Basic Information on Electronic Data Interchange (EDI)

What Is Electronic Data Interchange (EDI)?

Electronic Data Interchange (EDI) is the computer-to-computer exchange of business information using a public standard. EDI is a central part of Electronic Commerce (EC), because it enables businesses to exchange business information electronically much faster, cheaper and more accurately than is possible using paper-based systems.

About fifty thousand private-sector companies in the United States are currently use EDI. Companies such as Federal Express, Eastman Kodak, American Airlines, Nike, Staples, NationsBank, JCPenney, and Prudential Insurance to name but a few. EDI is widely used in manufacturing, shipping, warehousing, utilities, pharmaceuticals, construction, petroleum, metals, food processing, banking, insurance, retailing, government, health care, and textiles among other industries. According to a recent study, the number of companies using EDI is projected to quadruple within the next six years.

The Government did not invent EC/EDI; it is merely taking advantage of an established technology that has been widely used in the private sector for the last few decades. EDI was first used in the transportation industry more than twenty years ago. It was used by ocean, motor, air, and rail carriers and the associated shippers, brokers, customs, freight forwarders, and bankers. The first set of industry EDI standards were developed by the Transportation Data Coordinating Committee (TDCC) and consisted of forty-five transaction sets for the transportation industry. ANSI X12 standards, the system currently used, were developed later and are based upon the TDCC syntax and format.

A Trading Partner is "a business that has agreed to exchange business information electronically." This term describes any business that has been registered to conduct business electronically with the Government. As the Government implements EC/EDI, these Trading Partners will receive the bulk of Government procurements. This term is also used in the commercial marketplace.

If you are a small business you should be particularly interested in registering as a Trading Partner because it can provide you with many new business opportunities with both the Government and commercial market. Even if you are already making sales to the Government, you should become a registered Trading Partner in order to remain competitive. Regardless of the size of your business, you should understand that conversion to EC/EDI will soon be a business necessity, even if you have successfully sold to the Government in the past without using EDI.

In addition to learning about EC/EDI so that you can sell more to the Government, there are other good reasons for doing so. Advantages include:

BENEFITS OF EDI

1. EDI greatly increases business opportunities, not only with the Government, but also with many private sector Trading Partners through wider diffusion of procurement information.

2. There are improvements in overall quality through better record-keeping, fewer errors in data, reduced processing time, less reliance on human interpretation of data, and minimized unproductive time.

3. Reduced need for inventory frees capital. EDI permits faster and more accurate filling of orders, helps reduce inventory and assists you in "Just-in-Time" inventory management.

4. You’ll lower mailing costs. There is reduction in mailroom sorting/distribution time, elimination of lost documents, and a reduction of postage and other mailing costs.

5. You’ll reduce order time. EDI is much faster in processing orders. There is high customer satisfaction with faster response to orders, with less paper to handle. There will be faster billing. Since orders are filled and delivered sooner, billing and closeout can occur sooner.

6. There will be better information for management decision making. EDI provides accurate information and audit trails of transactions, enabling you to identify areas offering greatest potential for efficiency improvement or cost reduction.

In EDI, the electronic equivalents of common business documents, such as Requests for Quotes, Purchase Orders and Invoices, are transmitted electronically between the computers of Trading Partners. These electronic documents are given standardized electronic formats and numbers (referred to as ANSI X12 standards), so everyone involved can correctly interpret the information that is sent to them. Value-Added Networks (VANs), companies similar to long-distance phone companies, provide telecommunications connectivity between Trading Partners. Translation software is used by each Trading Partner to translate the business data from common ASCII (or other) format to ANSI X12 format, and vice versa.

In the Government context, a Request for Quotation document may be transmitted to all registered Trading Partners. Trading Partners may respond by sending a Response to Request for Quote document. The Government buyer may review all received responses using some form of bid evaluation software, decide on which contractor to buy from based upon bid price and/or pre-established criteria, and transmit a Purchase Order document to the selected contractor. The contractor may then respond by transmitting a Purchase Order Acknowledgment document, ship the product, and transmit an Invoice document to the Government buyer. The buyer, upon receiving the goods, may transmit a Payment Order document to the contractor, and transmit funds to the contractor using Electronic Funds Transfer (EFT).

It is the goal of the Government to provide a "single-face" to industry. This means that all Government agencies will conduct EDI using ANSI X12 standards, common implementation conventions, a common telecommunications infrastructure, and a common set of business practices. The benefit of the single-face concept is that once you have become EDI capable, you register at a single point (called Central Contractor Registration) with the Government, and you can do business with all U.S. Department of Defense (DoD) and civil agencies.
This further implies that all prior EDI and non-EDI Government procurement systems, and the separate bulletin board systems operated by many DoD activities will either be modified to comply with the single-face concept, or be terminated.

However, currently, the single-face concept remains a goal, and not a reality. The Government is currently modifying or replacing the old systems so that they comply with the single-face concept. Further, many agencies continue to use different implementation conventions. For example, most DoD agencies use ANSI X12 version 3010 standards while some civil agencies use version 3040. This requires contractors to be both 3010 and 3040 capable, an unnecessary imposition. It will take a few years before the single-face concept becomes a reality.

Should you intend to become fully EDI capable, you will generally need a personal computer, a modem, ANSI X12-compliant EDI translation software or access to an EDI translation service, government implementation conventions, and a subscription to a VAN or a Value-Added Service (VAS). However, should you opt not to become fully EDI capable, it is possible for you to exchange EDI transactions with the Government through the use of VASs provided by some VANs. Such services (EDI-to-FAX, for example) enable you to participate in the EDI-based Government acquisition efforts without investing in EDI-related computer hardware and software.

In the field of Electronic Commerce (EC) technologies, there is much confusion about the roles of EDI, the Internet, computer bulletin board systems, and other online services. This section is included to clarify the distinctions. EDI is just now being conducted over the Internet as advances are made in security of online transactions. While this is may be less expensive, one loses some of the benefits brought by the VANs such as:

A lot of information on EC/EDI (ANSI X12 standards, implementation conventions, products and services, etc.) is currently distributed through the Internet. Therefore, it is in your interest to become Internet capable so you may have access to Internet tools and facilities such as electronic mail, the World Wide Web, File Transfer Protocol (FTP), and Telnet. The easiest way to become Internet capable is to subscribe to one of the online services currently available.

EDI is not just a "bulletin board." You may already have experience using a computer bulletin board for conducting some of your business. In the typical bulletin board environment, one party posts a Request for Quotation; eligible suppliers read it and submit standard paper quotes (or some electronic quotes) for review. But most of the remaining documentation is still paper. Some government agencies already use bulletin boards for some acquisitions, but EDI is much more than a bulletin board, because it enables transfer of nearly all key business documents in a standardized format. In the DoD, electronic bulletin boards will be used for information only; procurements less than $100,000 will only be conducted using EDI where appropriate.