2018-19 IV B.Tech. II Sem.

E-Commerce UNIT-4

INTERORGANIZATIONAL COMMERCE AND EDI

Objective:

 To expose to Electronic Data Interchange (EDI) Problems.

Syllabus:
Inter organizational Commerce- EDI (Electronic Data Interchange), EDI
implementation, Value Added Networks (VAN).

Learning Outcomes:
 Identify Electronic Data Interchange Problems.
Concepts:-
 Electronic Data Interchange (EDI)
 Defining EDI,
 EDI Layered Architecture,
 Tangible benefits of EDI.
 EDI Software Implementation
 EDI Business Application Layer,
 Translator and Communications Layer.
 Value Added Networks (VAN)
 VAN Pricing structures
 Account start-up costs
 Interconnect costs
 VAN Service providers

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

4.1 Electronic Data Interchange (EDI):

 Electronic Data Interchange (EDI) is the computer-to-computer exchange of

business documents in a standard electronic format between business
partners.
 EDI was developed in 1960s for documentation accelerating the movements
to shipments and transportation.

4.1.1Definition Electronic Data Interchange (EDI):

EDI is the transmission, in a standard syntax, of unambiguous information of

business or strategic significance between computers of independent
organizations.[American National Standards Institute].

(Or)

EDI is the interchange of standard formatted data between computer application

systems of trading partners with minimal manual intervention.[UN/EDIFACT Training
guide]

(Or)

EDI is the transfer, of commercial and administrative data using an agreed standard in
electronic format as EDI message. [European model]

(Or)

EDI is the electronic transfer from one computer to another of computer process able
data using an agreed standard to structure the data.[International Data Exchange
Association]

4.1.2 EDI Layered Architecture:

EDI Layered Architecture specifies four layers:

1. The semantic (application) Layer describes the business application.

2. The standard translation layer Specifies business form structure so that

information can be exchanged

3. The packing (or transport) layer explains How the business form is sent, e.g.
post, UPS, fax.

4. The physical network infrastructure Layer provides Dial-up lines, Internet,

value-added network, etc.

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

EDI Semantic layer Application level services

EDI Standard layer EDIFACT business form standards

ANSI X12 business form standards

EDI transport layer Electronic mail X.435 ,MIME

POINT TO POINT FTP, TELNET

World Wide Web HTTP

Physical layer Dial –up lines, internet ,I-way

FIG 4.1 : Layered architecture of EDI

1. EDI semantic layer:

 This layer describes business applications that is driving EDI

 For a procurement application, this translates into requests for quotes, price
quotes, purchase orders, acknowledgements, and invoices.
 In this layer communication between organizations is done through
software. So the companies can view the data in the software present at their
end computer system.
 So all organizations must follow universal EDI standards that layout
acceptable fields of business forms.

2. EDI Document standard layer:

EDI standard forms:

1. X12 Standard, ANSI (American national standard institute).

2. EDIFACT, developed by United Nations Economic Commission for Europe

(UN/ECE).

EDIFACT-Electronic data Interchange for Administration Commerce and

Transport.

 Trading partners should use a compatible format for EDI document

exchange.
 It specifies business form structure and to some extent influence content
seen at the application layer.
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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

 Example: purchase order name field x12 standard might be to hold 50

characters and 75 characters field produced name truncating during
translation from application layer to document standard layer.

3. EDI Transport layer:

 It corresponds with non electronic activity of sending business from one

company to another company .It can send using postal service ,registered
mail and certified mail and email etc.
 Generally EDI transport layer chooses email as the carrier services.

4. EDI Physical layer:

 It describes the physical devices which involved in transaction.

 They use various devices like dial –up systems, internet, I-WAY.

EDI versus Email:

Electronic Data Interchange (EDI) is the computer-to-computer exchange of

business documents in a standard electronic format between business partners.
EDI replaces postal mail, fax and email.

Electronic Data Interchange(EDI) Electronic mail

1. There is typically no human is
involved in the processing of the
information.
2. Interface is software to software
orientation
3.Data is structured in software
understandable way
4. The interchange is composed by
one software for interpretation by
software.
5. If a reply is involved, it is composed
by software to be interpreted by
software.
1. Human involvement is there is
processing of information.
2. A human to software interface is
involved at a minimum of one end of the
interchange.
3. Data is not necessarily structured in
software understandable way.
The message is composed by a human and
/or interpreted by a human.
5. Here reply is composed by a human
and/or interpreted by a human.

Table 4.1 :- EDI Vs E-Mail

EDI in Action:

The idea behind EDI is very simple.EDI seeks to take what has been a manually
prepared form or a form from a business application, translates that data into
standard electronic format, and transmits it.

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

Information flow without EDI

Fig 4.2 :- Information flow without EDI

The fig shows the information flow when paper documents are shuffled
between organizations via the mailroom

 When the buyer sends a purchase order to a seller, the relevant data
extracted & recorded on a hard copy.
 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.
 The reproduction of information also increases the risk of errors caused
by incorrect data entries.
 It is quite possible to exchange the information in its electronic format
by means of other carriers such as magnetic tapes, diskettes etc.,
Information flow with EDI:

Fig 4.3:- Information flow with EDI:

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

The EDI transactions for a purchase, shipment, and corresponding payment

are as follows:

Step 1: Buyer’s computer sends purchase order to seller’s computer.

Step2: Seller’s computer sends purchase order confirmation to buyer’s computer.

Step 3: Seller’s computer sends booking request to transport company’s computer.

Step 4: Transport company’s sends booking confirmation to seller’s computer.

Step 5: Seller’s computer sends advance ship notice to buyer’s computer.

Step 6: Transport Company’s sends status to seller’s computer.

Step 7: Buyer’s computer sends Receipt advice to seller’s computer.

Step 8: Seller’s computer sends Invoice to buyer’s computer.

Step 9: Buyer’s computer sends payment to seller’s computer.

In some firms are adopting EDI as a fast, inexpensive, and safe method of
sending invoices, purchase orders, customs documents, shipping notices, and
other frequently used business documents.

4.1.3 Tangible benefits of EDI are:

 EDI can be cost and time saving system. The automatic transfer of
information from computer to computer reduces the need to rekey the
information.
 It reduces costly errors, its transactions produce acknowledgements of
receipt of data.
 For companies dealing with thousands of suppliers and tens of thousands of
purchase orders a year, the savings of EDI are significant.

It has the following benefits:

1. Reduced paper based system:
2. Improved problem resolution and customer services:
3. Expanded customer/supplier base

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

1. Reduced paper based system:

 EDI reduced effort and cost spent on papers for maintaining records, paper-
related supplies, filing cabinets and other storage systems since it is
automated.
 EDI also reduced postage bills because of the amounts of paper that no
longer need to sent.
 It does not require any paper related supplies and other modes of things. It
uses Inexpensive manner of system.
2. Improved problem resolution and customer services:
 EDI minimize the time, companies spend to identify and resolve inner
business problems. Example: some problems come from data entry errors.
 Many problems that arise due to data-entry errors somewhere along the way,
and EDI can eliminate many of them.
 EDI can improve customer service by enabling the quick transfer of business
documents and a marked decrease in errors.
3. Expanded customer/supplier base:
 Many large manufacturers and retailers with the necessary clout are
ordering their suppliers to institute an EDI program.
 Like to get order from unknown company and build bridges to other
companies .it evaluates new products.

4.2 EDI Software Implementation

EDI software has four layers:

1. Business application

2. Internal format conversion.

3. EDI translator

4. EDI envelope for document messaging.

These four layers package the information and send it over the value added
network to the target business, which then reverses the process to obtain the
original information.
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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

Company A Company B

Business Business
application application
Internal format Internal format
conversion conversion
EDI translator EDI translator
EDI envelope EDI envelope
for document for document
messaging messaging

Modem Modem

Private Value added network (VAN)

(or)

Public network

Fig 4.4 : How EDI works.

Assume that the message flows from company A to trading partner company B.
Before company B can receive and process the message content, the message has
to go through several intermediary steps.

1. EDI Business Application layer

2. EDI Translator layer

3. EDI Communication layer

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

1. EDI BUSINESS APPLICATION:

 In first step of EDI process is to create a document i.e. ex: invoice-in software
application.
 This software application then sends document to an EDI translator which
automatically reformats the invoice into an agreed-on EDI standard.
 If company A and company B software's are from different vendors then
translator integrate them into one form.
 If both the EDI translator and business application are on the same type of
computer, the data will move faster and more easily from one to another.
 The translator creates a document in electronic envelope called "EDI package". It
has a mailbox id for company trading partner.

Enter the EDI translator The translator wraps the

information in the software changes the
EDI form specified EDI form to fit the
for that particular EDI standard that
business transaction. the target application
understand.
document in an electronic
envelope "EDI package"
that has an ID for your
partners.
tradinpartnerpartner.

Fig 4.5 : The preparation process followed by the application software.

2. EDI Translator layer:

 Translation is an integral part of the overall EDI solution.

 Translators describe the relationship between the data elements in the

business applications and the EDI standards.

 The translator ensures that the data are converted into a format that the
trading partner can be use.

 If EDI is done without translation, companies run a great risk of

transmitting data that the trading partners may not be able to read.

Example: If a word processing file is uploaded and the recipient tries to open it in a
database program, the result is a mess of characters instead of expected
information.

In olden days there are only few EDI translators are available .so large companies
wrote their custom EDI translators.

Custom translators have the following disadvantages:

1. A custom translator is very restrictive. It is often design for one trading partner
and limited transaction sets.
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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

2. Custom translator is very difficult to update.

3. Custom translator is unsupported.

3. EDI Communication layer:

 The communications portion-dials a phone number for value added network

service provider or other type of access methods are available.

There are three main types of EDI access methods are available.

1. Direct dial or modem to modem connection,

2. Limited third-party value-added network.

3. Full service third party VANS.

This network could be private networks or public networks, ex: Internet

3.1. Direct dial or modem to modem connection:

 Direct dial systems are simplest and most common.

 The user has direct access to patner's modem and communicates by using
the modem to dial the modem of the other party,

 It is a direct computer to computer transfer of document such as uploading

and downloading through modem.

 It follows a standard format such as ASCII text.

3.2. Limited VANS:

 They provide the services similar to e-mail.

 They provide basic technical services such as protocol conversion, data error
detection and correction.

 The functioning of limited VAN is if they receive purchase order, read ID on

the envelope, place it in the correct trading partners mailbox.

3.3. Full third-party services:

 E-mailboxes and associated extra features are the heart of the these third
party services.

 Extra features include providing security and document tracking.

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

4.3. Value -Added Networks (VANs):

 A VAN is a communication network that typically exchanges EDI messages

among trading partners.

 It provides other services, including holding messages in “electronic

mailboxes", interfacing with other VANs, and supporting many
telecommunication modes and transfer protocols.

 The VAN "electronic mailbox" is a software feature into which a user deposits
EDI transactions and then retrieves those messages when convenient.

 VANs have allowed companies to automatically and securely exchange

purchase orders, invoices and payments.

 When a company sends an EDI transaction, it arrives a message storehouse

on the VAN to await pickup by the destination company.

 VAN can safeguard the transaction network.

Illustration of functioning of VAN:

Fig 4.6 : Functions of a Third Party VAN

 Company A puts an EDI message for trading partner manufacturing

Company B in the VAN mailbox at a date and time of its choosing.
 The VAN picks up the message from the mailbox and delivers it to trading
partners B's mailbox, where it will remain until trading partner B logs on
picks it up.
 Trading partner B responds to trading partner A in the same fashion.
 This cycle repeats itself on weekly, daily or hourly as needed. This service is
referred to as mail-enabled EDI.

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

 The disadvantages of EDI -enabling VANs are they are slow and high priced,
charging by the number of characters transmitted.
Advantages of Value Added Networks:
1. Faster Transaction Processing: VAN can improve the speed at which
transactions are completed. By transmitting data electronically, information
moves instantly from point A to point B, providing faster access to operating
information.
2. Better Communications: VAN reduces the costs associated with business
communications. It decreases the need for paper transfers, and allows tasks
such as ordering inventory and processing payments to be completed more
efficiently through electronic means.
3. Cost of Implementation: VAN may not be cost effective for many small to
medium-sized businesses.

Disadvantages of Value Added Networks:

EDI enabled VANs are slow and high priced, charging by the number of
characters transmitted.
Whether a company really needs a VAN is a question. For example: A
business that wants to use EDI with some fifty trading partners has several
communication choices.
1. Company can buy a multiport modem capable of handling fifty incoming
phone lines, each allow its trading partner to communicate directly as its
convenience.
2. The company can use a single modem with a phone line and arrange a
tightly controlled schedule of its trading partners.
Ex: 12:00 AM for trading partner B, 12:11 AM for trading partner and so on.
3. The company can establish an electronic mailbox on a VAN and require
each trading partner to use the VAN for sending and retrieving EDI
messages.
VAN Pricing Structures
 Customers can pick and choose from array of VAN services and billed
accordingly.

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

 These services include EDI translation software and support, EDI to

tax support, e-mail capability, inter-VAN connectivity and
transmission of x.12 documents.
 Typically VAN services involve 3 types of costs namely
1. Account start-up costs
2. VAN usage
3. VAN to VAN interconnect costs

Account start-up costs

 Opening an account with a VAN incurs start-up costs as well as other

variable costs such as mailbox/ Network Fees.
 Network usage fee applies whether or for the services are used.
Network fee also includes mailbox fee for maintaining an account and
a password.
 Each account has mailbox through which companies exchange EDI
data.
 The overall start-up costs vary depends on EDI readiness of
organization, number of trading partners and line attachment options
and software application options.

Fig 4.7. VAN Network usage fees

VAN usage

 VANs charge session fees based on use of their services. VANs charge
for both sending and receiving data.

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

 The customer pays according to volume of usage. Usage means

number of transactions sent or received by customer or trading
partners.
 Some VANs allow users to bundle several transaction sets( purchase
order, invoice, acknowledgement) into single envelope just like sending
several invoices in a single envelope.
 Other VANs open interchange and charge for each transaction set in th
envelope. VAN generally charges a kilo character fee according to size
of packet.
 VAN assesses envelope fees for each EDI packet or interchange
envelope sent or received.

Fig 4.8:- Transaction fee structure

 The session fee is a variable cost related to envelope/message fee
delivery of functionality similar EDI documents.

Assignment-Cum-Tutorial Questions
SECTION-A: Objective Questions
1. _____________is the electronic transfer from one computer to another of computer
process able data using an agreed standard to structure the data.
2. EDI layered architecture consists of how many layers
(i) 2 (ii)4 (iii) 6 (iv)3.
3. EDI stands for____________________________.
4. EDI transport layer chooses_____________ as the carrier services.
5. ________________provide communication exchanges of EDI messages among trading
partners.

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2018-19 IV B.Tech. II Sem. E-Commerce UNIT-4

6. VAN act as a third party in between customer and the supplier or any other two
business entities. [TRUE / FALSE ]
7. EDIFACT stands for _______________________________.
8. _________________ is becoming widely accepted as the foremost international EDI
standard.
9. _____________have allowed companies to automatically and securely exchange their
purchase orders, invoices, payments etc.,

10. EDI standard [ ]

(i) is not easily available
(ii) Defines several hundred transaction sets for various business forms.
(iii) is not popular
(iv) Defines only a transmission protocol.

11. For secure EDI transmission on Internet [ ]

a) MIME is used b) S/MIME is used c) PGP is used d) TCP/IP is used.
12. EDI over Internet uses. [ ]
a) MIME to attach EDI forms to e-mail messages
b) FTP to send business forms
c) HTTP to send business forms
d) SGML to send business forms
13. EDI requires [ ]
a) Representation of common business documents in computer readable forms

b)Data entry operators by receivers

c) Special value added networks

d) Special hardware at co-operating Business premises.

SECTION-B: Subjective Questions

1. Define Value Added Network (VAN).

2. Outline EDI layered architecture with a neat diagram.
3. Demonstrate EDI process using VAN.
4. Explain how EDI works.
5. Illustrate tangible benefits of EDI.
6. Enumerate the distinct features of EDIFACT.
7. Discuss EDI software implementation with a neat diagram.

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