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EDI – Why Standards Exist

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Since the building of paved roads and railroad tracks, there has been a need for standards.  Roads were needed to be of a consistent size to accommodate carts, which in turn made the width of carts (and even automobiles today) a specific size and height. Railroad tracks had to be the same width and strength in order for trains to travel across the country.  Standards have always been a part of the movement of goods and services.

The same can be said for data.  When computers began to be used by major organizations in the 1960’s, there was a need for different computer systems to communicate and exchange business information in a consistent manner. While the data exchange process was proprietary at first, ANSI (American National Standards Institute) and UN/EDIFACT (United Nations Directories for Electronic Data Interchange for Administration, Commerce, and Transport) developed electronic data exchange (EDI) standards. This provided a consistent means for different computer systems to move data from one to another in a structured format. Each type of EDI document was assigned a number in the case of X12, and these numbers were referenced against the standard by the computers to know what type of document was being sent.

For decades EDI was the primary method to move business documents electronically.  The importance of EDI integration was tremendous if a business wanted to do any level of volume with a customer or vendor. EDI has evolved from its origins but it is used in a number of ways including the following examples:

Purchase orders (EDI document number 850 or 875) for goods or services would be built using EDI standards.  This included the format and size of the purchase order number or reference, the date, the billing information, the shipping information, and the line item information including quantity, product number, product description and price. Basically everything that was on a paper PO.

Invoices (EDI document number 810 or 880) would follow after the purchase order and ASN.  The EDI 810 document replaced the paper invoice. Many businesses created agreements surrounding the EDI, and would pay according to the results of the electronic transactions.

Shipping notices (EDI document number 856) would be sent in response to an EDI purchase order that was received.  The shipping notice or ASN (advance ship notice) was sent before a shipment arrived at the customer and in some cases became the physical invoice.  This allowed the customer’s computer to validate what was shipped against the purchase order, so when the actual goods were checked in at the receiving warehouse or store, a confirmation of receipt would occur. The electronic reconciliation would enable a retailer to greatly reduce costs associated with the manual handling of  shipments.

In a more complex supply chain using third parties for warehousing and fulfillment the following transactions would be used.

Warehouse ship document (EDI number 940) are used with warehousing and distribution to send a shipping request to a third party logistics partner or fulfillment house.  Shipping advices (EDI number 945) are returned by the third party logistics provider to notify and confirm the items that have shipped and to be invoiced.

There are a variety of other EDI documents, all of which required some level of integration between two or more systems.   From banks to import/export to retail and wholesale businesses, EDI is used to exchange documents between trading partners.  Many large businesses would publish their own EDI standards that they would send to business partners for compliance and implementation.

EDI began before the internet, and at that time many systems only haddial up or direct line capabilities.  Dial up required a modem on either end of a regular phone line that dialled one of the computers when data is to be exchanged. Most of the EDI exchange occurred through an EDI translator or service provider.  These companies linked businesses together as trading partners so that the business computer only needed to dial a single phone line and integrate to one computer, which would then route the document to the right destination.

When the internet became more widely available, businesses moved away from the high-priced dedicated EDI service providers and used the internet to transact EDI. A secure internet connection would link two or more business computers together to exchange documents.

Even today, many businesses still rely on EDI formatted documents to transact business. This is especially helpful when utilizing third party logistics providers and other outsourced services. Thankfully the cost for EDI integration has also significantly declined over the years. Today, as transaction sets become more complicated and a company’s supply chain becomes more global EDI is till in many cases a favoured way of transacting business despite the popularity of other methods. At the end of the day all were built on the standards set forth in the 1960’s for electronic data interchange.


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