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.
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.
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.
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.
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.
1.4.1. 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.
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.
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?"
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.
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.
In 1983, ANSI published the first five American National Standards for
EDI. Today there are well over 300 additional standards and guidelines
in development.
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.
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