What is EDI System an How it Works

Introduction

Everybody uses business connections of one sort or another to get orders, send bills, make collections, determine and pay what it owes, move goods, and control its money. The business connections used historically to perform these operations have been the postal service and the telephone. A relatively new link is electronic data communications facilities.

Your links to business connections are limited to the mail and the telephone. Both are slow. Both terminate with that wall of people who feed the computer and who may make errors. What your company needs is a better link to business connections and that is what electronic data interchange is all about. To appreciate what electronic data interchange (EDI) means, think about all those orders, invoices, freight bills, shipment instructions, tracing requests, payment instructions, government reports, and the like that your company sends out or receives every day. Think about each as a single transaction.

Order custom essay What is EDI System an How it Works with free plagiarism report

450+ experts on 30 subjects Starting from 3 hours delivery

Get Essay Help

What Is EDI?

Traditionally, the transfer of data from one company to another has been by paper documents. This is known as a paper-based system. These documents have to be manually forwarded and entered to the destination computer. EDI is the electronic exchange of structured business information, in standard formats, between computers, EDI eliminates the need for a paper-based system by providing an electronic link between companies. This reduces data entry tasks and improves business cycle times.

EDI is the electronic transfer of structured business documents in an organization--internally among groups of departments or externally with its suppliers, customers and subsidiaries. In EDI information is passed electronically from one computer to another over a network without having to be read, retyped or printed. The information transferred must have a defined structure agreed between your company, and the company or group you send and receive data from. Any company or group which uses EDI is called.

Trading Partner

Examples of current uses of EDI includes automatic teller machines (ATMs) in banks where EDI is used for transferring and withdrawing funds between different bank accounts, airline reservation systems, stock exchange transactions and car reservation systems. Use Of EDI: The data from one computer is normally not in a form suitable to be entered directly into another computer. The data may have to be arranged differently before it can be entered into another computer or some items of data may not be needed at all. With EDI, all the data is converted unto an agreed standard format before it is sent over the network.

The computer that receives the data can then extract the information it requires. Using EDI implies three things:

1. Information is transferred electronically rather than on paper. This means that there is no need to enter the data manually in the destination computer.
2. Information is transferred between trading partners who have negotiated trading agreements and have formalized their data transfer system.
3. Information that is transferred complies with agreed standards for the format of the content and the transmission control mechanisms.

Advantages of Edi over a Paper-Based Document Transfer System

This section highlights the advantages EDI has over a traditional paper-based document transfer system. In a Paper-based System: ? A software application generates a paper document on a form. Copies of the document are made. Some are passed to internal departments to be filled, other copies are sent to the trading partner via the postal service. The trading partner receives the document and retypes the information on the form into their computer. This retyping often introduces errors. The trading partner generates a paper acknowledgement and this is sent to the originating company. The transfer of documents in a paper-based system could take a considerable length of time. In an EDI System: ? The application program generates a file, which contains the processed document.  The document is converted to an agreed standard format. ? The file containing the document is sent electronically over the network. This network links the originating company and its trading partner. ? The file containing the document arrives at the trading partner.

It is translated into the correct format and transferred to the recipient's application. ? A receipt is automatically generated and sent over the network t the originating company. EDI transmits documents to the trading partner's application in a very short period of time and with no human intervention. HOW EDI WORKS? Regardless of the format chosen, companies using EDI communicate with their trading partners in one of two ways: Either they exchange data with several trading partners directly or they interact with multiple companies through a central information clearing-house.

In the latter case, all transactions are funneled through a third party's computer system, which routes them to the appropriate receiver's computer. This enables the sender to communicate with an unlimited number of trading partners without worrying about proprietary systems, audit trails, variable transmission speeds, and general computer compatibility. Basically, here is how EDI works:

Prior to any computer work, representatives of two companies interested in exchanging data electronically meet to specify the applications in the EDI standard, which they will implement.

1. Each company adds EDI programs to its computer to translate company data in standard formats for transmission, and for the reverse translation on the data it receives.
2. Then, as often as operationally requires the two companies exchange data electronically in the standard formats.
3. The data transmitted originates from records in the sender's database after the sender confirms that the receiver is an authorized recipient for such data. The sender composes a transmission formatted in the EDI standards, the receiver translates the formatted message to a computer record to be processed and used internally.

All transmissions are checked both electronically and functionally and the protocol includes procedures for error detection and correction.

Information Flow in Edi:

1. A Company collects data for its own operational or statistical requirements. This data is edited and added to its own database.
2. Pertinent information is extracted by the company from its database, summarized if necessary, constructed into EDI transaction sets, and transmitted to the company or organization requiring it for valid reasons.
3. The frequency for preparing this information is determined by the operational requirements of each recipient.
4. A communications link for transmission is established according to the standard communications protocol.
5. The recipient of the information receives the transmission and checks it for its physical characteristics (parity, check character, transmission mode). Retransmission is requested if an error is detected in the physical characteristics of the transmission.
6. The receiver checks the functional characteristics of the data. A message is transmitted to the original sender to acknowledge the transmission and to identify any errors detected.
7. The receiver processes the information received according to its own internal procedures and timing requirements.

EDI Components A typical EDI system implements a specific set of EDI by enabling the exchange of business documents. It accepts documents from business software applications, converts the document to a standard format and sends it to another software application or trading partner. EDI system converts generic EDI messages (in EDIFACT or any other EDI standard) format to RDBMS format and from RDBMS format to EDI format.

There are EDI application programs for software developers to configure EDI to work with the various user application software programs. There is normally no end-user interaction with EDI--it is entirely within the background of the EDI system. RDBMS database contains the data to be translated into EDI format and where EDI data is to be converted (and written) to. EDI treats the application database generically--it reads and writes to the tables and fields specified according to the message mapping created by the |EDI Administrator during EDI message configuration.

These are done by EDI Configuration programs under the purview of EDI. There are three main components in an EDI system: 1. Application Service- Providers the means of integrating existing or new applications into the EDI system. 2. Translation Service-Converts data from internal format standards to an external format and translates data from an external format to an internal format standard. 3. Communication Service-Passes documents into a network via the agreed communication protocol.

Internal format Transmission Tranmission TRADING files files files PARTNER DocumentsApplicationTranmission Communication BusinessService Service Service Application FILE TYPES EDI creates the following files as a document passes through the system: ? Internal Format File (IFF) ? External Format File (EFF) ? Transmission File Each of these files is described in the following sections.

Internal Format File: An internal format file (IFF) contains a single document for a single trading partner. Internal format file is principally for EDI's own use. External Format File: The external format file (EFF) contains the same data as the internal format file translated into the appropriate standard document format. Transmission File: A transmission file contains one or more documents for the same trading partner. Documents of the same type are packaged together in functional groups. The functional groups going to one trading partner are packaged into an interchange set.

An interchange set contains one or more functional groups of documents with the same sender and receiver. A Document Type 1 1FunctionalGroupInterchange 1 Set Document Type 2 2Functonal 2 Group. The three EDI services all perform different tasks. The following sections give an overview of what happens in each of three services. Application Service: The Application Service provides the link between a business application and EDI. It allows you to send document to, and receive documents from, an EDI system.

A set of callable routines is used to transfer documents from the business application into EDI. Documents destinations can be either intra-company or to external companies, i. e. , trading partners. The EDI Application Service holds each incoming and outgoing document as a single internal format file. EDI converts the document to a standard format and sends it to the trading partner using the relevant communication protocol. A number of different standards and communication protocols are available. The following list describe what happens in the Application Service: For outgoing documents: The business application uses the callable routines to send a document from the business application to the Application Service. The document is now in the EDI system and is called internal format file. ? The Application Service sends the document in the internal format file to the Translation Service. For incoming documents: ? The Application Service receives an internal format file from the Translation Service. ? The Application Service makes the data in the internal format file available in database so that the business application can fetch the document from EDI.

Application Service

A callable interface is used to do this. Application Service File server Internal Formal File Callable RoutinesInternalFormat File Translation Service:  Converts outgoing documents from an internal format file to an agreed external format. ? Translates incoming documents from an external format to th EDI internal format file. The external document standards that a EDI system supports are EDIFACT, X12, TDCC, and ODETTE The following lists describe what happens in the Translation Service: For outgoing documents: The Translation Service receives a document in the internal format file from the Application Service.

It converts the internal format file to the appropriate external standard (either EDIFACT, X12, TDCC, or ODETTE). The file is now an external format file. ? The Translation Service combines one or more external format files into a transmission file. ? The Translation Service now sends the transmission file to the Communication Service. For incoming documents: ? The Translation Service receives a document n the transmission file from the Communication Service.  Separates the transmission file to produce external format files. It translates each external format file, which may be in an external standard (either EDIFACT, X12, TDCC, or ODETTE) to the internal format file.

The file is now an internal format file. The translation Service now sends the internal format file to the Application Service. Communication Service: The Communication Services sends and receives transmission files to and from the trading partners either directly or by using a third-party service called a Value Added Network (VAN). The following lists describe what happens in the Communication Service: For outgoing documents: The Communication Service receives a transmission file from the Translation Service. It checks the file to see which trading partner it has to be sent to. When it has identified the type of connection to be used for this trading partner t determines which gateway to use.  The Communication Service sends the transmission file to the trading partner. For incoming documents:  The Communication Service receives a transmission file from the trading partner. The file arrives through one of the gateways that EDI supports. The Communication Service sends the transmission file to the Translation Service.

Internal Format File Documents Business Applications Documents Internal Format Fileapplication Service

Translation Service: ? Converts outgoing documents from an internal format file to an agreed external format.  Translates incoming documents from an external format to the EDI internal format file.

Don't let plagiarism ruin your grade

Run a free check or have your essay done for you

Check my essay Hire Writer