Computer Concepts and Applications – Electronic Data Interchange

Computer Concepts and Applications – Electronic Data Interchange

• Electronic Data Interchange

2.1 Introduction to EDI:

Definition: Electronic Data Interchange (EDI) is the electronic exchange of business documentation and information in a standardized format between computers, usually of different organizations. It is also commonly known as electronic trading.

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in a standardelectronic format between business partners. Each term in the definition is significant:

Computer-to-computer

EDI replaces postal mail, fax and email. While email is also an electronic approach, the documents exchanged via email must still be handled by people rather than computers.

Having people involved slows down the processing of the documents and also introduces errors. Instead, EDI documents can flow straight through to the appropriate application on the receiver’s computer (e.g., the Order Management System) and processing can begin immediately.

• .A typical manual process looks like this, with lots of paper and people involvement :
• The EDI process looks like this — no paper, no people involved:

Business documents –An EDI document is comprised of data elements, segments and envelopes that are formatted according to the rules of a particular EDI standard.

These are any of the documents that are typically exchanged between businesses. The most common documents exchanged via EDI are purchase orders, invoices and advance ship notices. But there are many, many others such as bill of lading, customs documents, inventory documents, shipping status documents and payment documents.

In the EDI language, a single business document, such as a purchase order, invoice or advance ship notice, is called a “transaction set” or “message.” And, a transaction set is comprised of data elements, segments and envelopes.

• EDI Data elements:The data elements in an EDI Transaction Set are the individual items of information within the document.

For example, within many documents, such as the purchase order and invoice, you will find data elements such as city, state, country, item number, quantity and price.

Each data element in a transaction set is defined in the EDI Standard by the type of data it represents. For example, it would be important to distinguish numeric data from text data or calendar dates.

• The data element definition will describe:
• -Data type of numeric, alphanumeric, date or time

-Minimum and maximum length

-Code values, if applicable, that must be observed with a particular type of data. For example, if the data element is unit cost, you would use a currency code element as well to allow you to indicate what currency (e.g., US dollars or euros) is being used in the unit cost field.Elements are combined into segment.

• EDI Data Segment: A segment in an EDI transaction set is a group of like data elements.

If you were filling out information on a purchase order, you would expect to see groups of related data.

For example, look at the diagram below of a paper purchase order in which only one item is being ordered. Note that there are four sections, each providing a different set of information:

In an EDI document, each section is described by a particular segment. Below is the set of EDI segments that would describe the purchase order above when using the ANSI standard. Each segment begins with a segment ID (e.g., ST, BEG, N1) that describes the type of data elements that follows. The elements within each segment are separated by a data element separator, in this case the ‘*’.

For each type of business document, the EDI standard documentation defines: -The segments that may be included and which ones are mandatory, optional and/or conditional (i.e. must be included only if another segment or element is included) -For each segment, the elements that may be included – for every piece of information in a paper document there is a corresponding EDI element. These elements are defined in the standards dictionary and each standard has its own dictionary -The required sequence of the segments and elements -How many times a segment may be repeated.Now, once all the segments are collected into a prescribed sequence, they form a complete electronic document, or transaction set. Next, the transaction sets must be put into envelopes in preparation for transmission to your partners.

• EDI Envelope:EDI document transmission uses a system of three “envelopes” to house

your transaction sets – Message envelope, Group envelope and Interchange envelope. 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 transaction set is placed in its individual envelope A group of transaction sets – 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 See the diagram below:

An envelope is formed by a pair of segments that define the beginning and end of the appropriate section. Using the EDIFACT standard as the example, the Transaction Set Envelope uses the UNH and UNT segments, the Group Envelope uses the UNG and UNE segments and the Interchange Envelope uses the UNA/UNB and UNZ segments. In each case, the “S” indicates the “start” of the envelope and the “E” indicates the “end” of the envelope. The diagram below illustrates the three levels of envelopes that would surround a single EDI purchase order.

Standard format– Because EDI documents must be processed by computers rather than humans, a standard format must be used so that the computer will be able to read and understand the documents.

A standard format describes what each piece of information is and in what format (e.g., integer, decimal, mmddyy). Without a standard format, each company would send documents using its company-specific format and, much as an English-speaking person probably doesn’t understand Japanese, the receiver’s computer system doesn’t understand the companyspecific format of the sender’s format.

There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS and ebXML. And, for each standard there are many different versions, e.g., ANSI 5010 or EDIFACT version D12, Release A. When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version.

Businesses typically use an EDI translator – either as in-house software or via an EDI service provider – to translate the EDI format so the data can be used by their internal applications and thus enable straight through processing of documents.

Business partners – The exchange of EDI documents is typically between two different companies, referred to as business partners or trading partners. For example, Company A may buy goods from Company B. Company A sends orders to Company B. Company A and Company B are business partners.

• Architecture EDI architecture specifies four layers:
• The semantic (or application) layer,
• The standards translation layer,
• The packing (or transport) layer, and
• The physical network infrastructure layer

1)Semantic Layer :

The semantic layer describes the business application that is driving EDI. Examples of these data are quotes, price quotes, purchase orders, acknowledgments, and invoices. At the sender’s site, this layer consists of the business application to convert the business proprietary information into EDI standard format which is agreed upon by all business partners involved. This standard formatted data is then sent to the trading partner. At the receiver’s site, the EDI translator translates the EDI file into the receiver’s local format. The EDI translator on the receiver’s site sits in this semantic layer.

2)EDI Standards :

The EDI standards follow the X12 and EDIFACT standards to specify business form structure and to some extent influence content seen at the application layer.

For example, an address field on the purchase order might hold maximum of 20 characters in an X12 standard. An application using 50-character address field length will produce string truncation during the translation from the application layer to the standard layer.

3)EDI Transport Layer :This layer involves the network mechanism to transport data between two parties. When EDI was first introduced, direct communication between two parties was used which means that both parties must communicate through the same transport protocol such as SMTP (Simple Mail Transport Protocol). However, as e-commerce becomes more popular and EDI being more widely used, a third-party service provider was introduced to eliminate problems with maintaining many different transport protocols for communicating with different trading partners. This third-party service provider is commonly known as VAN (Value Added Network). VAN acts as a postal system for EDI. These third-party service providers furnish clients with electronic mailboxes, storage and forwarding services, tracking capabilities, and translation services. VANs are an integral part of the EDI picture and without them, a large scale EDI program is virtually impossible. When using a VAN, there is no need to worry about different communication protocols between partners, a partner’s system downtime, or system security risks. VANs provide 24-hour access to the merchant and all the business partners’ mailboxes and can ensure data integrity. Also, VAN interconnects allow different VANs to pass information back and forth .

4)EDI Document Transport :This document transport layer is far more complicated than simply sending email messages between two parties. EDI documents are structured and contain header information that is used during transport and authentication process.

• 2.1Benefits of EDI
• Better, faster exchange of business information
• Reduced administrative costs
• Fewer errors
• Improved customer service

2.3 Financial EDI:

The electronic transfer of payments, payment-related information or other financial documents in a standardized, machine-readable format.

It is the computer-to-computer exchange of payment and payment-related information between companies using a standard format.

Unlike other forms of EDI, such as exchange of price quotes or purchase orders, financial EDI always involves a bank because a financial transaction (a payment) is being effected. Due to this fact, a new business opportunity now exists for banks in the cash management industry.

• Business Activities and EDI

Who Uses Financial EDI?

In the most general sense, the marketplace for financial EDI consists of two distinct segments.

Originators – companies or government agencies who electronically initiate payments and the associated remittance information to their suppliers using the standard EDI format.

Receivers – companies and government agencies who electronically receive payments and the related remittance information using the standard EDI format.

In financial EDI, a bank acts as the financial intermediary between originators and receivers for both the actual payment and the associated payment data.

• How Does Financial EDI Work?

In the classic EDI scenario, the following actions take place:

The buyer, or originator, electronically extracts payment information from the company's accounts payable system, Formats the data into an EDI standard (ANSI 820 transaction set), o Transmits an ANSI 820 file to the company's bank, The bank then takes the 820 data and puts it into the format necessary for it to be carried through the Automated Clearinghouse Network as an ACH transaction, The ACH network then delivers the payment and data to the seller's bank. The bank credits the seller and, o Electronically transmits the payment-related information in the 820 format to the seller's accounts receivable system where the payment is then posted automatically.

• Financial EDI Benefits:
• Improved processing
• efficiency and reduction of costs
• Predictable and accurate cash management
• Enhanced security of payments
• Improved customer service 6) no manual intervention.
• Benefits of Financial EDI for Banks

For banks in the cash management industry, offering financial EDI services is one way to defend the revenue generated by current check business, whether it is in disbursements or collections, since over time, a great many of these payments will be converted to electronic EDI transactions. However, because of the investment required, not every cash management bank will be an EDI player This is why financial EDI is a rapidly growing way of doing business.

• Financial EDI Barriers :
• Complexity and cost of implementation
• Limited EDI/financial EDI capable trading partners
• Limited support in banking system
• Complexity of standards
• 2.4 Overview of the technology involved in EDI:

modem (asynchronous and synchronous) FTP: The File Transfer Protocol (FTP) is a standard network protocol used to transfer computer files from one host to another host over a TCP-based network, such as the Internet e-mail

HTTP: The Hypertext Transfer Protocol (HTTP) is an application protocol for distributed, collaborative, hypermedia information systems.[1] HTTP is the foundation of data communication for the World Wide Web.Hypertext is structured text that uses logical links (hyperlinks) between nodescontaining text. HTTP is the protocol to exchange or transfer hypertext AS1: The AS1 protocol is based on SMTP and S/MIME. It was the first AS protocol developed and uses signing, encryption andMDN conventions. In other words:

• Files are sent as "attachments" in a specially coded SMIME email message
• Messages can be signed, but do not have to be

Messages can be encrypted, but do not have to be Messages may request an MDN back if all went well, but do not have to request such a message If the original AS1 message requested an MDN…

Upon the receipt of the message and its successful decryption or signature validation (as necessary) a "success" MDN will be sent back to the original sender. This MDN is typically signed but not encrypted.

Upon the receipt and successful verification of the signature on the MDN, the original sender will "know" that the recipient got their message (this provides the "Non-repudiation" element of AS1) If there are any problems receiving or interpreting the original AS1 message, a "failed" MDN may be sent back.

Like any other AS file transfer, AS1 file transfers typically require both sides of the exchange to trade SSL certificates and specific "trading partner" names before any transfers can take place.

AS2:

If there are any problems receiving or interpreting the original AS2 message, a "failed" MDN may be sent back. However, part of the AS2 protocol states that the client must treat a lack of an MDN as a failure as well, so some AS2 receivers will simply not return an MDN in this case.

Like any other AS file transfer, AS2 file transfers typically require both sides of the exchange to trade SSL certificates and specific "trading partner" names before any transfers can take place. AS2 trading partner names can usually be any valid phrase.

CLEO devices: Cisco router in Low Earth Orbit, is an Internet router from Cisco Systems that was integrated into the UK-DMCDisaster Monitoring Constellation satellite built by Surrey Satellite Technology Ltd (SSTL) as a secondary experimentalhosted payload, and launched into space with the satellite from Plesetsk on 27 September 2003 value-added networks

Internet protocols such as FTP, telnet, and e-mail