Seven Basic Quality tools documents
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Welcome to QT-charts knowledge base section. Hopefully you will find some of them useful in your work.
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Electronic Data Interchange
Rebecca Weaver, Original text on www.freequality.org
In a
world increasingly dependent upon the quick and easy transfer of information,
electronic data interchange has become a key resource for many businesses. Originating approximately 25 years ago,
electronic data interchange, or EDI, has allowed for less time-consuming, more
efficient, and more effective transfers of data among businesses and their
trading partners, customers, and suppliers.
This mini-tutorial will examine not only the basic principles of EDI and
how they can apply to a business today, but also a real world example of EDI at
work.
According
to Denis Howe in his Free On-line Dictionary of Computing, EDI is “the exchange
of standardized document forms between computer systems for business use.” Trading partners use EDI with either the
American National Standards Institute (ANSI) X12 standard, or Electronic Data
Interchange for Administration, Commerce, and Transport (EDIFACT), which is the
United Nations’ global standard. EDIFACT
is by far the largest attempt at developing a global standard; however, there
remains at this point some controversy over its implementation. In any case, the ANSI X12 standard is used
by businesses all over the United States, Canada, and Mexico in order to more
efficiently and effectively connect them with their trading partners, suppliers
and customers. It is used primarily for
electronic invoicing, purchase orders, acknowledgments, advance shipment
notices, and other business transactions.
EDI eliminates the need for exchanging large volumes of paper documents,
which can tend to be time consuming and have errors.
EDI
occurring between partners can either be done directly through the partners, or
through an intermediary, such as a Value-Added Network Supplier (VAN). Direct connections between the partners are
accomplished simply by connecting the partners’ modems over a phone line. This
can prove efficient and cost effective if you are looking to frequently
transmit large amounts of data to only a few partners. A downside to this may be the need to deal
with various systems requirements among partners that are not compatible. If this is the case, much time, effort, and
computer communications knowledge may be necessary to deal with the incompatibility.
A
simpler way of handling EDI between partners may be the VANS, which are
independent companies who offer their EDI services to other businesses. Multiple transactions can be taken care of
simply by contacting the VANS once a day.
The information is then relayed to the company’s partner or partners by
the VANS, so that the company does not need to trouble itself with the
extensive computer knowledge necessary to handle multiple transactions. The VANS will also take care of the
incompatibilities between the information systems of different trading partners
so that the end-user does not need to be troubled by this.
When
selecting a VANS, there are several criteria a business needs to keep in
mind. Cost is a major consideration
when choosing a VANS. Since there is a
fee for both sending and receiving transactions, the volume of transactions a
business transmits needs to be taken into consideration. Also concerning volume, the VANS selected
must be prepared to handle the volume of transactions and at the same time
ensure a reliable high-speed connection for the client. The connection must also be secure, asking
users to authenticate upon attempting to send or retrieve data. Back-up and recovery services are important
in that the VANS must remain operative even in the face of data processing
problems, viruses, and any type of physical disaster. Audit reports are also necessary. They should be generated at least monthly on an individual basis
about each file, in order to help manage the trail of data associated with each
file.
Another
medium companies have started to use for their EDI needs is the Internet. While this can be cost effective and
efficient, it poses many challenges to all parties involved. Both sender and receiver must install security
software to ensure that data is not altered while traveling across the
Internet. Partners may have trouble
with each other’s systems. Transactions
may be lost, and legal problems may ensue regarding who is responsible for the
loss.
As a
result of the above concerns, Secure Communications Value-Added Networks
(SCI-VANS) have been created. They
provide e-commerce solutions for business-to-business Internet transactions
efficiently. Also, they are
cost-effective in that they provide a secure environment for transactions at a
fraction of the cost of a traditional VANS.
Because of the increasing availability of SCI-VANS, it is estimated that
by the year 2003, 9% of all business trading, which is the equivalent of about
$1.3 trillion, will be conducted over the Internet.
Moving
back to EDI itself, EDI can be adopted at one of three levels. The first of these is simply transforming a
paper-based, automated information processing system into a simple EDI system. An example of this would be using an electronic
purchase order as opposed to a paper one.
The second level involves converting all existing paper documents into
electronic format. This could be done
by performing electronic data fund transfers (EDFTs) through an EDI system to
pay for purchases, as well as purchasing on-line. The third level of implementing EDI is accomplished by
reengineering business processes so that the EDI system is fully aligned with
the business strategy.
Looking
to the real world for an example, 3M is a company that recognized its need for
an EDI system and made good use of it.
In the late 1980s, Hal McDonald, 3M’s EDI specialist at the time, went
to the top managers and informed them of the need. While he could not prove cost savings then, he convinced the
managers that EDI was a business necessity.
The VANS that 3M decided on were General Electric Information Services
(GEIS), Control Data Corporation, and McDonnell Douglas Computer Systems
Company. They used the ANSI X12
standard for their electronic invoicing, purchase ordering and other
transactions in order to work with 26 of their suppliers. The suppliers and 3M split the costs of the
transmissions. This saved time for 3M,
and improved efficiency as well.
Today,
3M uses their EDI system to send and receive functional acknowledgments for all
incoming and outgoing transactions among their trading partners. The third party VANS they use today include
GEIS, Sterling CommerceNET, Advantis Sears, Harbinger, and Transettlements. 3M now exchanges data through EDI with over
4000 trading partners. They can send
and retrieve data 19 times a day, Monday through Friday, and sometimes on
weekends and holidays.
More
information on EDI can be found in any library, on the Web, and, if you are
looking for company-specific implementations, most companies post some
information about their EDI systems on their websites, as 3M does. All in all, electronic data interchange is
an effective and efficient way to improve the operation of a business through
its data transactions, saving both time and money, and enhancing competition.