ELECTRONIC DATA INTERCHANGE

For several hundred years, commerce has been based upon the movement of written documents. These documents contained the information that one company needed to convey to another company in order to do business. Over a period of time the documents started to take on standard names such as Invoice, Credit Note and Order. However, the documents were certainly not of any standard layout. They did not need to be because the recipient was always a human being and humans have the ability to read, interpret and rationalise. About all that could be said of an invoice document, for example, was that it would contain header information about the parties involved, detail lines about the products, quantities and prices, and finally some totalling information. In the early 1950s, computers started to be used by large companies for their accounting and payroll needs. Throughout the following decades, computers rapidly took over task after task until they were involved not only in accounting, but in production, administration and all other areas of commerce. But one thing did not change. The computers still produced printed documents in various non-standard formats. This situation was not too bad for those sending a document but was much worse for the receiver. Many documents must be sent from one companys computer to their trading partners computer. Computers cannot easily read written documents, and getting them to understand what they have just read is an almost impossible task, so the receiving company would have to employ personnel to re-key the information from the received documents into the companys computer system. EDI is considered to be a technical representation of a business conversation between two entities, either internal or external. Note that there is a perception that "EDI" constitutes the entire electronic data interchange paradigm, including the transmission, message flow, document format, and software used to interpret the documents. EDI is considered to describe the rigorously standardized format of electronic documents. EDI is very useful in supply chain. The EDI standards were designed to be independent of communication and software technologies. EDI can be transmitted using any methodology agreed to by the sender and recipient. This includes a variety of technologies, including modem (asynchronous and synchronous), FTP, e-mail, HTTP, AS1, AS2, etc. It is important to differentiate between the EDI documents and the methods for transmitting them. When they compared the synchronous protocol 2400 bit/s modems, CLEO devices, and value-added networks used to transmit EDI documents to transmitting via the Internet, some people equated the nonInternet technologies with EDI and predicted erroneously that EDI itself would be replaced along with the non-Internet technologies. These non-internet transmission methods are being replaced by Internet protocols such as FTP, telnet, and e-mail, but the EDI documents themselves still remain Some major sets of EDI standards:
 

The UN-recommended UN/EDIFACT is the only international standard and is predominant outside of North America. The US standard ANSI ASC X12 (X12) is predominant in North America.

 

The TRADACOMS standard developed by the ANA (Article Numbering Association now known as GS1) is predominant in the UK retail industry. The ODETTE standard used within the European automotive industry

OBJECTIVE
The basic documents for transaction of business will be taken only once by one agency and other agencies will take the information from that agency, electronically, avoiding the need to either physically take the document from one office to another or keying in the data again and again involving the attendant problems of manual labor and errors creeping in at each stage of data entry.

FUTURE SCENARIO
It should be possible to create a few or even a single message/document for the entire process of transactions in the course of foreign trade. Steamer agents would file manifest with the Customs Electronically that would be used also by Port Trust. CHA's/Importers file B/E / S/B electronically with the Customs which could cover more data so that Port Trust, CFS's, Transport authorities, Sales Tax Dept. are able to use the same. The Certification of Licence would be available on-line once EDI connectivity is established with these agencies (like DGFT, ASI, AEPC etc), when electronic fund transfers (EDI for banks) are established, Importer / Exporter can make payments without drafts or coming to Nodal bank for the purpose and can receive his refund drawback payment directly to his account. Once VSAT connectivity is established with all Customs / Excise formations in India, all modvat verifications, end use certificate, rewarehousing certificate for transfer bonds, TRA's could be made immediately. Above all there would be uniformity in assessment decision all over India. EDI is a way of business life. It is based on the principle of trust and contractual obligations. Once Evidence act and other laws of the land recognise EDI transactions and provide for the same by fast settlement of disputes, it should be possible to do away with requirements for paper documentation, i.e., there would be no necessity to submit invoices, packing list, B/L etc in paper. Records need only be kept at the offices of Importers / Exporters / CHA's for a minimum period, for verification by concerned authorities, if required. Since EDI is based on trust, there would be not need for examination of cargo in a routine manner, the facility of Green Channel would apply to almost 80% of cases of regular Importers with a clean tract record. Therefore it is essential that Govt., trade and transporters recognise the likely benefits and move forward to establish a regime of mutual trust and confidence. Electronic Data Inter-change (EDI) is a way of business life, which thrives in an environment based on trust of faith, whereas in the present manual system the procedures and practices are all based on lack of trust and faith. Attitudinal change in the officers and the business people is required to adopt to EDI. EDI is a reality, EDI cannot be introduced in a significant way unless we have complete overhaul of working system, methods and procedures. Above all unless the Laws/Acts governing business in the country are amended to recognise EDI transactions, full-fledged EDI is not possible. Unless sincere efforts are made to transform the working environment, with a distinct positive attitude we would be left behind in the interest of the nations economic prosperity we adopt ourselves to global scenario and move towards paperless transaction system.

ADVANTAGES OVER PAPER

EDI and other similar technologies save a company money by providing an alternative to, or replacing information flows that require a great deal of human interaction and materials such as paper documents, meetings, faxes, etc. Even when paper documents are maintained in

parallel with EDI exchange, e.g. printed shipping manifests, electronic exchange and the use of data from that exchange reduces the handling costs of sorting, distributing, organizing, and searching paper documents. EDI and similar technologies allow a company to take advantage of the benefits of storing and manipulating data electronically without the cost of manual entry. Another advantage of EDI is reduced errors, such as shipping and billing errors, because EDI eliminates the need to rekey documents on the destination side. One very important advantage of EDI over paper documents is the speed in which the trading partner receives and incorporates the information into their system thus greatly reducing cycle times. For this reason, EDI can be an important component of just-in-time production systems. According to the 2008 Aberdeen report "A Comparison of Supplier Enablement around the World", only 34% of purchase orders are transmitted electronically in North America. In EMEA, 36% of orders are transmitted electronically and in APAC, 41% of orders are transmitted electronically. They also report that the average paper requisition to order costs a company $37.45 in North America, $42.90 in EMEA and $23.90 in APAC. With an EDI requisition to order costs are reduced to $23.83 in North America, $34.05 in EMEA and $14.78 in APAC.

BARRIERS TO IMPLEMENTATION
There are a few barriers to adopting electronic data interchange. One of the most significant barriers is the accompanying business process change. Existing business processes built around slow paper handling may not be suited for EDI and would require changes to accommodate automated processing of business documents. For example, a business may receive the bulk of their goods by 1 or 2 day shipping and all of their invoices by mail. The existing process may therefore assume that goods are typically received before the invoice. With EDI, the invoice will typically be sent when the goods ship and will therefore require a process that handles large numbers of invoices whose corresponding goods have not yet been received. Another significant barrier is the cost in time and money in the initial set-up. The preliminary expenses and time that arise from the implementation, customization and training can be costly and therefore may discourage some businesses. The key is to determine what method of integration is right for the company which will determine the cost of implementation. For a business that only receives one P.O. per year from a client, fully integrated EDI may not make economic sense. In this case, businesses may implement inexpensive "rip and read" solutions or use outsourced EDI solutions provided by EDI "Service Bureaus". For other businesses, the implementation of an integrated EDI solution may be necessary as increases in trading volumes brought on by EDI force them to re-implement their order processing business processes. The key hindrance to a successful implementation of EDI is the perception many businesses have of the nature of EDI. Many view EDI from the technical perspective that EDI is a data format; it would be more accurate to take the business view that EDI is a system for exchanging business documents with external entities, and integrating the data from those documents into the company's internal systems. Successful implementations of EDI take into account the effect externally generated information will have on their internal systems and validate the business information received. For example, allowing a supplier to update a

retailer's Accounts Payables system without appropriate checks and balances would be a recipe for disaster. Businesses new to the implementation of EDI should take pains to avoid such pitfalls. Increased efficiency and cost savings drive the adoption of EDI for most trading partners.

ELECTRONIC DATA INTERCHANGE

SUBMITTED TO: Prof. Kavindra Kumar Singh

SUMBITTED BY: Arpit Batra PGDM GEN Roll: FT-11-1004