EDI and the Internet...
What's the Difference?

You've probably heard that electronic commerce (that is, sending information directly from computer to computer) can increase your company's sales and lower its costs. Indeed, you have probably been overwhelmed by advertisements, written in "technospeak," that promise fantastic improvements after implementing a particular electronic solution.

But if you're like most business executives, you haven't had the time to explore the multitude of available electronic products and services. You have your hands full just making sure that your normal business is completed in a timely fashion. Well, if you have five minutes, we'd like to give you a basic understanding of the options available today. With this knowledge, you can decide if any of these solutions are worth exploring or implementing.

EDI

Electronic Data Interchange (EDI) is the process of electronically sending business documents from one company's computer to another company's system. Let's look at the document flow for a typical EDI transaction between a customer and his/her supplier:

• A purchase order, entered in a customer's computer system, is electronically sent to the supplier's computer where it is automatically entered as a sales order.

• As the supplier's computer creates the sales order, it sends an order acknowledgment back to the customer's computer system. The customer's computer updates its purchase order with the promise dates for each item.

• When the material is shipped, the supplier's computer system sends a shipment notification to the customer's computer. The customer's computer again updates the purchase order, noting that the material is in transit.

• When the material is received and the stock receipt entered, the customer's computer sends a receipt acknowledgment to the supplier's system.

• The supplier's system creates an invoice and electronically sends a copy to the customer's computer. The customer's computer enters the invoice into its accounts payable system.

The transfer of documents is facilitated and controlled by an EDI Value Added Network (VAN) provider. The VAN provider knows how to contact each trading partner's computer, when to receive documents from each partner, and when to send documents to each partner. There are many VAN providers offering services including Harbinger (www.Harbinger.com) and GE Information Services (www.GEIS.com). Note that two trading partners (i.e. a customer and supplier) do not have to use the same VAN provider, as one provider will forward documents to another.

What are the advantages of EDI?

• A significant saving of labor, since transactions do not have to be entered at both the customer and vendor. For example, when the customer's purchase order was sent to the vendor, a sales order was automatically created in the vendor's computer system.

• A saving of time, as EDI is usually faster than placing an order by phone, fax, or mail.

• Fewer errors, as each transaction is keyed in only once, at the point of origin.

• Because a formal relationship is established between each set of trading partners (along with the VAN provider), EDI transactions are highly reliable and security is rarely an issue.

The savings are so significant that some large companies will only do business with suppliers that can accept and process EDI transactions. What are the costs and challenges associated with implementing EDI?

Your computer system must be able to translate the transactions it creates into a standard form that can be received and understood by your trading partner's computer. This used to be a major problem, as the EDI "X.12" standard was written in general terms. As a result, one company's version of the EDI purchase order was not necessarily the same as another firm's EDI purchase order. Companies incurred significant expense modifying their EDI software (or "maps") for each trading partner. Recently a new specific standard, EDIPro™, has ensured that a company can trade transactions with nearly any partner with standard EDI software. Though originally developed for electrical distributors, EDIPro is quickly being adopted by other industries to facilitate EDI implementation.

The Internet

The Internet, also known as the "electronic highway," has been promoted as the information source of the 21st century. Where EDI establishes a relationship between two companies, the Internet provides a company or individual access to anyone else in the world that has an Internet address. All anyone needs to get on the highway is a personal computer, a phone line or cable TV access, and some very inexpensive Internet access software.

How can your company use the Internet?

To send and receive electronic mail – You can send an electronic ("email") message to anyone in the world, at anytime, day or night. And that message is delivered to the recipient's mailbox within one or two minutes. For example, if you think of a question for one of your suppliers at 11:30 at night, you can send her an email message, and it will be waiting for her when she arrives at the office in the morning. If that supplier is located overseas, your response may be waiting for you when you wake up. If necessary, you can send documents, drawings, or pictures along with your email message.

Email is not only quicker than conventional mail (also called "snail-mail"), it is usually less expensive. Consider the time and materials involved in typing a letter, printing it, putting it in an envelope, affixing the right postage, and delivering the letter to the mail room or post office. In fact, if the same message has to be sent to several people, email allows you to broadcast the letter to all of the recipients at one time!

To provide information about your company – You can inexpensively develop a "website" to tell the world of the products and services your company offers. Material in a website can include catalogs, new product information, lists of customer contacts, and general company information. Customers can access this information at their convenience. And because this material can be organized and indexed, you can include specific information that is only applicable to certain groups of customers.

To accept orders and inquiries – Customers can key in orders through special programs in your website. Or they can check on the status of existing orders. Using this Internet capability, your customers become your order-entry operators! You can even accept their credit card payments through your website!

But some challenges (i.e. problems) accompany these capabilities:

Email – Because email is so easy to send, you tend to receive a lot of it. A lot of this is junk mail (also known as "spam"). Some is from people and firms you really have no interest in communicating with (like all of those lonely people who want to show you their pictures). You have to spend a significant amount of time deleting unwanted mail. And there is a strong possibility that some of the mail you send may be accidentally deleted by the user before it is read. Also keep in mind that people that send email know how quickly it is delivered. They usually expect an immediate response.

Information about your company – Website information is available to anyone with a personal computer and Internet access. Even people with whom you won't do business. Like your competitors or students doing research. Do you want to broadcast your products and prices to everyone? And because the information is always accessible, you must constantly update it with current information. How would it look if a prospective customer accessed your website and saw you advertising a two-year old product as the latest and greatest model?

Orders and inquires – Website order-entry programs must be easy to use, fast, and secure. Customers must be able to find what they want to order, enter the billing, shipping and payment information, and complete the transaction faster than they could by talking to a sales representative. And they want to be sure that their credit card numbers and other personal information is kept confidential and is not lost in "cyberspace." Even though Internet credit card fraud occurs less than half as often as phone credit card fraud (as a percentage of transactions), many people are unwilling to send personal information over the Internet.

Last December, I spent 45 minutes trying to enter an order for some gifts on a popular website only to find that the company's easy-to-use software had more "bugs" than Florida has during the summertime. It is very expensive to develop and maintain good website order-entry programs. Very few companies (other than travel agents and pornography sellers) have found website order entry to be profitable. This situation will probably change as the percentage of business people who regularly use the Internet continues to grow.

EDI and the Internet

EDI is a very reliable and secure method of electronically sending business documents from one company's computer directly to another company's system. But even with EDIPro and other new developments, it is relatively expensive. The cost is the primary reason why less than 1½% of businesses in the United States have EDI capabilities. The Internet is relatively inexpensive to access, but because of its open structure it provides limited security for your information. To address this problem, EDI and Internet Service Providers have introduced "EDI over the Internet" and Intranet (i.e. limited access Internet sites) capabilities.

In any case, if you are considering implementing an EDI relationship, be sure the profit or savings you receive from introducing the service exceeds the cost of implementation.

Some Suggestions

Electronic commerce and the Internet are here to stay. Get on board by getting on-line! Call an Internet Service Provider (you can find a list in the yellow pages of your phone book, or just call America OnLine) and get an email address. The software is easy to use. Use the browser and search capabilities of the software to look at websites for other companies in your industry. See what they're doing, and determine whether it's time for your company to have a presence on the information highway.

If you decide to take the plunge, contact a local web developer to help you develop a simple site, with pertinent information of value to your customers. Then advertise your site to your current customers by placing its address (also known as a "URL") on your letterhead and other publications. Your web developer can help get your site properly listed on popular search engines, so prospective customers can easily find you. Over time, expand the contents of your site and the features you offer your customers.

EDIPro is a trademark of the National Association of Electrical Distributors.

©1998, Effective Inventory Management, Inc., 215 South Denton Tap Road, Suite 230, Coppell TX 75019. All rights reserved. This article cannot be reprinted, or reproduced, in whole or in part, without the expressed written permission of Effective Inventory Management, Inc.