. T he hes se hi highly ghly visible visibl e, hi highgh-ii mpac mpactt appli ca catt i ons of ED I by large compa compani nie es have be bee en extr extre emely succ succe essful . T he be benefi nefitt s of EDI are liste listed d in Exhibit W 5A.3.
LIM LI MITATIONSOF TRADI ADITI TIO ONAL EDI H owe oweve ver, r, de des spit e the tremendous tremendous impac impactt of t raditi ona onall ED I among industr industr y leade leaders, rs, the se set of adopters adopters repres rep resented only a sma smallll fr fra acti ction on of potential ED I us use ers rs.. I n t he Unit ed States States, whe where re se seve veral ral mill mi ll ion bus busii nesses part part i cipate in comme commerce rce eve everr y day, fewe fewerr t han 100,000 compa compani nie es have have adopted tradit t radit i onal ED I . Furthermore, Furt hermore, mos mostt of t hese compa compani nie es hav have e had had only onl y a small number of their t heir bus busii ness partn partne ers on EDI ED I ,
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Part One
EXHIBIT W5A.1 Purchase Order (PO) Fulfillment with
and Without EDI P.O. Delivery
Start
Sales Order Placer
Accounting/Finance
Order Confirmation Bill Delivery
Mail Room
Without EDI Accounting/Finance
Purchasing Mail Room
Payment Delivery
Shipping Shipping Receiving
Product Delivery
Order Fulfillment
Buyer
Standardized P.O. Form
Seller
P.O. P.O.
Start
Computer Convertor Generates Standardized P.O. Form
Invoice
With EDI
Flash Report
Instant Data to • Sales • Inventory • Manufacturing • Engineering
Departmental Buyer EDI Converter
Shipping Receiving Buyer
Product Delivery
Order Fulfillment Seller
mainly due to its high cost. Therefore, in reali ty, few businesses have benefi ted from ED I. The major factors that held back more universal i mplementation of tradit ional ED I include the following: ◗ ◗ ◗ ◗ ◗ ◗
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Significant i nit ial investment is needed, and ongoing operati ng costs are high. Business processes must be restructured to fit ED I requirements. A long start-up period is needed. ED I requires use of expensive private VAN s. ED I has a high operati ng cost. M ult iple EDI standards exist, so one company may haveto use several standards in order to communicate with different business partners. The system is dif fi cult to use.
Chapter Five
Insights and Additions W5A.1 An average hospital generates about 15,000 purchase orders each year, at a processing cost of about $70 per order. The Health Industry Business Communication Council estimates that EDI can reduce this cost to $4 per order—generating yearly savings of $840,000 per hospital. The required investment ranges between $8,000 and $15,000, which includes purchase
How EDI Cuts Costs of Ordering Supplies of a PCwith an EDI translator, a modem, and a link to the mainframe-based information system. The hospital can have two or three ordering points. These are connected to a valueadded network (VAN), which connects the hospital to its suppliers (seeExhibit W5A.2 below). The systemalso can connect to other hospitals or to centralized joint purchasing agencies.
EXHIBIT W5A.2 How EDI Cuts the Cost of Ordering Supplies Hospitals
PC/EDI Translator Pharmaceutical Supplier’s System
Pharmacy: PC/EDI Translator Hospital Information System
Dietary: PC/EDI Translator
PC/EDI Modem
Material Management: PC/EDI Translator
PC/EDI Translator VAN
PC/EDI Translator
Dietary Supplier’s System
Mainframe
Materials Supplier’s System
PC to Mainframe Links
Mainframe
Mainframe
Telephone Lines
EXHIBIT W5A.3 Benefits of EDI • EDI enables companies to send and receive large amounts of routine transaction information quickly around the globe. • Computer-to-computer data transfer reduces the number of errors. • Information can flow among several trading partners consistently and freely. • Companies can access partners’ databases to retrieve and store standard transactions. • EDI fosters true (and strategic) partnership relationships because it involves a commitment to a long-terminvestment and the refinement of the systemover time. • EDI creates a complete paperless TPS (transaction processing system) environment, saving money and increasing efficiency. • Payment collection can be shortened by several weeks. • Data may be entered off-line, in batch mode, without tying up ports to the mainframe. • When an EDI document is received, the data may be used immediately. • Sales information is delivered to manufactures, shippers, and warehouses almost in real time. • EDI can save companies a considerable amount of money.
Other Hospitals’ PC/EDI Translators
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Part One ◗ ◗
A convert er i s required to translate business transacti ons to EDI code. The system is inf lexible; it i s diffi cult to make quick changes, such as adding business part ners.
These factors suggest that tradit ional EDI—relying on formal transaction sets, translation soft ware, and VAN s—is not suit able as a long-term solution for most corporations. Therefore, a bett er i nfrastructure was needed; I nternet- based ED I is such an infrastructure.
INTERNET-BASED EDI Internet- based (or Web-based) EDI is becoming very popular. L et’s see why this is the case and review the various types of Web-based ED I.
WHY INTERNET-BASED EDI? W hen considered as a channel for ED I, the Internet appears to be the most feasible alt ernati ve for putt ing online B2B trading within reach of virtually any organizati on, large or small . Firms should use Internetbased ED I for several reasons: ◗
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The Internet is a publicly accessible network with few geographical constraint s. I ts largest att ribute, large-scale connectivit y (without t he need for any special company networki ng archit ecture), is a seedbed for growth of a vast range of business applications. The Internet’s global network connections offer the potential t o reach the widest possible number of trading partners of any viable alternative currently available. Using the Internet i nstead of a VAN can cut communication costs by over 50 percent. Using the Int ernet t o exchange ED I transactions is consistent with the growing interest in deli vering an ever- increasing vari ety of products and services electronically, part icularly via the Web. I nternet- based EDI can complement or replace many current ED I applicati ons. I nternet tools such as browsers and search engines are very user- fri endly, and most employees today know how to use them. I nternet- based ED I has several functionaliti es not provided by tradit ional ED I , such as collaboration, workf low, and search engine capabil ities (see Boucher- Ferguson 2002). A comparison of t he traditi onal ED I and Internet- based EDI is provided in Exhibit W5A.4.
EXHIBIT W5A.4 Traditional Versus Web-Based EDI Traditional Electronic Data Interchange (EDI) Translate Business Application
Store and Forward EDI Formatted Message
ValueAdded Network
Translate EDI Formatted Message
Business Application
Web-based EDI Orders
EDI Server
Internet
Web Browser
Inventory
Web Server Legacy Applications
Chapter Five
TYPESOFINTERNET-BASED EDI The Int ernet can support EDI in a variety of ways. ◗
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Internet e-mail can beused to transport EDI messages in place of a VAN . To this end, standards for encapsulating the messages within Secure Internet M ail Extension (S/M IM E) have been established. A company can create an extranet that enables its trading partners to enter information into a Web form, the fi elds of which correspond to t he fields in an ED I message or document. Companies can use a Web-based EDI hosti ng service in much t he same way that companies rely on third parties to host t heir EC sites. Netscape Ent erprise is an example of the type of Web-based ED I soft ware that enables a company to provide it s own ED I servi ces over t he Internet. H arbinger Express is an example of a company that provides third-party hosting services. Internet- based ED I is frequently XM L based to ease integration among business part ners.
THE PROSPECTS OF INTERNET-BASED EDI Companies that used tradit ional ED I in the past have had a positive response to Internet-based ED I . W it h traditional EDI, companieshave to pay for network t ransport, translation, and routing of EDI messages into their l egacy processing systems. The Internet simply serves as a cheaper alternati ve transport mechanism. For a discussion, see W it te et al. (2003). The combination of the Web, XM L , and Java makes EDI worthwhile even for small, infrequent transactions. W hereas EDI is not interactive, the Web and Java were designed specifically for interactivity as well as ease of use. The fol lowing examples demonstrate the benefits of I nternet- based EDI. ◗
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Compucom Systems was averaging 5,000 transactions per month with traditi onal EDI . I n just a short time after the transition to Web-based ED I , the company was able to average 35,000 transactions. The system helped the company to grow rapidly. Tradeli nk of H ong Kong wassuccessful in recruiting only several hundred of the potenti al 70,000 companies to a traditional ED I that communicated with government agencies regarding export/import transactions. In 2001, Tradeli nk’s Internet-based system had thousands of companies registered, and hundreds were being added monthly. Atkins Carl yle Corp., which buys from 6,000 suppliers and has 12,000 customers in Australi a, is a wholesaler of industrial, electrical, and automotive parts. The large suppliers were using three different EDI platforms. By moving to an Internet-based EDI, the company is able to collaborate with many more business partners, reducing transacti on costs by about $2 per message. Procter & Gamble replaced a tradit ional ED I system that had 4,000 business partners with an Internet- based system t hat has tens of thousands of suppliers. Not e that many companies no longer refer t o their coll aborati ve systems as EDI . H owever, the
properties of ED I are embedded i nto new e-commerce initiatives such as collaborative commerce and elec-
tronic exchanges.
REFERENCES Boucher-Ferguson, R. “Writ ing the Playbook for B2B.” W il son I nternet, January 29, 2002. W itt e, C. L ., M . Grünhagen, and R. L . Clarke. “T he Integration of EDI and the Internet.” I nf ormati on Systems M anagement (Fall 2003).
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