October 1998 Electronic Data Interchange and E-Commerce By ManMohan Sodhi In my last column (August 1998 issue) I wrote about steps the private sector and governments of countries are taking to enable e-commerce using electronic data interchange (EDI) and the Internet. In this article I will discuss EDI in the context of the Internet. What is EDI? Generally speaking, EDI is any computer-to-computer exchange of business documents in some standard format with an intent to replace the paper-based equivalents. While business-to-business commerce is an important aspect of EDI, there are non-commerce uses like transmission of university transcripts and court proceedings. There are two well-known standards, X12 and EDIFACT (see, for instance, http://www.ansi.org or http://www.disa.org), but large companies usually customize their EDI messages beyond these standards. Most transactions are delivered via a value added network (VAN) such as GE, IBM Advantis or Sterling. By using a VAN, the sender can place it in a mailbox, and let the VAN be responsible for holding and delivering the document. Flow of EDI-Based Information The following is adapted from information on EDIConnection's (http://www.ediconnection.com) web site and pertains to the retail industry with the information exchange taking place between a vendor and a retailer like J.C. Penney. EDI documents (or transactions) in this context are the purchase order, the invoice and the advance ship notice. First, the retail buyer selects a style to order from the vendor, which entails the retailer's computer system accessing the electronic catalog (pre-loaded with the VAN) to pull in the UPC's (universal product code) to their system. The retailer then issues an EDI 850 Purchase Order transaction. The order is sent to the vendor's mailbox and if the vendor's systems are integrated, the order is automatically entered into the vendor's computer without data entry. The retailer may want the vendor to put the retail price on the tickets. If retail price is sent on the order, this information can feed the ticketing programs at the vendor. When the vendor is ready to ship the merchandise, UCC-128 labels are printed to identify the cartons, and the EDI 856 ship notice is created and transmitted to the retailer to give the retailer advance information on the exact quantities being shipped and the anticipated arrival time to schedule receiving at the distribution center and to update order systems. The ship notice contains bill of lading information (bill of lading number, carrier, weight), purchase order information and detailed carton contents. When the carton arrives at the retail distribution center, it is scanned to pull up the ship notice information. From the ship notice, the system knows what is in the carton and which store is the destination. The carton can be routed on conveyor belts without human intervention. The vendor also transmits an EDI 810 invoice. After the merchandise is received and the invoice processed, payment can be scheduled automatically and can be issued via check or electronic funds transfer to the vendor's bank. Problems with Conventional EDI On one hand, EDI has threefold predicted growth through the year 2000, yet on the other, conventional EDI may not hold its own against the Internet. According to AMR Research (http://www.amrresearch.com), less than 1 percent of U.S. businesses use EDI, but these include large corporations relying heavily on EDI transactions with hundreds of trading partners. The technology is well understood and time-tested. But a small- or medium-sized supplier may find it prohibitive to implement EDI as typical installations require customization, making it all the more costly if the supplier caters to more than one client. Also, unlike Internet-based approaches, conventional EDI links require link-by-link testing entailing months of setup and testing. Enter Hybrid Solutions Unlike conventional EDI, the World Wide Web is everywhere, and its business-to-business use is growing with the advent of "Authentication Services" for ensuring the genuineness of the sites and "Secure Electronic Transactions" for security and robustness. But given the benefits of EDI and investment in the technology by many companies, it makes sense to utilize the Internet for hybrid solutions rather than replacing EDI altogether. Using X.12 and EDIFACT transactions on the Internet and intranets is less expensive and more flexible than conventional EDI, and the Internet Engineering Task Force (IETF) is working on issues pertaining to secure, interoperable products. EDI vendors are focusing on Internet products as well: Check out the sites of some of the vendors like Harbinger (http://www.harbinger.com), St. Paul Software (http://www.spedi.com), Sterling Commerce (http://www.stercomm.com), DNS Worldwide (http://www. dnsww.com) and EDI Connection (ediconnection.com). Users are looking closely at the Internet too: The Southern California EDI Users Roundtable (http://www.scedir.org) Conference (April 1999) has almost all its topics centered on the Internet and the World Wide Web. As a sample application of a hybrid solution, if you want visibility of inventory in your supply chain, you could create a World Wide Web interface which your supplier in Singapore can use to send EDI messages. Conclusion Although e-commerce initiatives are based both on the Internet as well as separate networks for EDI, in the long run the Internet may dominate. In industries such as retail with hundreds of vendors and large EDI-related investments, the attention is now on Internet-based hybrid solutions. Dr. ManMohan S. Sodhi is president of the Logistics Section of INFORMS and an experienced consultant in the Supply Chain Management Line of Business with Andersen Consulting in Chicago. He is the founder of the OR news group, sci.opresearch, and helped design and create INFORMS Online. He welcomes your comments at MohanSodhi@AOL.com Table of Contents OR/MS Today Home Page OR/MS Today copyright © 1998 by the Institute for Operations Research and the Management Sciences. All rights reserved. Lionheart Publishing, Inc. 506 Roswell Street, Suite 220, Marietta, GA 30060, USA Phone: 770-431-0867 | Fax: 770-432-6969 E-mail: lpi@lionhrtpub.com URL: http://www.lionhrtpub.com Web Site © Copyright 1998 by Lionheart Publishing, Inc. All rights reserved.