Electronic Data Interchange

(EDI)
 Introduction
EDI is the computer-to-computer exchange of business documents between trading
partners in standard data format using networks.
EDI documents can flow directly out of the sender’s computer system into a receiver’s
computer system without any human intervention which results in reduced processing
time as processing can begin immediately.

Purpose of EDI-
• Automated flow of business information between organizations
• Integrated information flow into and out of respective business systems
• Common “language” among different computer systems and data formats
• Data in a standard and structured format can be translated into information
that is understood by different systems used by the organizations
• The automation and digitalisation of exchanges significantly reduce human
intervention.
EDI Documents- EDI Users-
• Invoices • Central and State government agencies
• Purchase orders • Banking
• Financial information letters • Retailing
• Transaction bills • Manufacturing
• Shipping request and notification • Insurance
• Acknowledgement and feedback • Healthcare
• Transcripts • Automotive
• Claims • Electronics
• Business Correspondence Letters • Grocery
• Transportation
Traditional versus EDI enabled system
for document exchange
 How does EDI work?
EDI documents must follow a standard format so that computers can process the flow
of information automatically. Several standards (EDIFACT, ANSI ASC X12, XML,
OCI etc.) are available to ensure standardization. Before sending any document,
business partners must agree on the format (standard and version) they wish to use.

Once a format is decided upon, the process follows three main steps:
1. Prepare the documents
• First, the information required to create the document needs to be gathered and organized.

2. Translate the documents in correct format

• Next, the internal document must be converted into the defined format. To do this, you can
either purchase and use your own EDI translation software or utilize a service provider.

3. Connect and send the documents

• The business documents are ready to be sent using a secure protocol also known as point
to point EDI
Example of EDI Process Flow
Contd..
Let’s say an Automotive Manufacturing company needs to buy some vehicle spare parts
from a vendor.
• To do that, the manufacturing company procurement system generates a Purchase Order
(PO) as a CSV file.
• The EDI translator software will extract the order details like the item, quantities, and
agreed prices, and convert that retrieved data into an EDI document, and send it to the
vendor via an EDI transmission software.
• When the document reaches the vendor’s EDI transmission software, it will transfer the
EDI document to the translator.
• The translator will retrieve order details and convert the document to a format which the
vendor’s sales order system can read.
• Then the retrieved data will be fed to the vendor’s sales order system without any
manual data entry.
• Sales order system will generate an invoice and transfer the document to the buyer
following the same procedure.
 Components of EDI
To successfully implement EDI, an organization needs three key components-
1. EDI Standards
2. EDI Software
3. Communication Networks

1. EDI Standards
EDI standard is defined as a set of rules, agreed upon, accepted and voluntarily
adhered to, by which the data is structured into message formats for exchange of
business and operational information.

There are different EDI standards like ANSI ASC X12, EDIFACT, UBL, ODETTE,
TRADACOMS, EANCOMS etc.
ANSI ASC X12- ANSI ASC X12 is one of the most used EDI standards. ANSI is an abbreviation for
American National Standards Institute. The organization oversees the development of voluntary standards
for various systems, including electronic data interchange. A specific ANSI committee, ANSI ASC X12,
developed the most common standard for EDI. This standard is generally referred to as ASC X12 or simply
X12.

UN/EDIFACT- UN/EDIFACT stands for United Nations rules for Electronic Data Interchange for
Administration, Commerce, and Transport. The EDIFACT standards govern electronic
communication between corporations and governments. Although UN/EDIFACT is popular in Europe,
countries in the Asia-Pacific region are adopting the standards to improve communication.

UBL- Developed by the Organization for the Advancement of Structured Information Standards (OASIS),
the Universal Business Language (UBL) is a library of business documents based on Extensible Markup
Language (XML).
Files created with XML are easier to read than files created in other formats, so using the UBL EDI
standards makes it easier for businesses to communicate. OASIS allows anyone to use its UBL document
library for free, making this one of the most cost-effective options for firms interested in adopting EDI.
VDA- VDA stands for Verband der Automobilindustrie. It was developed specifically for the German
automobile industry, allowing firms like Daimler AG, Volkswagen, and Audi to exchange electronic
business documents with their trading partners.

Tradacoms- Tradacoms isn't used as often as other EDI standards, as it was one of the earliest EDI
formats. When it was introduced in the early 1980s, Tradacoms was maintained by the UK Article
Numbering Association. Tradacoms was typically used by companies operating in the retail sector in
England, Scotland, Wales, and parts of Ireland.

ODETTE- Similar to the VDA standards, ODETTE was developed for companies in the European
automobile industry. ODETTE stands for Organization for Data Exchange by Tele Transmission in Europe.
Firms have used this framework to optimize their operations, ensuring the efficient flow of goods through
every link in the automobile supply chain.
EANCOM- European Article Number Communication (EANCOM) has features of EN/EDIFACT and
Tradacoms, making it one of the most versatile EDI standards. EANCOM is used by publishers,
construction companies, healthcare organizations, and companies in various other industries
 2. EDI Software
The basic functions of EDI software consist of-
• At sending end, it translates the information from unstructured, company specific
format to structured EDI format and then communicates the EDI message through the
network.
• At receiving end, it translates the message back from the structured EDI format to
company specific format.

EDI software package consists of various software like-

• EDI Business Application Software
• EDI Interface Software
• EDI Translation Software
• EDI Communication Software
 Components of EDI Software
* Change the arrow heads on the right side as discussed in the class
1. EDI Business Application Software- This software enables company user point of
entry to business procedures and data capture. It is a company specific application in
which the user interface and content visible on screen are tailored or customized to local
environments.
2. Interface Software- Interface software enable editing, formatting and auditing data
before integrating it with application.
3. Translation Software- This software maps data from EDI format into a format readable
by back-office systems and vice versa.
As there are numerous EDI standards, the EDI translation software must be
flexible enough to handle multiple standards and versions.
4. Communication Software- It consists of various protocols that are used to prepare EDI
documents for transmission over communication network.
e.g. X.400 Message Handling System
 3. Communication Network
EDI Network is simply a secure communication network where EDI documents can
be exchanged between business partners.
Following are some basic mechanisms and methods used in transportation of data-
• Direct Connect
• Modems
• Routers
• VANs

Direct Connect is the term used to indicate that two EDI trading partners exchange
information directly to each other without a third-party connection service.
Modems are used by EDI practitioners to provide a great level of reliability and security.
Generally binary synchronous modems are used that allows for high speed continuous
bidirectional transmission.
Routers have become the de-facto standard of transmission for high volume traffic.
Value Added Networks (VANs) are the third party service providers that manage data
communication networks for businesses that exchange electronic data with other businesses.
By using VANs, the businesses need not worry about the communication complexities.
.
In addition to secure communication, EDI VAN networks deliver-
• Full mailbox service
• Inspection and authentication of all EDI messages
• Full audit trail
• Message Notification
 EDI Enabled Procurement Process
Procurement is the formal process of buying goods and obtaining services from vendors in
the right amount, at the right price at the right time. It is generally used in B2B and G2B
models of e-commerce.

To implement procurement processes, EDI offers a standardized way of exchanging business

information such as inventory data, quote, purchase order, order confirmation, invoices and
more through an electronic medium.

Following steps are followed in EDI enabled procurement process-

Selection of the supplier-The procurement includes the assessment of demand, a tendering

phase and selection of supplier using the methods of quotations, competitive bidding or
negotiation and finally the placement of the order is done.

Issuance of Purchase Order and its acknowledgement using EDI- Once a supplier is
selected, the purchasing department issues a serially numbered purchase order (PO).
Normally a list of terms and conditions are associated with the PO.
If a company wants to make changes to the PO once it is issued, then Change Orders are
required to be sent by the buyer. This PO acts as a legal offer to buy. The supplier
acknowledges the buyer’s order and incorporate its own terms and conditions in the
acknowledgement.

Issuance of shipping notice and invoice using EDI enabled network- After the
finalization of the PO, the supplier issues the shipping notice and invoice in EDI data format
finalized by both the parties and is shared using computer network.

Advantages of EDI Enabled Procurement Process

• Automated PO Exchange
• Reduced Status Inquiries
• Integrated Purchase Order Changes
• Enhanced Trading Partner Relationships
• Reduced Cycle Time
EDI Enabled Procurement Process
EDI Message Structure

Paper Purchase Order

 EDI Message Structure
Each EDI document is formatted according to the rule of a particular standard.
An EDI document such as a purchase order or invoice is known as a message in
EDIFACT standard. An EDI message is comprised of- data elements, segments and
envelopes.

Data Elements
Data elements are the fundamental units in an EDIFACT message, encapsulating
individual pieces of information analogous to words in a language. They can be either
simple or composite.
Key points about Data Elements:
• Simple Data Elements contain a single piece of data. For example, a specific price or
date.
• Composite Data Elements hold multiple related pieces of data. For instance, a
composite data element could encapsulate a complete address.
• Each Data Element has a unique number as defined in the UNTDED (United Nations
Trade Data Element Directory).
Segments
Segments function as containers for logically related data elements, akin to sentences in a
language that convey a complete idea. They outline specific information, such as
customer details or product information.
Key points about Segments:
• Standard segments like the ‘NAD’ and ‘DTM’ have specific purposes, providing name
and address details or specifying a date or time.
• The segments in a message follow a definite sequence as defined in the ‘message
structure diagram’ — the framework for each EDIFACT message type.
• A segment begins with a Segment tag, which is a three-letter code indicating the type of
data contained in the segment.
 Segment Code Segment Name Description
Starts a message and
UNH Message Header assigns it a unique
reference number.
Identifies the message
BGM Beginning of Message
type and function.
Provides date and time
Some DTM Date/Time/Period
information.
common
EDIFACT Specifies name and
Segments NAD Name & Address address details of parties
involved.
Identifies line items
LIN Line Item
within a transaction.
Marks the end of the
message and counts the
UNT Message Trailer
total number of
segments.
Message
A Message in the EDIFACT system is akin to a paragraph or a complete letter. It’s the
assembled form of all related segments required to represent a business transaction.
Key points about Messages:
• Each message starts with a ‘message header’ (UNH) segment and ends with a ‘message
trailer’ (UNT) segment, forming a self-contained data exchange unit.
•The messages depict specific transactions like invoices, purchase orders, or transport
instructions.
When formulated as a real EDI message, this information would look like:
UNH+1+ORDERS:D:96A:UN’
BGM+220+BKOD99′
DTM+137:20220228:102′
NAD+BY+BUYER1::91′
LIN+1++ITEM1:IN’
UNT+5+1′
Although nearly incomprehensible for a human, this provides a universally intelligible
representation of a business transaction optimized for electronic interchange.
Envelopes
EDI document transmission uses a system of three “envelopes” to house the segments–
Message (transaction set) envelope, Group envelope and Interchange envelope.

Key points about Messages:

Just as paper business documents are sent in envelopes and it’s possible to mail many
documents in a single envelope, EDI documents are exchanged using several envelopes.
• Each message is placed in its individual envelope
• A group of messages – e.g., a group of purchase orders – is placed in a group envelope. (The
group envelope is mandatory in ANSI and optional in EDIFACT)
• All group envelopes being sent from one sender to one receiver are placed in an Interchange
envelope
 EDI Notification Structure
ITU-T has adopted X.435 standard to support EDI. In support of security requirements,
X.435 defines, in addition to normal EDI messages, a set of EDI notifications to address
the security concerns. X.435 has three types of notifications-

1. The Negative Notification (NN)- It indicates that the recipient refused to accept the
document due to a specific reason. The reason is attached with the notification.
2. The Forwarded Notification (FN)- It indicates that the document had been received
and forwarded to another recipient.
3. The Positive Notification (PN)- It indicates that the recipient has received the
document and accepts the responsibility for it.

Together, these notifications form the basis for a system that can provide security
controls comparable to those in the paper based system that EDI replaces.
 EDI in India
The number of steps have been taken to promote EDI in the country-
• The government of India established an EDI Council under the Ministry of
Commerce to implement EDI in India
• The Indian EDIFACT (EDI for administration, commerce and transport) Committee
and the EDI Working Group were created by the Ministry of Commerce. The Indian
EDIFACT committee has adopted UN/EDIFACT as the standard for conducting EDI in
the country and is responsible for formulating standards, streamlining the procedures in
line with UN/EDIFACT
• The Directorate General of Commercial Intelligence and Statistics (DGCI&S) is a
premier government organization for collection, compilation and dissemination of India’s
commercial information and trade statistics. It transmits Daily Trade Return (DTR) in
three different modes-
o Manual
o EDI
o Non-EDI
Contd..
• Organizations like All India Management Association(AIMA), Federation of Indian
Export Organization(FIEO), Indian Institute of Foreign Trade(IIFT) and National
Informatics Centre (NIC) have been established for the promotion of EDI in the public
and private sectors.
• Besides two government networks VSNL of DoT and NICENET of NIC, there are a
number of private EDI service providers in India such as Mahindra Network Services,
Global Telecom Services Ltd., Satyam Infoway Network, Manipal Control Data, IBM
Global Network Services, GE Information Services.
 Benefits of EDI
Direct Benefits Strategic Benefits
• Cost effective • Enhanced strategic decision making
• Improved information flow • Agility
• Fast processing • New product delivery
• Faster communication • Improved customer service
• Accuracy • Increased competitiveness
• Increase in efficiency • More supply chain visibility
• Enhanced security • Promotes corporate social
• Profit responsibility
• Greater data accessibility • Streamlines the business’ ability
 EDI Implementation Issues
• Managerial Leadership issues • Security issues
• Perceived cost and benefit issues o Password guessing attacks
o Cross vulnerability
• Technological issues o Multiple standards
o Compatibility o Authentication
o Complexity o Non-repudiation
o Communicability o Disclosure of Information
o Cost o Lack of hard copy
• Human Resource Management issues • Cross Functional EDI Teams
• Trading Partner Relationship issues • Scaling Issues
• Legal Issues
 EDI: Legal Aspects
The widespread use of EDI has led to an increase in exchange of information without the
use of paper documents. Along with its numerous benefits, this has also led to the
generation of security threats, privacy issues, integrity and authentication threats.

Interchange Agreement- In its basic form, EDI requires an interchange agreement

between trading partners that governs not only a standard data format for their computer
to computer communication, but also decides all related legal issues of using EDI.
The signing of an interchange agreement signifies that the parties intend to
be bound by it and that they desire to operate within a legal framework. This can help
reduce legal uncertainty in the electronic environment.

A well drawn trading partner agreement is considered as a primary source of EDI law
that can prevent disputes by settling legal questions in advance.
Contd..
Digital Signatures- Digital signatures are used not only to verify the authenticity of the
message and the claimed identity of the sender but also to verify message integrity.
The technical uses of digital signatures are-
• Messages are time-stamped to establish date and time at which a recipient had access or
had read a particular message.
• These signatures are to replace handwritten signatures as they have same legal status as
handwritten signatures.
• Digital signatures have greater legal authority than handwritten signatures.

IT Act 2000- The Parliament of India has passed the Information Technology Act, 2000
to provide the legal infrastructure for e-commerce and EDI in India.
The Model Interchange for the International Commercial Use of Electronic Data
Interchange- United Nations has adopted this model at international level. It addresses
the need for uniformity of agreements so that there are no barriers to international trade.