Electronic Data Interchange
One of the more commonly accepted definitions of Electronic Data Interchange, or EDI, has been "the computer-to-computer transfer of information in a structured, pre-determined format." Traditionally, the focus of EDI activity has been on the replacement of pre-defined business forms, such as purchase orders and invoices, with similarly defined electronic forms."1
EDI is the electronic exchange of information between two business concerns in a specific predetermined format. The exchange occurs when messages that are related to standard business documents, such as Purchase Orders and Customer Invoices are exchanged. The business community has arrived at a series of standard transaction formats to cover a wide range of business needs.
"Each transaction has an extensive set of data elements required for that business document, with specified formats and sequences for each data element. The various data elements are built up into segments such as vendor address, which would be made up of data elements for street, city, state, zip code, and country."1
All the transactions are then grouped together, and are "preceded by a transaction header and followed by a transaction trailer record. If the transaction contains more than one transaction, many purchase orders can be sent to one vendor, several transaction groups would be preceded by another type of record, referred to as a functional group header, and would be followed by a function group trailer."1
One of the first places that EDI was implemented was in the purchasing operations of a business. Before the implementation of EDI, a purchasing system would allow buyers to review their material requirements, and then create purchase orders, which would be printed out and mailed. The supplier would receive the purchase order, and manually enter it into their customer shipping system. The material would be shipped, and an invoice would be printed, which would then be mailed back to the supplier.
In this example, even if the purchased materials were shipped and received on the same day the purchase order was received, the cycle time could be as much as a week, depending on the mail and the backlog at the supplier's order entry system.
With the introduction of EDI, this scenario changed dramatically. Purchasing agents would still review their material requirements and create their purchase orders, but instead of printing them out and mailing them, the purchase orders would be transmitted directly to the suppliers over an electronic network.
On the supplier's end, the transaction would be automatically received and posted. This new process could allow the shipment of material on the same day the purchase order was sent. Suppliers could send their shipping documentation electronically to the buyer in the form of a shipment notification, providing the buyer with accurate receiving documents prior to the actual arrival of the material. The supplier gained an additional...