Electronic data interchange
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EDI is the electronic transmission of business documents like purchase orders and invoices between companies in a standard format. It streamlines information flow, reducing paperwork and costs. EDI uses layers including physical infrastructure, standards translation, and transport. It is widely used in international trade to facilitate customs clearance, in healthcare for insurance claims processing, and in manufacturing/retail for just-in-time and quick response procurement. Larger companies directly use EDI while smaller companies employ third-party services.
Electronic data interchange
- 1. Electronic Data Interchange What is EDI EDI is defined as the electronic transmission of business documents in a standard format between two companies. EDI & Electronic Commerce:- •Electronic commerce includes EDI & much more •EDI forges boundary less relationships by improving interchange of information between trading partners , suppliers, & customers
- 5. EDI semantic layer:- • Describes the business application • Procurement example 1. Requests for quotes 2. Price quotes 3. Purchase orders 4. Acknowledgments 5. Invoices • Specific to company & software used Physical network infrastructure layer:- Dial-up lines, Internet, value-added network, etc
- 6. Standards translation: •Specifies business form structure so that information can be exchanged •Two competing standards 1. American National Standards Institute(ANSI)X12 2. EDIFACT developed by UN/ECE, Working Party for the Facilitation of International Trade Procedures EDI transport layer •How the business form is sent, e.g. post, UPS, fax •Increasingly, e-mail is the carrier •Differentiating EDI from e-mail 1. Emphasis on automation 2. EDI has certain legal status
- 7. EDI in Action Information flow without EDI
- 8. Information flow without EDI EDI in Action •The fig shows the information flow when paper documents are shuffled between organizations via the mailroom •When the buyer sends a purchase order, then relevant data extracted & recorded on a hardcopy. •This hard copy is forwarded to several steps, at last manually entered into system by the data entry operators •This process is somewhat overhead in labor costs & time delays
- 10. Information flow with EDI EDI in Action •Information flow with EDI are as follows: 1. Buyer sends purchase order to seller computer 2. Seller sends purchase order confirmation to buyer 3. Seller sends booking request to transport company 4. Transport company sends booking confirmation to seller 5. Seller sends advance ship notice to buyer 6. Transport company sends status to seller 7. Buyer sends Receipt advice to seller 8. Seller sends invoice to buyer 9. Buyer sends payment to seller EDI as a fast, inexpensive & safe method
- 11. EDI Standards:- • EDI requires companies to agree on standards 1. Compatible hardware and software 2. Agreed upon electronic form format • How to Subscribe to EDI:- • Larger companies purchase hardware and software • Medium and small companies seek third-party service 1. Value-added networking (VAN) 2. Managed network services available for a fee
- 12. EDI on the Web:- Advantages of Web EDI 1. Lower cost 2. More familiar software 3. Worldwide connectivity Disadvantages of Web EDI 1. Low speed 2. poor security
- 13. EDI Applications in Business • Four different scenarios in industries that use EDI extensively: 1. International or cross-border trade 2. Electronic funds transfer 3. Health care EDI for insurance claims processing 4. Manufacturing & retail procurement
- 14. 1. International or cross-border trade •EDI has always been very closely linked with international trade. •Trade efficiency, which allows faster, simpler, broader & less costly transactions. Role of EDI in international trade •EDI facilitates the smooth flow of information •It reduces paper work •EDI benefits for international trade are 1. Reduced transaction expenditures 2. Quicker movement of imported & exported goods 3. Improved customer service through “track & trace” programs 4. Faster customs clearance & reduced opportunities for corruption, a huge problem in trade
- 15. Automated Clearinghouse (ACH) Transfers •ACH transfers are used to process high volumes of relatively small-dollar payments for settlement in one or two business days •It provides services: preauthorized debits, such as repetitive bill payments; & consumer-initiated payments. Automated Clearinghouse (ACH) Transfers •ACH transfers are used to process high volumes of relatively small-dollar payments for settlement in one or two business days •It provides services: preauthorized debits, such as repetitive bill payments; & consumer-initiated payments.
- 16. • 3. Health care EDI for insurance EDI • •Providing good & affordable health care is a universal problem • •EDI is becoming a permanent fixture in both insurance & health care industries as medical provider, patients, & payers • •Electronic claim processing is quick & reduces the administrative costs of health care. • •Using EDI software, service providers prepare the forms & submit claims via communication lines to the value-added network service provider • •The company then edits sorts & distributes forms to the payer. If necessary, the insurance company can electronically route transactions to a third-party for price evaluation • •Claims submission also receives reports regarding claim status & request for additional information
- 17. 4.Manufacturing & retail procurement using EDI •These are heavy users of EDI •In manufacturing, EDI is used to support just-in-time. •In retailing, EDI is used to support quick response Just-In-Time & EDI •Companies using JIT & EDI calculates how many parts are needed each day based on the production schedule & electronically transmit orders. •Delivery has to be responsive, or it will cost too much in money & time. •Getting data to suppliers quickly •A major benefit of JIT & EDI is a streamlined cash flow. Quick Response & EDI •For the customer, QR means better service & availability of a wider range of products •For the retailer & supplier, QR may mean survival in a competitive marketplace •Much focus of QR is in reduction of lead times using event-driven EDI. •In QR, EDI documents include purchase orders, shipping notices, invoices, inventory position, catalogs, & order status