E-Commerce & EDI Basics
1. E-Commerce Basics
1.1. E-Commerce
1.1.1. What is e-commerce?
In its most basic definition, e-commerce means buying and selling on the Internet. E-Commerce is the conducting of business communication and transactions over networks and through computers. As most restrictively defined, electronic commerce is the buying and selling of goods and services, and the transfer of funds, through digital communications. However EC also includes all inter-company and intra-company functions (such as marketing, finance, manufacturing, selling, and negotiation) that enable commerce and use electronic mail, EDI, file transfer, fax, video conferencing, workflow, or interaction with a remote computer. Electronic commerce also includes buying and selling over the World Wide Web and the Internet, electronic funds transfer, smart cards, digital cash (e.g. Mondex), and all other ways of doing business over digital networks. According to the stories and the stock market analysts, it saves people time and money, and at the same time transforms tiny companies in remote locations into global marketing giants.
1.1.2. How is e-commerce conducted?
E-commerce can be divided into a number of categories or models, each with its own set of "specialized" business methods. Who is buying and selling what has determined how buyers and sellers find each other and make the transactions.
1.1.3. Some working models of e-commerce
Every buyer and seller on the Internet falls into a specific category, determined by whom they sell to and/or what they buy. And e-commerce can be divided into a number of categories: business to consumer, business to business, "tool vendor" to business and perhaps even "yard sale" where consumers periodically sell to each other. In this section, we will look at the two big categories of Web transactions: direct-to-consumer and business-to-business.
1.1.3.1. Companies that sell direct-to-consumers
Arguably, the most famous manifestations of e-commerce working models are the consumer-direct supply companies, where, it seems, the sky is the limit. These companies include pre-existing companies and start-ups, such as --
· mega-distributors, like amazon.com and its imitators that resell original publishers products;
· search engine companies, like Yahoo,(now calling themselves "portals") primarily help individuals find anything in the world;
· auction sites, like ebay.com, that aim for the bargain-hunters who will compete with other consumers for specific products and one-time deals;
· manufacturers, like Gateway; and
· financial institutions (banks and day-traders), such as e-trade.com that sell on-line investing and banking services.
1.1.3.2. Companies that sell business-to-business only
The second type of e-commerce model follows more traditional business methods, where pre-qualified buyers do business with pre-qualified sellers. Unlike the direct-to-consumer "upstarts," these companies moved into the on-line marketplace with their existing supply-chain members in a drive to increase productivity and efficiency within the business network.
· It all started with EDI. Manufacturers and government agencieshave been involved in e-commerce for years. They used expensive, private networks, which used standard procedures and formats, known as EDI or electronic data interchange.
· EDI expansion allowed data sharing through "extranets." Some companies, like IBM, GE, Hewlett Packard and others, converted their private networks, standard procedures and formats, as well as pre-certified participants, into Internet-based, controlled-access extranets. Just changing the transaction medium (from paper to electronic) increased efficiency, saved time and made EDI more affordable for all of the participants. These traditional supply-chain members (often called "communities" in e-terms) continue to do business with each other this way.
· Success with extranets opened the floodgates Soon, "outside" manufacturers, distributors and service providers to industry converted existing paper catalogs and price lists to electronic images and posted them on their Web sites. With little more than a phone or fax number to enable the transaction, they followed the e-business leaders into this new era of business.
1.2. EDI: A New Look At An Established Technology
Electronic data interchange still offers significant benefits and opportunities to vendors and enterprise alike. Pressure from new Internet-based entrants is, in fact, only making EDI more competitive.
Electronic data interchange (EDI) is often dismissed as a legacy technology that will inevitably be replaced by Internet-based communications, especially those based on XML. The reality is quite different, however. EDI has served many enterprises’ business-to-business (B2B) transaction communication needs very well for decades, and it remains a mission-critical backbone across many important industry verticals. Moreover, few enterprises are anxious to abandon their investments in EDI — investments that continue to deliver significant return on investment (see “EDI: Mature, Conservative and Valuable,” COM-15-7616).
Despite the emergence of IP-based trading networks, EDI is still used for the majority of application integration projects involving fully digital B2B collaboration among trading partners. Just as important, EDI— despite being an established, mature technology — continues to evolve significantly in response to new enterprise requirements and competitive pressures. For a look at one critical and rapidly evolving area of EDI technology, see “EDI Translators: New Offerings Present New Opportunities,” COM-15-9499.
Competition from XML, IP-based EDI value-added networks (VANs) and emerging transaction delivery networks (TDNs) has increased. However, these competitive entrants have not replaced EDI — at least not altogether — simply because VANs continue to offer enterprises the key benefit their name implies: adding value to network-
based transactions (see “Value-Added Networks: An Updated Overview,” COM-15-9442). Although the new competitive entrants have put pressure on VAN pricing, the traditional VANs continue to offer a viable solution for enterprises that conduct extensive B2B transactions. VANs have established very high expectations among their enterprise clients. Some emerging IP-based solutions offer useful new functionality and competitive pricing, but few can match the depth and breadth of VAN solutions. One of the key reasons for the enduring success of EDI is a high degree of standardization. Emerging XML-based standards organizations, such as RosettaNet, continue to struggle to expand their scope beyond niche deployments. (RosettaNet’s use, for example, is largely confined to one industry vertical: high technology and electronic component manufacturing.)
By contrast, the leading EDI standards —
Accredited Standards Committee (ASC) X12 and United Nations Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT) — continue to evolve to meet the changing and expanding needs of more than a dozen industries.
As a result of these many benefits — both established and potential — EDI continues to present significant opportunities to vendors and enterprises.
Summary: EDI continues to evolve to meet changing enterprise requirements and deliver significant benefits to enterprises — and vendors — across a broad range of industries. Competitive pressure from new market entrants, far from signaling the end of EDI, has only made EDI more attractive in functionality and pricing. Enterprise IT decision makers cannot afford to ignore the enduring importance of EDI.
1.3. Understanding EDI
1.3.1. What Is EDI?
Electronic data interchange (EDI) is commonly defined as the application-to-application transfer of business documents between computers. Many businesses choose EDI as a fast, inexpensive, and safe method of sending purchase orders, invoices, shipping notices, and other frequently used business documents.
EDI is quite different from sending electronic mail messages or sharing files through a network, a modem, or a bulletin board. The straight transfer of computer files requires that the computer applications of both the sender and receiver (referred to as "trading partners") agree upon the format of the document. The sender must use an application that creates a file format identical to your computer application.
When you use EDI, it's not necessary for you and your trading partner to have identical document processing systems. When your trading partner sends a document, the EDI translation software converts the proprietary format into an agreed upon standard. When you receive the document, your EDI translation software automatically changes the standard format into the proprietary format of your document processing software.
1.3.2. EDI: A Comprehensive Definition.
EDI is both a technology and a service model for the trusted exchange by automated electronic means of business documentation between trading partners and between enterprises and government agencies.
Electronic Data Interchange, or EDI, is the electronic exchange of business data. Using a standard format, EDI provides a method of transmitting business data from one computer to another, without the need to re-key data. This electronic link can result in more effective business transactions.
1.4. Golden Rules.
1.4.1. The 1st Golden Rule Of EDI
Most companies “do” EDI, not because they thought it was a good idea, but because they had to. They were forced to comply with the 1st Golden Rule of EDI, which is “The Company that has the gold gets to makes the rules.” When Wal-mart, Sears, or Ford says that the only way their suppliers can become one of their suppliers is if they are EDI capable, their suppliers become EDI capable. The up side is that their suppliers get to keep their best customers. The down side is that they have increased their costs. They now have the expense of two customer order systems – their legacy system and their EDI system – they are doing their customer’s data entry, and they are carrying their customer’s inventory. These companies are only doing what is known as Compliance EDI.
1.4.2. The 2nd Golden Rule Of EDI
Those suppliers who understand the strategic value of EDI are following the 2nd Golden Rule of EDI – “do unto others as they have done unto you.” They are receiving the full benefit of EDI in two ways. First, they have integrated EDI with their business systems – they are not doing rip-and-read EDI. Secondly, they are requiring their suppliers to become EDI ready so they can pass the cost farther down the supply chain. Companies in this category are doing Strategic business.
1.5. EDI History
The early signs of EDI date all the way back to the early 1960s when a few large companies had their major suppliers dial-in and download orders from their computers. Each company had its own format, so suppliers had to program differently for each trading partner.
1.5.1. TDCC Develops The 1ST EDI Standards:
In 1968, the transportation industry recognized that the abundance of paperwork was beginning to present a problem. Transportation companies were forced to process tremendous amounts of paperwork in order to conduct their businesses. The time-consuming nature of this paperwork was slowing the movement and consignment of shipments. The transportation industry decided to correct this problem by organizing a committee, called the Transportation Data Committee (TDCC), to develop standard formats for exchanging business information.
TDCC organized an industry wide program for data standards, message formats, standard codes, communications protocols, and other details that would support the new concept of computer to computer electronic data interchange; and eliminate paperwork altogether. In 1975, TDCC released the first EDI documentation: Rail Transportation Industry Application.
Soon the transportation industry's success spread to other industries. More and more companies began communicating via EDI within their industry. Unfortunately, all the standards that were developed at this time supported only transportation related issues. Soon the question was raised "How can my business enjoy the benefits of EDI too?"
1.5.2. ANSI Charters The ASC X12e
In 1978, The American National Standards Institute (ANSI) used the pioneering work of TDCC and the National Association of Credit Management Credit Research Foundation to charter a committee known as the ASC (Accredited Standard Committee) X12. This committee's main objective was to develop uniform standards for inter-industry electronic interchange of business transactions.
1.5.3. More Industry-Specific Standards
In 1981, the Retail Grocery Industry plunged into the EDI arena with the publication of Arthur D. Little Inc.'s report on "Electronic Data Interchange Grocery Industry Feasibility Report". This report resulted in the formation of the Uniform Communication Standard Program (UCS), which provided industry specific transactions - purchase orders and invoices - for use in the grocery and retail community.
The Public Warehousing Industry created the Warehousing Industry Network Standards (WINS) in 1982, which provided transactions that best suited the needs of their members.
There were many other industries that played a major role in the development of EDI; one notable industry was the Auto Industry Action Group (AIAG), which insisted that by 1988, all U.S. automakers and their suppliers would use the standards that were to be developed by ANSI. Car makers notified their vendors that if they were not able to communicate electronically by that time, they would take their business elsewhere.
1.5.4. ANSI Standards Published
In 1983, ANSI published the first five American National Standards for EDI. Today there are well over 300 additional standards and guidelines in development.
1.5.5. The Development Of International Standards
As users began to conform to the X12 standards, they ran into problems when communicating electronically outside of their national boundaries. International users found that the U.S. standards often did not meet their specialized needs. In 1988, the United Nations chartered UN/EDIFACT (Electronic Data Interchange For Administration, Commerce and Trade) to develop international EDI standards. These standards take the form of United Nations Standard Messages (UNSMs), which are analogous to what ANSI X12 calls Transaction Sets.
EDIFACT has played a significant role in increasing competitiveness as well as helping to remove trade barriers in Europe. This emphasis has led many to believe that EDIFACT is a "European Standard". While many European countries have selected UN/EDIFACT as their EDI standard of choice, this selection is by no means restricted to Europe. Canada, for example, selected UN/EDIFACT as its national EDI standard over 5 years ago.
Users involved in EDI will reap various benefits by adopting this universal EDI standard: overseas expansion, expense control, and the elimination of support for multiple formats. However, in countries where EDI is already well established, particularly the USA, national standards will probably continue to be used for domestic EDI for some time to come.more.......
