Electronic data interchange (EDI) and value-added networks (VANs)
Electronic data interchange (EDI) is the electronic exchange of information — Specifically related to the business. EDI is a major cornerstone of e-commerce. Examples include purchase orders, invoices, payment confirmations, billing data, inventory data and various types of confirmations—between organizations or customers. The exchange happens in standardized formats. EDI can also be used within organizations to transfer data between different divisions or departments like HR, IT, finance. Sometime term FEDI financial EDI is used to imply the focus on payments, especially between banks and companies. Two characteristics set EDI apart from other ways of exchanging information. First, EDI only involves business-to-business transactions; individual consumers do not directly use EDI to purchase goods or services. Secondly, EDI involves transactions between computers or databases, not individuals. Therefore, individuals sending e-mail messages or sharing files over a network does not constitute EDI.
While the concept of e-commerce did not receive widespread attention until the 1990s, large companies have been using EDI since the 1960s. The railroad industry was among the first to adopt EDI, followed by other players in the transportation industry. By the early 1980s, EDI was being used by companies in many different industry sectors. In the beginning, companies using EDI transferred information to one another on magnetic tape via mail or courier, which had many drawbacks including long lead times and the potential for a tape to be damaged in transit. During the 1980s, telecommunications emerged as the preferred vehicle for transferring information via EDI.By the new millennium, EDI was used widely in many industries including manufacturing, finance, and retail. Some large retailers, among them Sears and Target, required suppliers to use EDI in order to engage in business transactions with them.
COMMUNICATION METHODS:
First step is to identify trading partners, entering into agreements, with them and stock of required hardware and software, a means of communication. EDI can occur point-to-point, where organizations communicate directly with one another over a private network; via the Internet (also known as open EDI); and most commonly, via value-added networks (VANs) provided by third-party value-added-network services.VANs are networks dedicated exclusively to EDI. VANs are able to provide translation services to small organizations that find it too cost prohibitive to do in-house with their own software. Companies may need to join more than one VAN because their partners belong to more than one.
For companies using open EDI, a language called extensible markup language (XML), similar in some respects to hypertext markup language (HTML), allows users to share information in a universal, standard fashion without making the kinds of special arrangements EDI often requires and regardless of the software program in which it was originally created.
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