SUBJECT: E-COMMERCE

NAME: M. BETHU SIVA JOTHI

REG.NO: 2301CM10202

CLASS: II – B.COM

DATE:

ASSIGNMENT. NO: 1

ASSIGNMENT TOPIC: EDI COMMUNICATION,AGREEMENT AND

TECHNOLOGY
Electronic Data Interchange (EDI):

Electronic Data Interchange (EDI) is a computer-to-computer exchange of

business documents in a standard electronic format between two or more trading partners. It
enables companies to exchange information electronically in a structured format, eliminating
the need for manual data entry and reducing the cost and time associated with paper-based
transactions.

EDI was first introduced in the 1960s as a way for companies to exchange business
documents electronically. Over time, the standardization of EDI formats and protocols has
enabled businesses to integrate their internal systems with those of their trading partners,
improving efficiency and reducing errors.

EDI transactions can include purchase orders, invoices, shipping notices, and
other business documents. The EDI standard defines the format and content of these
documents, ensuring that they are easily interpreted by both the sender and the receiver.

EDI has become an important part of many businesses, particularly those in

the supply chain and logistics industries. It allows for faster and more accurate processing of
transactions, leading to improved customer satisfaction and increased profits.

Imagine writing a letter to your friend while communicating every time, Can not
imagine right? Since today humans live in an era where they can very easily communicate
through the internet. Now, imagine the same case with businesses, where communication and
exchange of very important documents are constantly required, doing this the old way, it will
take forever for the messages to reach the other party, but also the documents will pile up as
there is a lot of information that is needed to be stored and kept. It is a tedious and cumbersome
process indeed, this is where EDI plays its role.

Electronic Data Exchange is the direct exchange of data and important business
documents through the Internet and in a very professional manner. Two different companies
sitting at the extreme corners of the world can very easily interchange information or
documents (like sales orders, shipping notices, invoices, etc) with the help of EDI.
EDI Documents:

The most common documents exchanged via EDI are:

 Invoices
 Purchase Orders
 Financial Information letters
 Transaction Bills
 Shipping requests and notifications
 Acknowledgment and feedback
 Transcripts
 Claims
 Business Correspondence letters

EDI Users:

 Central and state government agencies

 Industry
 Banking
 Retailing
 Manufacturing
 Insurance
 Healthcare
 Automotive
 Electronics
 Grocery
 Transportation

History of EDI:

Edward Guilbert is known to be the father of electronic data exchange, introduced EDI
back in the 1960s in the supply chains. The US Transportation industry implemented EDI for
better communication among different companies. In 1985, the UN created EDIFACT EDI for
better reach of Global technology. Approximately 12000 companies started using EDI in the
US. The US grocery and automobile industry very swiftly accepted EDI due to the easy process
and standard form of data exchange. In today’s time, with following EDI’s compliance, the big
and major companies are using EDI for their communication among businesses.

Examples of EDI include Purchase orders, invoices, shipping statuses, payment information,
and so on.

How EDI works?

The data or the information that one company sends the other first gets prepared to be sent,
then the information/document is translated into EDI format. The document is then connected
and transmitted to the other business, the connection is direct and point to point.

Uses of EDI:

EDI is widely used in various industries for exchanging business documents electronically.
Some of the common uses of EDI are:

 Order Processing: EDI allows companies to exchange purchase orders and sales orders
electronically, eliminating the need for manual data entry and reducing errors.
 Invoicing: EDI can be used to exchange invoices electronically, reducing the time and
cost associated with paper-based invoicing.
  Shipping and Receiving: EDI can be used to exchange shipping notices and receiving
documents, enabling companies to track the movement of goods in real-time.
 Inventory Management: EDI can be used to exchange inventory information, enabling
companies to manage their inventory levels more effectively.
 Supply Chain Management: EDI is used extensively in the supply chain management
process, enabling companies to exchange information with their suppliers, distributors,
and customers.
 Healthcare: EDI is used in the healthcare industry to exchange patient data, claims, and
other healthcare-related information between healthcare providers, insurance
companies, and government agencies.
 Financial Transactions: EDI can be used to exchange financial transactions such as
payment advice and remittance advice, reducing the time and cost associated with
manual payment processing.

Advantages of EDI:

There are several advantages to Electronic Data Interchange:

The paper usage reduced: The expense of storing, printing, recycling, reduces up to the
maximum amount due to the EDI.

o Improved quality of Data: The data entry errors are reduced due to EDI.
o Speed Increases: The best advantage is the increase in the speed of the data interchange.
With everything going online, the speed of the information transfer increases
exponentially.
o Security: By following the Protocols and the standard rules, the security of all the
important documents is always secure and safe.
o Information accuracy: Since the information exchanged is based on standards agreed
by the sender and receiver both, the correct information is always transferred regardless
of where they belong to.
o Less Cost: With very less errors, fast response time, every thing becoming automated,
and no use of paper, the cost automatically reduces.

Disadvantages of EDI:

1. The initial setup of the EDI is very Time-consuming.

 2. EDI standards keep on changing after some amount of time.
3. A very systematic and proper back up is required as the entire data relies on EDI.
4. The setup and maintenance of the EDI is very Expensive.

EDI COMMUNICATION:

EDI communication protocols are a set of standardized rules and conventions that govern the
exchange of electronic business documents between different computer systems. These
protocols ensure that data is transmitted accurately, securely, and efficiently between trading
partners in various industries. Here are some common EDI communication protocols:

API (Application Programming Interface):

An Application Programming Interface, commonly referred to as an API, is a set of rules and

protocols that allows different software applications to communicate with each other real-time.
It defines the methods and data formats that developers can use to request and exchange
information between software systems. APIs and EDI serve the purpose of enabling different
business systems to communicate and share data. They are essential for connecting vendors to
the retailers they do business with and integrating with various systems. However, the choice
between using an API or EDI for integration depends on whether the systems involved offer
API support. If they do, an API can be used to establish a new EDI integration, making the
process more seamless and efficient.
API serves as a communication method that not only facilitates EDI connections but also
provides a broader range of capabilities and flexibility. When EDI integration is built using an
API, it allows companies to go beyond the limitations of standard EDI.

AS2 (Applicability Statement 2):

AS2, which stands for "Applicability Statement 2," is a widely used protocol for secure and
reliable data transmission over the Internet. It is commonly employed for Electronic Data
Interchange transactions, allowing businesses to exchange sensitive data, such as purchase
orders and invoices, in a secure and standardized manner. AS2 EDI uses MDNs to provide real-
time feedback on message delivery and processing status, enhancing visibility into the
transmission process. It is part of the EDIINT (Electronic Data Interchange-Internet
Integration) standards, which define how EDI data can be securely transmitted over the Internet
using various protocols, with AS2 being one of the most popular options.

FTP (File Transfer Protocol):

File Transfer Protocol (FTP) is a standard network protocol used for transferring files between
computers over a TCP/IP-based network, such as the Internet. FTP is widely used for sharing
and managing files and is supported by various operating systems and applications. It operates
on a client-server model. One computer (the client) initiates a connection to another computer
(the server) to request and transfer files. The client sends commands to the server, and the server
responds accordingly.

HTTP (Hyper Text Transfer Protocol):

Hyper Text Transfer Protocol, commonly known as HTTP, is a fundamental protocol used for
communication between a client (typically a web browser) and a web server on the World Wide
Web. HTTP governs the way web pages and other resources are requested and transferred over
the Internet. It operates on a request-response model. A client sends an HTTP request to a
server, specifying an HTTP method (such as GET, POST, PUT, DELETE) and a Uniform
Resource Locator (URL) that identifies the resource to be retrieved or manipulated. The server
processes the request and sends back an HTTP response, which includes status information
and, optionally, the requested content.
HTTPS (Hyper Text Transfer Protocol Secure):

Hyper Text Transfer Protocol Secure (HTTPS) is an extension of the standard HTTP used for
secure communication over a computer network, most commonly the internet. HTTPS adds a
layer of security by encrypting the data exchanged between a user's web browser and a
website's server, ensuring the confidentiality and integrity of the information being transmitted.

SFTP (Secure File Transfer Protocol):

Secure File Transfer Protocol (SFTP) is a network protocol used for securely transferring files
between a client and a server over any reliable data stream. SFTP is designed to provide a high
level of security during file transfers, making it a preferred choice for organizations that require
secure data exchange. SFTP is often run over the SSH (Secure Shell) protocol, providing a
secure communication channel for file transfers. SSH provides additional security features such
as strong encryption and public-key authentication. It is an open standard and widely adopted
in the industry. Many software applications and server platforms support SFTP for secure file
transfer needs.

SMTP (Simple Mail Transfer Protocol):

Simple Mail Transfer Protocol (SMTP) is an EDI Communication Method used to transmit
EDI files over the internet via email.

VAN (Value Added Network):

A Value Added Network (VAN) is a third-party service provider that offers enhanced features
and services to facilitate EDI and other data communication between businesses. VANs play a
crucial role in enabling secure and efficient communication between trading partners, helping
businesses exchange electronic documents, such as purchase orders, invoices, and shipping
notices.

How to Choose the Right EDI Communication Method?

Choosing the right EDI file communication method is crucial for ensuring efficient and secure
data exchange between your business and its trading partners. Several factors need to be
considered when making this decision:
  Trading Partner Requirements: Start by understanding the EDI requirements of your
trading partners. Different partners may have specific preferences or mandates for the
communication method they support (e.g., AS2, SFTP, FTPS, VAN). Ensure that your
choice aligns with the protocols they can accommodate.
 Security Level: Security is paramount when transmitting sensitive business data.
Evaluate the security features of each communication method. Protocols like AS2,
SFTP, and FTPS offer encryption and authentication, providing a secure way to transmit
EDI files. Make sure your chosen method aligns with your data security requirements.
 Ease of Implementation: Consider how easily you can implement the chosen method
within your existing infrastructure. Some methods may require more extensive setup
and configuration, while others may integrate seamlessly with your systems. Assess
your technical capabilities and resources available for implementation.
 Compliance and Standards: Ensure that the chosen method complies with EDI
standards relevant to your industry. Different industries may have specific standards
(e.g., ANSI X12, EDIFACT) that must be followed. Confirm that your communication
method can handle these standards appropriately.
 Implementation Cost: Evaluate the cost associated with each communication method.
Some methods may have upfront implementation costs, ongoing subscription fees, or
usage-based charges. Compare these costs against your budget and the expected ROI
of EDI integration.
 Redundancy and Reliability: Look for redundancy and reliability features. Can the
chosen method handle failover to ensure continuous operation in case of server or
network failures? Reliability is essential to prevent disruptions in your EDI processes.
 Integration with Existing Systems: Assess how well the chosen method integrates with
your existing business systems, including your Enterprise Resource Planning (ERP)
software. Seamless integration can streamline data flow and reduce manual
intervention.

Ultimately, the right EDI file communication method will depend on your specific
business needs, trading partner requirements, and technical capabilities. Careful evaluation of
these factors will help you make an informed decision that supports your EDI integration goals.
EDI Agreement:

It is a legal agreement formed between your firm and its trading partner. It regulates the
exchange of key business documents and will be formed as per ANSI X12 standards. All the
terms conditions for business documents’ exchange among trading partners have been
mentioned in it.

Let’s have a quick view on the details that are part of a typical EDI Agreement:

Article 1: Objective and Scope

The main purpose of the entire EDI process will be described in this section. All the specific
terms as well as conditions will be mentioned clearly.

The provisions of the agreement along with Technical Annexe will be mentioned in this
section.

Article 2: Definitions

The related description of all the important terms involved in the EDI transaction will be
defined in this section.

Electronic Data Interchange (EDI): Exchange of key business documents between many trade
partners.

Electronic Data Interchange Message (EDI Message): Set of data elements organized in a
standard format. It should be easily readable/processable by any trading partner’s system.

Electronic Data Interchange Agreement (EDI Agreement): Approved set of standard formats
and norms for the exchange process.

Acknowledgement of receipt: A letter sent by the receiver after accepting the receipt of
an EDI message. It usually includes:

Network Acknowledgement

Protocol Acknowledgement

Functional Acknowledgement

Technical Acknowledgement
  Functional Domain: A particular business area for which this specific EDI exchange
process is intended.
 Issuer or sender: The firm that issues the EDI message.
 Provider of network services: Describes the third-party that facilitates data transfer.
 Integrity: A feature that ensures the quality and reliability of the data. The data should
be sent without any modification in an unauthorized way.
 Data Log: Describes the format in which all the transactions are required to be
mentioned. It should be done according to their processing date and time.
 Standards: Defines the standards used for the exchanging process.
 Message Implementation Guideline: Define norms for creating and sending a specific
EDI message.
 Receiver: The firm to whom the EDI message is being sent.
 Re-send: A request sent by the receiver to the issuer or the network service provider for
resending an EDI message.

Article 3: Validity and Formation of Contract

All the details related to the contents of the contract and its validity will be mentioned in this
section. Furthermore, all the possible consequences linked with the contract breach will be also
stated in this section.

Article 4: Admissibility in evidence of EDI messages

Describe all the frameworks under which, this agreement may be produced in front of the
respective Courts.

Article 5: EDI message’s processing and acknowledgement of receipt

The information related to the deadline for processing and acknowledging different EDI
messages. It also includes provisions related to these time-limits. Apart from that, this section
also contains info on notice issuing in case of deadline failure.

Article 6: Security of EDI messages

This particular section contains all the information related to security procedures. It focuses on
all the steps taken out for ensuring complete protection for EDI messages against legal
activities. For instance, unauthorized access, modification, destruction, delay, or loss. Besides,
this section also provides info on data verification and error handling.
Article 7: Confidentiality of personal data and protection policy

All the norms related to confidentiality and the protection policy will be mentioned in this
section. It becomes highly important since every country’s privacy laws will be different.

Article 8: Recording and storage of EDI messages

All the details related to recording and storing of different EDI messages can be found in this
section. It also consists of information on the accessibility of the saved data in a human-
readable format. Moreover, a list of all operational equipment that are used in this setup will
be included in this section.

Article 9: Operational requirements for EDI

This section focuses on all the equipment and procedures that are important for maintaining a
perfect operational environment. It includes:

Operational Equipment:

Details on installation and maintenance of the entire setup will be available in this section.
Also, all the concerned software and support services will be mentioned here.

Communication Modes:

Information on the method of communication and related protocols are available. Also, a
description of the third-party service providers will be provided.

EDI message agreements:

All the approved file formats and processing methods will be mentioned in this section.

Codes:

The list of EDI standards along with transaction codes that are going to be used in the exchange
process will be stated in this section.

System Availability:

All the systems involved in the exchange process will be noted in this section. For instance,
among many trading partners, any partner might wish to replace his entire system or some
specific parts. The guidelines related to providing information to other trading partners about
this change in the system(s) will also be available.
Article 10: Technical specifications and requirements

In this section, all the technical requirements and specifications related to each part of the entire
set-up will be available.

Article 11: Liability

All the responsibilities related to damages caused by the firm or any of the trading partners will
be noted in this section.

Article 12: Modification, Schedule, and Termination

Modification:

Info on provisions related to the modification of this agreement will be available in this section.

Termination:

The norms related to the termination of the agreement will be noted in this section. It also
includes information on the rights as well as obligations related to each part involved in this
agreement.