Sunday, December 7, 2008

The Evolution of EDI Outsourcing

EDI or Electronic Data Interchange has existed in some form since the 1960’s.The description provided in Wikipedia is as good as any, and states:“Electronic Data Interchange (EDI) is a set of standards for structuring information that is to be
electronically exchanged between and within businesses, organisations, government entities, and other groups. The standards describe structures that emulate documents, for example purchase orders to automate purchasing.”However, the same description also goes on to say: “The term EDI is also used to refer to the implementation and operation of systems and processes for creating, transmitting, and receiving EDI documents.”

In this expanded context, the essentials to perform EDI can be considered to be systems and processes used for creating, transmitting, and receiving EDI data using standards such as UN/EDIFACT, ANSI ASC X12,TRADACOMS, and ODETTE, which today also includes non-EDI data such as XML and Internet Protocol data formats.
The essential systems and processes used for creating, transmitting, and receiving EDI data typically include:

1. An electronic communication medium to send and receive the data in a timely manner.
Originally this would be:
• Managed File Transfer to facilitate point-to point connections with trading partners.
• Value Added Network (VAN) used to facilitate one-to-many connections with trading partners.
• Since the evolution of the Internet, protocols such as AS2 and FTP are also used.

2. B2B gateway/integration software to facilitate the above standards and enable the messages transmitted and received to be translated,mapped, interpreted, and checked for compliance.
The earliest forms of EDI outsourcing, going back 20 years or so, can be seen as the provision of services by an external company for the implementation and operation of systems and processes for creating, transmitting, and receiving EDI documents.

The VAN is core to the earliest forms of EDI outsourcing. Other aspects available would be centred on the provision of EDI translation software in one of the following forms:

• Hosted at the customer site and managed as part of an IT Outsourcing contract.
• Hosted by the vendor for a specific company with a dedicated translation software environment, which may also provide the VAN.
• Hosted by the vendor in a large-scale, hosted EDI translation platform capable of handling transactions from a number of customers.Today, the major concern of IT and business decision-makers responsible for managing supply chain and trading partners’ activities, is how to enable more effective collaboration with business partners in different regions of the world with varying technical expertise and systems.EDI has long been the most effective technology for creating transaction efficiencies among business partners. However, the global business landscape has shifted, and as demands become more sophisticated, other tools should also be looked at. Supply chains and trading partner relationships are no longer linear – today they are a complex network that entails much more coordination.Ten years ago, the average number of trading partners a company had was 15.Today it is
65, and the percentage of global trading communities has grown from 8% to 45% in the past decade.While EDI usage is higher than ever and continues to grow, alternative technologies
have a vital role to play to support the increasingly complex trading relations.EDI technology that was designed for transaction efficiency and standardisation actually imposed limitations on new trading relationships. Diverse customer requirements and mandates led to disparate systems with multiple environments to support and maintain. Limited flexibility also led to a “my way or the highway” attitude that limited the number of enabled trading partners. As the global trading environment grows more
complex, the need for EDI technologies has evolved to a need for Business-to-Business (B2B) collaboration capabilities required to enhance partner integration, process automation, and endto-end visibility.This has led to the evolution of EDI Outsourcing to B2B Managed Services.
with back-end systems such as ERP.The creation,testing, maintenance, and management of mapping, and the capability of transforming one trading partner’s set of data into a format and type which can be used by another, should also be included. As the number of global trading partners has increased, competitive pressures have also driven the need for trading partner automation, i.e. the ability to trade with partners electronically to enable more effective collaboration with business partners. As such, community services typically include the ability to expand B2B communities on a project basis;Web forms to provide an economical way to exchange documents over the Internet; fax conversion services as this remains the ubiquitous method of sending/receiving orders; and the ability to comply with AS2 mandates as inexpensively as possible.
Process visibility is critical to companies today. It should provide real-time supply information to help the systematic access and sharing of information, proactively manage supply processes and maximise business performance with suppliers. Better visibility into supply information lowers inventory, improves operational efficiency and responsiveness by summarising and displaying inbound supply information in a usable, understandable, and actionable format. Even with a world-class B2B Integration platform that provides real-time process visibility,companies still need skilled and experienced people to manage the related business process and manage their trading community. Companies today should expect their vendor to provide a range of business process management services to reduce the burden on internal resource and enable them to focus on differentiated core business activities.These business process management services should typically include integration
services, document process management, support and service level agreements. For companies with several hundred or indeed thousands of trading partners (both customers and suppliers), responding to their demands and needs dramatically increases the burden for expertise in multiple time zones and languages. Not getting this right can impact customer satisfaction, increase the time required to get new products and services to market, and add significantly to the cost of doing business. Companies should expect their vendor to provide a service to reduce this burden, such as a level 1 trading partner help desk, where the vendor will take calls from all trading partners on their behalf and support them in resolving B2B trading issues. As EDI Outsourcing has evolved, finding the skilled resources to develop your B2B collaboration capability while supporting larger numbers of trading partners, existing legacy systems, and increasingly complex business processes conspires to drive up the supply chain total cost of ownership.Throw into the mix the question:

Would your resources be better focused on differentiated core business processes instead?
Then the business case for B2B managed services becomes compelling.


  1. Thanks for your valuable comment. I think EDI is one of the most effective ways to reduce expenses during this downturn of the economy. I think EDI brings strategic, operational and opportunity benefits to the organization. But setting up this system however requires expertise and infrastructure such as a computer network and the related hardware and software. This could be a bit tedious job and hence most companies prefer for EDI Outsourcing. Hence many companies provides outsourced solutions that will allow a company to be able to have an EDI solution without the tedious related IT infrastructure thus reducing overheads costs. With No Van fees and no real IT effort involved, any company that uses a computer can use this solutions and with integration involved they don’t need to even monitor the transactions unless they prefer to do so.

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  3. This is really interesting take on the concept. I never thought of it that way. I came across this site recently which I think it will be a great use of new ideas and informations. Thank you for sharing it with us.

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  4. Wow thanks for sharing this valuable information, EDI is really the process of data transmission from one system to another at a rapid pace. In other words, EDI enables the interchange of electronic data between the different business participants, suppliers, distributors, vendors, etc. EDI provides assistance and give a fast pace to the traditional data interchange system.

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