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E-COMMERCECIT 245

By Mohammed A. Saleh

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COURSE SCHEDULE

➩ Foundations of Electronic Commerce➩ Business-to-Consumer Applications➩Business-to-Business Applications➩Customers, Market Research and Customer Support➩Electronic Payments➩Electronic Strategy (e-Strategy)➩ Infrastructure and Support

It’s not as complicated as it looks ...!!!

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Electronic Data Interchange (EDI)

✵ Used by organizations for transactions that occur on regular basis. For most part it is used in for purchase transactions.✵ Mostly applied in the Execution and Settlement phases of the trade cycle, it may also be used for Pre-Sale and After Sale.✵ Examples of EDI applications in use:➩ In the UK, National Health Service (NHS)➩ British Telecom (BT) : for its bills from the gas, electricity and heating oil utilities.✵ EDI applications reduces delays, inaccuraciesand inefficiencies associated with exchange of data on paper.✵ Developed in mid-70’s, by 2003 EDI transactions totaled to $3.4 trillion, that is over 25% of the $13.5 trillion trade among firms (eMarketer, 2003).

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Cont ...

EDI

Search Negotiate

Order Deliver

Invoice Payment

After Sales After Sales

Settlement

Execution

Pre-Sale

Figure 1.0: The Trade Cycle

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EDI Definition

✵Simply termed as Paperless Trading

✵International Data Exchange Association (IDEA) formally define EDI as:

‘ The transfer of structured data, by agreed message standards, from one computer system to another, by electronic means.’

✵ Four elements essential to an EDI system:• Structure Data: transactions contain codes, value and pieces of text, each piece of information with a defined purpose. Codes for the customer and product.

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EDI Definition

• Agreed Message Standard: a universal standard not only agreed between business partners but also national and international bodies. A Purchase Order is one the agreed standards.

• From One Computer System To Another: any EDI message is sent between two computer applications. A message is directly sent between the customer’s Purchasing System and the supplier’s Order Processing System.

• By Electronic Means: what is involved is a networking channel designed for EDI for the transmission of the message.

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The Benefits of EDI

✵ EDI replaces the previously used fax machines and traditional mail with computer (replace paper transactions with electronic transactions). It should then considerably save time and cost.

✵ The advantages can be seen when an organization fully restructures its business transactions and maximizes the full potential of EDI (enabling technology to change the way a business operates).

✵ Prime examples of EDI is Just-in-Time (JIT) manufacture and quick response supply.

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Advantages of EDI

1. Cost CuttingMinor costs reduction are postage and stationery costs. Major savings are staff costs. The cost savings need to be offset against the system development and network costs.

2. Shortened Ordering TimeOrders are directly sent into the network and the only possible delay is the amount of time the supplier retrieves messages from the system.

3. Fast Response

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Advantages of EDI

4. Accurate InvoicingAn e-Invoice is automatically matched against the original order (made by the customer) and cleared for payment, eliminating any sort of queries.

5. EDI PaymentPayment can also be made by an EDI system. Electronically matching against the relevant invoices.

6. Elimination of errorsIt eliminates the source of errors - the customer will get what the customer asked for.

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EDI Technology✵ Its technology is defined by EDI standards, EDI networks and EDI software that interface with the business applications. The technology however plays only a small part, as it is often said that ‘EDI is 90% business and 10% technology.

EDI StandardEssence of EDI is the coding and structuring of the data into a common and generally accepted format - anything less is nothing more than a system of file transfers.

Standards have been developed in various sectors for the coding and structuring of data to be used in business transactions.

✵ These bodies include American National Standards Institute (ANSI X12 standards) and International bodies such as the UN (EDIFACT standards).

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Why the need for EDI standards ...?Provides linkage between two trading partners

✵ Data is exchanged in a common format; without that it is considered meaninglessScenario:

Figure 2.0: Interchange between Customer and Suppliers

Customer Supplier

Best Bread

Fresh Fruit

Mighty Meat

Very Veg

Super Food

Sava Store

Save Food

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Why the need for EDI standards ...?

✵ With 12 separate interchanges, each customer would develop its own standard.

✵ Each supplier would then have three standards to cope with, but the overall picture would be one of complexity and incompatibility.

✵ EDI standards overcome this and attempts to provide a suitable standard for data interchange that is:• Ready formulated and available for use • Comprehensive in its coverage for any given transaction• Independent of H/W and S/W• Independent of special interest of any party in the trading network

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Tasks TO DO ...

READ ABOUT:➩ National and Sectoral Standards ➸ Evolution of EDI Standards ➸ Early EDI Applications ➸ Sector and National EDI Standards ➸ The International EDI Standard➩ The EDIFACT Standard➩ Coding Standards ➸ EAN/ UPC Codes ➸ Generic Products

*Resources : The Internet, recommended books and any other relevant materials

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EDI Communications

✵ Standards specify a syntax for coding of the eDocument, and NOT the method of transmission.

✵ Methods of transmitting an eDocument are: i) A magnetic tape or diskette ii) A direct data communication linkiii) A value added data service (VADS), also known as value added network (VAN)

Postboxes and Mailboxes

✵ VADS basic facility is a post and forward network

✵ Each user of the system has two files: • postbox - where outgoing messages are placed • mailbox - where incoming messages can be picked from

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EDI Communications

Figure 3.0: VADS - Postbox and Mailbox Files

What are the processes involved for an EDI interchange between Sava Store and Best Bread, Mighty Meat and Very Veg suppliers?

Best Bread

Fresh Fruit

Mighty Meat

Very VegSava Store

SupplierCustomer

Super Food

Save Food

VADS

postbox

mailboxpostbox

mailbox

postbox

mailboxpostbox

mailboxpostbox

mailboxpostbox

mailbox

postbox

mailbox

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EDI CommunicationsThe postbox/ mailbox system is also referred to as a ‘store and forward’ system.

✵ Principle advantages:i) Time IndependenceThe sending and receiving of the interchange are asynchronous. These two processes can be carried out at the convenience of all users involved.

ii) Protocol IndependenceThe type of a communication link to be used is an option available for each user of the VADS system. Low volume users will opt for a dial-up modem link whereas high volume users may use leased line or a packet switching network.

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Value Added Data Services (VADS)✵ This is a service that has been set up by several organizations.✵ Extensively used by IBM network and GEIS (General Electric Information Service)Most important facility is the postbox/ mailbox provision. Other facilities may be:

• Trading Community: EDI VADS will have large number of clients all with an interest in eTrade. • Inter-network Connections: It facilitates trade between partners that subscribe to the same VADS but not between partners that might be using different VADS.• International Connections: VADS are nationally based with a single computer service providing the switching service- a set-up appropriate for domestic trade. When VADS are part of international organization or have an alliance in other countries, it facilitates international trade.

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Value Added Data Services (VADS)• Privacy, Security and Reliability: privacy provisions includes user credentials user-id / password protection of postboxes and mailboxes. EDI message can be encrypted with eSignatures. Security is built into the VADS system and Reliability comes from the appropriate H/W and S/W configurations to make sure that the service is always available.

• Message Storage and Logging: Users will have there new messages stored in the postboxes and mailboxes. Called off messages may also be retained. Logging facilities provides an audit trail for the messages.

• Message Validation: messages will be validated for conformance with the chosen EDI standards

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EDI Implementation

EDI in the Internet

✵ The Internet has started to be used as an EDI VADS by several organizations. Here security and reliability are two major concerns and unlike the traditional VADS, the Internet does not guarantee delivery of data sent.

✵ The Internet on the other hand is cheaper than any other commercial network.

✵ The technical element of the EDI system is the EDI software.

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EDI Implementation

Figure 4.0: Sending an order using EDI software

• If Pens and Things is to send an order from its production control system to Packaging Solutions it needs to code that order into the agrees EDI standard and squirt it into the chosen VADS. On the other end Packaging Solutions needs to extract the data from the network and decode the data from the EDI message into its order processing system

• The coding/decoding of the EDI message and the interfacing with the VADS is normally achieved using EDI software.

VADS

Pens and THings

Packaging Solutions

EDI SoftwareEDI Software

Production Control System

Production Control System

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Tasks TO DO ...

READ ABOUT:

➩ EDI Software ➩ EDI Integration➩ EDI Operation➩ EDI Alternatives➩ EDI Agreements ➩ EDI Interchange Agreements

*Resources : The Internet, recommended books and any other relevant materials