EDI, NT, and the Internet

Electronic data interchange (EDI), which has been around for decades, is the transmission and reception of documents between computers in machine-readable form. EDI transactions have high integrity and are highly secure, with the potential to scale to very large batch operations. These transactions often transfer mission-critical data between enterprises. Most companies use value-added networks (VANs) to transmit EDI transactions, but the advent of the Internet is rapidly changing the EDI landscape.

In this article, I'll describe how EDI has traditionally fit into many business models and explain the costs associated with EDI. In addition, I'll show you how the Internet is making EDI more accessible to small and midsized companies and what tools are available to implement EDI in a Windows NT environment.

EDI and Traditional Business Models
EDI is a simple technology that maps the database data set on one computer to the database data set of a different computer. Companies traditionally use VANs, such as GE Information Services, the IBM Advantis Network, Harbinger EDI Services, and AT&T, for EDI. Some of these VANs can be quite large (e.g., GE Information Services has almost 40,000 subscribers). Most VANs use the X.25 mail protocol to transmit compressed, encrypted data over secure pathways. Companies typically pay for transmissions in kilocharacters (1000 characters) according to the number of characters the VAN transmits or receives, which is expensive.

About 100,000 companies worldwide participate in EDI transactions, and about 1000 companies, many of which are Fortune 1000 companies, engage in large-volume EDI transactions. International communications use EDI extensively, which is important to know if your organization conducts business around the world. As a result of the widespread use of EDI worldwide, the United Nations established the Electronic Data Interchange for Administration, Commerce, and Transport (UN/EDIFACT), which focuses on EDI.

About 100 vendors, including Sterling Commerce, Harbinger, St. Paul Software, Data Management Strategies, and Perwill EDI, sell EDI translation software. EDI translation software available for NT includes Premenos' TrustedLink Enterprise and TSI International's Mercator.

The software on the sending and receiving computers determines the number of fields in a document (such as a purchase order or invoice), the order of the transmission, and the appearance of the data. Software on the sending computer prepares the data for transmission and often modifies fixed-length data, and software on the receiving computer parses the data into a form that the computer can use. The translation software formats the data using a standard such as ANSI X12 or UN/EDIFACT so that the software can map outgoing data and unmap incoming data and transform it into proprietary file formats that business applications use.

Although the concept of EDI is simple, the practice of EDI is arcane. Standards exist, but they represent only a starting point that requires human intervention and agreement on both sides of the messaging system.

EDI plays a fundamental role in the working business model of several industries. When the government, large retail outlets, or automotive manufacturers need to communicate document-based paperless transactions to their business partners, they are in a position to impose an industry wide EDI standard. EDI cuts down on error, transmission times, and the number of staff required to process the transactions. For example, retailers can rely on EDI to communicate the output from a database that measures the inventory fluctuations that occur every time a cashier scans an item's bar code at a checkout counter. Using this information, a retailer can place the burden of stocking its shelves on the product distributors and can pay these distributors according to how quickly their products sell from the retailer's shelves. Under this arrangement, the distributors get instant (generally overnight) feedback about the success of their products and a closer working relationship with their large retail customers.

Retailers often couple EDI with an Electronic Funds Transfer (EFT) system so they can credit money to a distributor as soon as that distributor's new product arrives on the shelf. In a tightly coupled system, these transactions can occur frequently. EFT is a form of EDI using proprietary file formats that pass payment transactions between banks. However, EFT doesn't always mean that the money is immediately available to the distributor. The financial organizations involved in the transactions determine the rules of deposit and transfer.

The automotive industry uses EDI as a fundamental part of its business model to implement just-in-time (JIT) manufacturing. Several hundred suppliers provide thousands of parts to the manufacturer to build each car, and a typical assembly line might stock only 2 or 3 days' worth of inventory. The suppliers receive EDI transmission-based purchase orders from the manufacturer and provide parts as needed. The manufacturer pays suppliers for the inventory the manufacturer uses on its assembly line, thereby shifting the inventory problem to the suppliers.

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