Supply Chain Chapter 2

Chapter 2
EDI
IN THIS CHAPTER, WE LOOK AT THE BASICS OF EDI — ITS HIS-
tory, industry use, and integration with other technologies.
Electronic data interchange, or EDI, is the business-to-business elec-
tronic exchange of business documents in a standard format. In the EDI
world, business documents are called transaction sets, and the parties with
which you exchange these documents, such as your customers and sup-
pliers, are referred to as trading partners.
Businesses traditionally have used a variety of means to exchange busi-
ness documents using preprinted and sometimes computer-generated forms.
Figure 2.1 (next page) illustrates how a typical customer and supplier would
process orders, invoices, and associated payments in a traditional scenario.
When the customer wants to order some goods from its supplier, it first
enters the order information directly into its enterprise resource planning
(ERP) or internal application system. The order is then sent to a printer that
is loaded with a preprinted purchase order form unique to the company.
The completed form, often in multiple copies, is burst to remove edges; a
copy is put aside to be filed in the customer’s filing cabinets; and the orig-
inal is folded, placed in an envelope, and mailed to the supplier.
Historically, mail has been the generally accepted medium for sending
paper documents to trading partners. However, for many businesses, this
method has proven an inefficient way to get information to intended recipi-
ents quickly enough. The U.S. mail can take from three to five days to
deliver a document, and overseas postal services can increase delivery time
to anywhere from one to two weeks. Rush orders or other rushed activities
often make this method even more impractical. As a result, companies
many times resort to using the telephone (to call in or change an order),
fax, or expensive overnight or personal delivery services to get information
to its destination more quickly.
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10 EDI, UCCnet, and RFID: Synchronizing the Supply Chain
FIGURE 2.1
Traditional Document Exchange
Customer Supplier
Purchase
order
Data
IN Box
entry
Invoice Invoice
Data id
entry Pa
These alternatives certainly can speed up the process of document

exchange, but they cost more than mail service, and they can increase the
inaccuracy of data. Information may be misheard during a telephone call
or misread on a faxed document, for example. And, as with the exchange
of documents by mail, the delivered information must be entered manually
into the recipient’s computer system. Even today, it’s estimated that more
than 50 percent of the data generated by one computer is re-entered on
another, opening the door to inaccurately transcribed data.
Once the supplier receives the order, someone must open the envelope,
timestamp the receipt of the document, and then key the order information
into the supplier’s order entry application (its ERP system) for processing.
A copy of the purchase order is also filed in a cabinet.
To simplify our discussion, we’ll bypass the many processes that go on
internally to the supplier as it manufactures, ships, and delivers the

Chapter 2 EDI 11
ordered goods using possibly dozens of business documents. Let’s look at

what happens once the ordered goods are shipped to the customer. Just
as the customer printed and mailed its order to the supplier, the supplier
now generates an invoice, prints it on preprinted forms unique to the sup-
plier, and mails it to the customer.
Upon receiving the invoice, the customer must re-key the data into its
ERP system for payment processing. Last, the customer generates and
prints a check, which must be signed by an authority, placed in an enve-
lope, and mailed to the supplier.
This entire process — from the customer’s printing of the order to the
supplier’s receipt of the check — can take anywhere from 60 to 120 days.
Not only is this time period too long, but data inaccuracies that arise due
to keying and rekeying can cause delays and additional expenses.
The Birth of EDI

In search of an alternative to traditional methods of information exchange,
in the 1960s the transportation industry initiated EDI to improve the accu-
racy and speed of business document processing. EDI was born out of
businesses’ desire to reduce expenses and become more competitive in the
world market. Companies defined standards for each type of business doc-
ument and sent the documents electronically from customers’ to suppliers’
computers and vice versa. This electronic exchange enabled two computers
to “speak the same language.”
From its start in the transportation sector, EDI’s use spread to and
gained momentum among automotive companies and other industries.
Today, all industries, regardless of company size, use EDI, and EDI
addresses many business functions, including procurement and settlement
cycles, transportation, and even government reporting.
In its early days, EDI was proprietary to a particular company and its
suppliers. Eventually, companies in the same industry got together to
develop industry standards, making the trading of EDI documents even
more efficient. In this case, a supplier had to use the same standard docu-
ments when working with numerous customers in the same industry.
Over time, many different industries developed their own standards.
Suppliers who sold to multiple industries were left with multiple standards
to implement and use. The American National Standards Institute’s Accred-
ited Standards Committee (ANSI ASC) eventually created cross-industry
X12 standards, and international standards ultimately were developed to

enable the worldwide exchange of standard transactions around the globe.

The international standards known as UN/EDIFACT have received the
blessing of the United Nations.
EDI Document Exchange

Figure 2.2 presents a simplified view of EDI. Data is extracted from a cus-
tomer’s ERP system to form an order. The order file, which is proprietary,
is mapped to a standard format. The result is the EDI document. The cus-
tomer then sends the EDI order electronically to its supplier, which must
reverse the process. In other words, the EDI standard file is mapped (or
unmapped) to fit the supplier’s proprietary file format, which then feeds
into the supplier’s ERP system for processing.
FIGURE 2.2
Simplified View of EDI
Customer’s ERP EDI

translator
Proprietary-format EDI-standard orders

orders
VAN, FTP,
Internet
Transport vehicle
Supplier’s ERP EDI

translator
Proprietary-format EDI-standard orders
orders
Industry Applications
Today, a multitude of industries use EDI in countries around the world.
Whether in the automotive industry or retail, healthcare or government,
EDI is transforming the way businesses work with each other and is
yielding tremendous benefits.

Chapter 2 EDI 13
Transportation
The transportation carriers of the 1960s developed standard electronic
transactions and began using them with their customers. Trucking compa-
nies, for example, developed and used standards known as MOTOR to sat-
isfy the demands of their customers using documents such as freight bills.
Let’s trace the steps of an EDI application in transportation. A freight
forwarder generates and sends an EDI freight bill to its customer when it
makes a shipment. When the customer receives the shipment, it matches
the freight bill against the shipment, forwarding all matched entries to its
accounts payable system. Thanks to the timeliness of the receipt of the EDI
documents, the customer can electronically accept or reject the contents of
the freight bill. For companies that use motor carriers, reducing the admin-
istrative effort of keying the freight-bill information cuts personnel time,
postage, and telephone expenses. Cash flow improves because information
processing time is reduced.
In today’s transportation industry, shippers use EDI to send load ten-
ders (used to provide the motor carrier with a detailed bill of lading and
scheduling information for a shipment) to a transportation carrier and
receive load tender responses back from the carrier. Another transaction
set lets customers check on shipment status. Acknowledgments are sent
back to the customer, often within 30 minutes, accepting or rejecting the
load. This gives the customer as well as its end customer (perhaps a
retailer) the ability to plan for receiving in a fairly accurate time box or
even to receive notification of delayed deliveries.
The rail industry uses EDI differently. Most large railroad companies
actively use EDI to exchange purchase orders, bills of lading, freight bills,
freight claims, and waybills as well as for rail-car location and tracing.
Rail-car location is critical to the rail industry because it gives shippers
and receivers exact information about shipment arrival. This information is
critical for production line scheduling.
One example of an EDI application for railways relates to the automo-
tive industry. In their effort to maintain a just-in-time (JIT) environment,
some automotive companies use EDI rail transactions, such as car tracing
and waybills, to plan and ensure the arrival of specific parts at the produc-
tion line within 30 minutes of their installation. Such tight scheduling
requires information to be exchanged quickly indeed. Before EDI, an auto-
motive company employed several people to gather the same information
by telephone, making the process an expensive and error-prone one.

In addition to the trucking and rail industries, other transportation

industries that use EDI include air and ocean transport. Businesses have
recognized EDI as a way to let various carriers communicate with each
other when intermodal transportation is used. EDI provides an effective
way to communicate the necessary information quickly and accurately.
Automotive
In the early 1980s, the Automotive Industry Action Group (AIAG) was
formed to administer EDI standards for the automotive industry and to
promote EDI’s use with suppliers. Suppliers to automotive companies now
realize that EDI is an absolute requirement for doing business. EDI has
helped companies in this industry trim expenses to remain competitive in
a tough worldwide marketplace.
In the auto companies’ JIT environment, delivery of the parts required
to manufacture an automobile must be frequent and quick. The manufac-
turer relies heavily on correct and prompt delivery of the parts to minimize
disruption to the production process. The supplier must send an advance
ship notice (ASN) of the parts shipped to the manufacturer. The automotive
company must rapidly review such documents and respond to the supplier
when errors or discrepancies occur. Because EDI is mostly a batch-oriented
method of data exchange, lag time is unacceptable; the supplier must com-
municate directly with the auto manufacturer’s computer and can expect a
response within minutes. This approach lets the supplier correct any errors
in shipment before delivery occurs.
Automotive companies have taken this process a step further and elim-
inated invoicing. When parts arrive and are scanned in, the data is matched
with the information previously sent via an ASN. The matched records are
routed to the accounts payable system, initiating the payment cycle. This
process is referred to as evaluated-receipt settlement (ERS). ERS eliminates
invoices, streamlining business procedures between the manufacturer and
its suppliers. With ERS in place, all trading partners have better cash-fore-
casting capabilities and often can negotiate better payment terms.
The automotive industry’s next step was toward the concept of pay on
production, where parts are paid for not when scanned in as received but
when scanned in and used on the production line. Today, large automotive
manufacturers use extranets (using standard Internet tools) to make EDI
exchange more realtime and to make it more affordable for their smaller
suppliers.

Chapter 2 EDI 15
Retail
EDI is a natural solution for retailers as they try to provide better values and
a wider variety of goods to consumers. Some large retailers began using
proprietary EDI about 25 years ago, when they faced fierce competition
from foreign suppliers. Today, they use public standards such as ASC X12
and its retail subset — called Voluntary Inter-industry Communications
Standards (VICS) — as they move to a quick response (QR) environment.
Retailers generally carry a large number of stock keeping units (SKUs).
For example, in the apparel area, retailers must carry one style of pants in
various sizes and colors. Managing large numbers of items in the ordering
process requires huge administrative efforts. A typical purchase may con-
tain hundreds of items with hundreds and sometimes thousands of dif-
ferent ship-to locations. In paper-based systems, the high volumes of data
entered and re-entered are not only time-consuming but also very error-
prone. EDI enables the quick turnaround of purchase orders and an accu-
rate exchange of information between retailers and their suppliers.
An EDI document with widespread use in the retail industry is the
invoice. Using EDI, a supplier can send a consolidated invoice to the retail
headquarters. The systems there can automatically break down the
invoices at store level to facilitate verification, eliminating the need for the
supplier to send individual invoices to each store location.
QR and EDI are means to obtain critical data quickly so retailers can
rapidly replenish their shelves with the right products. These technologies
also reduce the need for inventory “safety stock.” Today, many of the same
retailers that have invested heavily in EDI are joining the global data syn-
chronization (often known as UCCnet) initiative to create further efficien-
cies in their industry.
Grocery
Grocery stores are similar to other retailers in that they must respond to
consumer demand. However, their needs are quite different in that the gro-
cery industry uses fewer vendors, the number of SKUs is much more lim-
ited, and the rate of movement per SKU is much faster. However, from the
success of mass merchants and wholesale clubs in the retail food arena,
it’s evident that the principles of retail QR are transferable to the food
industry.
Efficient consumer response (ECR) was one of the EDI-based initiatives
in the grocery industry. ECR means giving consumers better value, product,

quality, assortment, availability, and convenience for the lowest price pos-
sible. These goals are critical to this industry today, as wholesale clubs and
mass merchants threaten to capture a large share of the grocery business.
Margins in the grocery industry are very tight, and the industry now must
focus on ways to reduce costs to stay competitive and profitable. Universal
product codes (UPCs), EDI, and, more important, a close working relation-
ship between grocery stores and their suppliers make this goal attainable.
The grocery industry uses ASC X12 and its Uniform Communications
Standards (USC) subset for the exchange of key EDI documents, including
purchase orders, invoices, promotion announcements, item maintenance,
and remittance advice. EDI originally was used in this industry for items
that were replenished through warehouses. Significant amounts of goods
are now distributed to grocery stores directly from the supplier, in a
process referred to as direct store delivery (DSD). As EDI is rolled out to
DSD systems, it can have a highly positive impact on the bottom line.
Healthcare and Insurance

It’s often said that paperwork is one of the reasons that healthcare sys-
tems, particularly in the United States, are expensive. In addition to the
large numbers of documents needed in the healthcare system, each insur-
ance company uses a different type of form, making it a significant admin-
istrative task to interpret information and enter it on the computer systems.
With more than 6,000 hospitals, 600,000 doctors, 45,000 pharmacies, and
10 million employees in the United States alone, the healthcare industry is
a perfect candidate for EDI.
In the late 1980s, major companies in the healthcare industry agreed
to abandon their proprietary EDI systems and adopt ASC X12 so they
could communicate with each other more quickly and effectively. In 1991,
a nonprofit organization, Healthcare EDI Corporation (HEDIC), was formed
to provide EDI education and aid in the rollout of EDI among hospitals
and their suppliers. Today, healthcare and insurance constitute the largest
industry group actively participating in the development and use of ASC
X12 standards to accommodate their specific needs in the areas of pro-
curement, settlement, and patient information. Naturally, care must be
taken to ensure patient confidentiality as sensitive data travels through
telephone lines and computer systems. Proper control and authorization
issues are more important than ever.
In September 1995, a movement known as efficient healthcare consumer
response (EHCR) was begun in an effort to drive unnecessary costs out of the

Chapter 2 EDI 17
entire medical supply chain, from manufacturer to healthcare provider and

patient, by applying electronic commerce technologies to a re-engineered
supply chain. According to the findings, about half the costs (totaling
$11 billion) in the healthcare supply chain are wasteful. EHCR recommends
the adoption of best practices and enabling technologies that include use
of the Health Industry Number, or HIN (to identify all healthcare entities),
use of the Universal Product Number (UPN) (to identify all healthcare prod-
ucts), bar coding, and, not surprisingly, EDI.
With the introduction of the U.S. Health Information Portability and
Accountability Act (HIPAA) in 1996, a lot has changed. HIPAA is too major a
topic to cover in this book; however, it’s important to note that HIPAA, among
its many requirements, has defined a series of steps to which each party
involved in a medical transaction set must adhere. In fact, by October 16,
2003, all healthcare organizations were required to comply with the HIPAA
EDI transaction set testing.
Government
Government work, like healthcare, is very paper-intensive. Some U.S. gov-
ernment agencies use thousands of different forms for purchasing, trans-
portation, contract administration, and requests for quotes. As the debt of
the U.S. government has grown over the past two decades, there’s been a
concentrated effort to find ways to reduce expenses and streamline business
procedures. EDI is the right solution for the government, not only to elimi-
nate paperwork but also to speed up processing of business transactions.
The U.S. government, although not an early EDI user, has been rolling
out EDI to many of its agencies. In fact, many government agencies, in-
cluding the Department of Defense (DoD), use EDI capability as a vendor
selection criterion. The Internal Revenue Service uses EDI for tax return
filing, and the U.S. Navy uses EDI for purchase orders and bills of lading.
EDI customs documents are gaining popularity as governments around
the world search for a way to make trade with their country easier and less
costly. And many companies, such as those in waste management and
environmental cleanup, have always had to perform compliance reporting
to the government. Efforts are underway to standardize such reporting to
use EDI to make it easier for these companies to comply with government
requirements and to accomplish reporting within required time frames.
Today, the DoD has also established adoption of global data synchroniza-
tion by its suppliers as a condition of doing business.

EDI Around the World

International trade has always faced physical, cultural, and technical bar-
riers. Each company in each country uses different algorithms and different
documents to determine things such as customs duties, for example. Com-
panies and governments across all continents have perceived the value of
EDI and have been actively promoting its use as a way to improve trade
opportunities by working closely and efficiently with businesses in other
countries. With EDI, everyone can speak the same language.
Europe
Countries in the European Community have been working toward the goal
of a single European market. To reach this goal, these countries need to
remove tariffs and quotas, harmonize product standards (e.g., units of
measure) across borders, and allow open bidding for government construc-
tion and telecommunications contracts without regard to the bidder’s
country of origin. The introduction and use of the Eurodollar was a major
step toward accomplishing this goal.
The European Community has recognized that EDI can assist the free
movement of goods, capital, and labor across national borders because EDI
lets business partners exchange information quickly and it eliminates mis-
interpretation due to language or cultural differences. By providing the
means for more rapid and effective business communications than mailing
or faxing papers, EDI can speed Europe to its target. EDI can result in
increased growth and lower costs in Europe due to more sufficient resourcing
(through the use of computers and communications rather than people) and
more efficient communications and distribution.
Europe 1992, an agreement designed to create a cooperative and coor-
dinated business environment throughout the continent by 1992, included
two prevalent EDI initiatives, TRADACOMS and ODETTE. These initiatives
focused mainly on the automotive industry because this industry pioneered
EDI as a way to reduce expenses to remain competitive with Japan. Fol-
lowing this pioneering effort, many other European industries, including
electronics companies and freight carriers, produced their own EDI initia-
tives and are using EDI today. For example, in 1988, many shipping, freight,
and export companies from Western Europe began a pilot project to test
transmission of international transportation data via EDI. This effort, named
COST-306, includes UN/EDIFACT-based messages for invoices, bills of
lading, and status reports. (For more information about UN/EDIFACT, as
well as TRADACOMS and ODETTE, see Chapter 3.)

Chapter 2 EDI 19
Asia/Pacific
In the Asian/Pacific region, including Australia, Hong Kong, Japan, New
Zealand, Singapore, and South Korea, EDI has reduced the effects of rela-
tive geographical isolation and removed technical and information barriers.
These barriers include not only different languages but also different char-
acter sets, which can require complex coding for computers.
This part of the world has yet to implement EDI widely, but Asian/
Pacific countries have been eagerly rolling out EDI. Private interests and
particularly government agencies have been funding and promoting EDI
heavily.
The reason for such interest in EDI is simple: Facilitating the flow of
business information between trading partners can bring Asian/Pacific
nations more securely into the international marketplace. Although these
countries are important players in the international market today, the
world is changing. For example, many companies in these locations sell to
the United States, where domestic companies are desperately seeking ways
to reduce costs. EDI seems to be an answer, so the U.S. companies want
everyone, including trading partners in the Asian/Pacific region, to do
business with them via EDI. So if a company in Singapore doesn’t use
EDI, its potential U.S. partner will turn to a competitor in Hong Kong that
does, and Singapore will lose its market share.
Many U.S. companies that buy goods and services from Asian/Pacific
countries deal with very small companies that lack not only an under-
standing of EDI’s importance but also funding and expertise for such tech-
nology. Assisting such suppliers with EDI implementation will yield positive
results for their partners.
Other Parts of the World

In 1990, transportation companies in Russia formed the Association of
Electronic Data Interchange Users to begin EDI awareness and education.
Today, membership also includes customs agencies and has spread to
other groups.
In Eastern European countries, the Simplification of International Trade
Procedures Board (SITPRO) has been providing EDI education and encour-
agement to countries such as Poland and the Czech Republic since the
early 1990s. SITPRO is an organization that works with trade and payment
procedures, develops and promotes translation software, and provides con-
sulting services.

In 1991, the Advance Cargo Information Service (CIS) was established

in Africa to create an electronic network for exchange of data between
ocean carriers and ports. CIS uses a combination of proprietary and UN/
EDIFACT standards.
EDI implementation is pervasive today. Companies big and small, U.S.-
based and otherwise have implemented some form of EDI solution for two
primary reasons. Many use EDI today in an effort to reap its numerous
benefits, while others use it simply to be compliant. In either case, the
benefits are realized, and EDI use continues to gain momentum, especially
as newer trends make EDI easier and more cost-effective to implement.
Integration with Other Technologies

By combining EDI with additional technologies — fax, document manage-
ment, bar coding, and others — businesses are able to streamline external
procedures or accommodate smaller or less technologically sophisticated
trading partners. Often, companies use several of these technologies
together in an effort to enhance the gathering, storage, and use of data to
create a faster, more productive work environment.
EDI to Fax
As much as we may wish otherwise, not everyone uses EDI. Some compa-
nies find EDI expensive to implement and maintain, while others don’t
even have the in-house ability to deal with technology. Take, for example,
many “mom-and-pop” vendors that at best might have a telephone, a fax
machine, and a small personal computer. They might not even have Inter-
net access. The owner(s) want to focus on doing what they know best —
growing seeds or making cheese, for instance. They don’t want to bother
with technology, especially EDI.
In contrast, an EDI customer prefers to manage all its order documents
through its EDI system. After all, the company has invested in the EDI
system and prefers not to have to maintain dual systems — one for EDI
vendors and one for non-EDI vendors. Conversely, for the receipt of
inbound documents, the company may permit the small vendor to send
faxes. For example, a customer might fax an order to its supplier and
receive invoices back via fax.
Occasionally, companies must compromise to accommodate their tech-
nologically unsophisticated trading partners. A fax machine provides one
way to achieve such a compromise. EDI-to-fax and fax-to-EDI conversions

Chapter 2 EDI 21
have been in use for some time. Service bureaus can handle these conver-
sions, or, with the appropriate software and hardware, organizations can
perform the tasks in-house in an automated way. Service bureaus gener-
ally assess a setup fee and monthly charges for storing letterhead graphics.
For EDI-to-fax conversion, the sending company or its service bureau
takes an EDI document, translates it, formats the data into a custom form,
and faxes it to the intended recipient.
Fax-to-EDI conversion is much more complex and relatively expensive.
It requires document-management scanning tools with the ability to trans-
late paper documents into their electronic equivalents (we’ll discuss scan-
ning technologies in more detail later). The quality of the faxed documents
significantly impacts the reliability of scanned information, rendering char-
acter-recognition output data only 95 percent accurate. Some faxed docu-
ments may be rejected and suspended for manual review and correction —
a process that is costly and time-consuming.
The primary advantage of using fax technology for EDI transactions is
that it lets companies conduct business electronically with less sophisticated
partners, streamlining some processes by funneling all vendors or customers
through the same channel — in this case, EDI.
EDI and Web Forms

Businesses also use Web-based forms to accommodate less technologically
advanced trading partners. Many companies are too small to bear the cost
of and manage an EDI environment but possess a computer with Internet
access. The Web form solution lets an EDI-capable company provide a
Web-based form for use by non–EDI-capable vendors, who can log in and
enter their data directly into the Web form.
The receiving company can edit and validate the Web form entries to
whatever extent it requires. Many companies perform some standard
editing of the entered data — for instance, to check for date formatting or
part-number validity. Depending on where the Web form resides, more
sophisticated editing is also possible. In some cases, due to security con-
cerns, companies opt to place such Web forms on a separate server out-
side the demilitarized zone (DMZ). Once the data is collected, it’s encrypted
and sent behind the company’s firewall for further editing and integration
with back-end applications. In other cases, where the organization is confi-
dent of its security system, the Web form resides in a secure area inside
the firewall. Access is given to trusted partners. This approach permits

more realtime interaction between the Web form and the company’s internal
applications. In this scenario, a customer can check inventory levels and
current pricing before placing its order.
In these instances, transparently to the Web form user, EDI transac-
tions are created and routed to the receiving company’s system. Although
it’s entirely possible and quite feasible just to send the Web transactions
back and forth this way without conversion into EDI, the advantage such
conversion offers is that all information is funneled through the same sys-
tems that can then perform data editing, validation, and audit.
EDI and Document Management

Electronic document management (EDM) — a technology sometimes referred
to as imaging — involves the creation, storage, and retrieval of electronic
versions of paper documents. With up to 15 percent of a company’s paper
documentation lost or misplaced, resulting in the average worker spending
up to 30 percent of the day searching for paper documents, EDM is a tech-
nology that has been in use for many years and is more accepted as a
technology solution for reducing paper management. These days, many
companies store official records of business transactions electronically,
usually on unalterable media such as write-once read-many (WORM)
optical disks. Images of internal documents are stored using computer
output to laser disc (COLD) technology.
EDM is also used in another fashion. In the new economy, many com-
panies are moving away from “print and distribute” operations to more of a
“distribute and print” mentality. Readily available software enables the
online design of a form, letting the user create a template for a given docu-
ment. The data that populates the template is mapped to the applications.
The form or document can then be e-mailed or faxed to the intended recip-
ient. It can even be printed in-house for a more traditional distribution (for
vendors who lack the ability to print the electronic document). Although
this type of EDM doesn’t comply with any standard the way EDI does, it
does reduce the amount of paper that’s generated. In addition, the elec-
tronic documents can be archived for future quick retrieval. Figure 2.3
illustrates these uses of EDM.
An EDM system includes several components: personal computers or
file servers, scanning devices, storage devices and media, communications
devices and lines, document management software, and printers. An EDM
system can range from a multimillion-dollar, client/server-based solution

Chapter 2 EDI 23
FIGURE 2.3
Electronic Document Management
• Electronic templates are

created for invoices, POs,
bar codes, etc.
• Electronic templates are
integrated with data from
Online form design ERP system
• Documents are printed in-

house, as needed, using
blank paper and a local or
Form print remote laser printer
• Business documents are

e-Mail sent via e-mail or fax
Electronic distribution
• Completed business
documents are stored
electronically for fast and
easy retrieval
Electronic archives
to a simpler setup that can cost less than $100,000, making it an afford-
able choice for most businesses today.
EDM lets you capture information from paper documents (including
handwritten notes), faxes, and photographs and easily store the captured
information. The electronic information can later be easily and quickly
retrieved for revising, forwarding, printing, or re-filing.
EDM reduces cycle times, saves money, and improves customer service.
But its greatest benefit is that it lets companies integrate imaged informa-
tion with other e-commerce technologies (e.g., workflow, e-mail, the Internet)
to streamline business processes internally and externally.
Today, EDM is used most effectively and beneficially by companies
with paper-intensive processes — companies such as financial institutions,
insurance companies, and transportation companies, among others. Let’s
look at some of the EDM tools these companies are using.

OCR, ICR, and Other EDM Tools

With EDM, data is captured and routed automatically using technologies
such as optical character recognition (OCR), intelligent character recogni-
tion (ICR), magnetic ink character recognition (MICR), and imaging.
OCR matches patterns of letter images with a dictionary of character
templates. When a close match is made, the scanner creates the ASCII
equivalent of the character and stores it. ICR recognizes letters and words by
extracting key features of a character and comparing them against a dic-
tionary of features that are enhanced with rules of grammar and language.
OCR is usually used to scan typed or printed material, while ICR is
used to recognize handwriting. The accuracy of the captured data depends
heavily on the quality of the original document and the sophistication of
the scanner hardware and software. OCR and ICR are said to be 95 per-
cent accurate, making imaged data fairly reliable, but a degree of manual
cleanup is sometimes required.
MICR technology uses special ink and characters to enable a specialized
machine to translate magnetic printed information into characters. Check
processing is probably the most well-known application of MICR technology.
MICR provides a secure, highly accurate, high-speed method of scanning
and processing information.
With imaging, you generally have two options. One is to scan the orig-
inal document and display the electronic version for an operator, who
extracts the relevant data for entry into a database. This approach does
speed up the process, but the manual entry into the database introduces
the risk of data-entry errors. Another option is to have OCR or ICR auto-
matically convert key data and map directly to the database. Both of these
options are better alternatives than traditional methods.
EDM and EDI

EDM can play an important role in an e-commerce environment as part of
a total e-commerce solution. Let’s take a look at how a typical company can
benefit from EDM.
A manufacturing and distribution company receives orders from its
customers around the country. Some orders are sent via EDI, others are
sent via fax and mail, and some are taken over the telephone. All EDI orders,
once translated, are edited in the interface software area and posted to
order entry. All faxed, mailed, and telephoned orders can be scanned in
using OCR and ICR, cleaned up, and funneled through the same interface
programs. This streamlining ensures consistency and increases accuracy.

Chapter 2 EDI 25
Another point of streamlining is in the storage of the order data. Imaged

data is generally sent through a COLD system for backup and archival.
Routing EDI orders through the COLD system is beneficial as well. By
streamlining the capture, integration, and archival of data, businesses
reduce confusion and loss and increase data integrity and reliability.
The latest incarnation of EDM, called content management, packages
text, voice, images, photographs, e-mail, fax, and multimedia to consolidate
the document management system. Imaging offers multiple users instanta-
neous and simultaneous access to the same information, in text or image
form. Imaging products today are off-the-shelf and run in many hardware
environments, making them affordable for everyone.
EDI and Bar Coding

Businesses use bar code technologies in many different ways, including for
identification of products when sold, for receiving of shipments, and even
for tracking of shipment locations. To use bar coding, you need a bar code
printer, scanner, or radio frequency equipment. These devices don’t add as
much value by themselves as they do when the data they collect is appended
with EDI and integrated with the back-end applications.
Bar coding is commonly used with EDI and an advance ship notice. In
a traditional system, information is gathered and sent in for data entry when
products are picked in a warehouse. This practice is inefficient because the
inventory level information is obsolete as soon as the data is entered. With
bar code technology, the process is moved out of the warehouse so that as
soon as the products are picked, invoices are confirmed and cartons and
pallets are packed, weighed, labeled, and ready to go. All relevant data is
captured, and inventory levels and accounts receivable systems are updated.
The customer can scan package bar code labels, matching the received
goods with the ASN information to identify any discrepancies. After recon-
ciling this information, the customer can generate an accounts payable
record and initiate the payment process.
The ability to have accurate, up-to-the-minute inventory information is
one of the greatest assets an organization can have. Manufacturers and
distributors often lose sales because they can’t respond quickly to customer
demands. This type of technology can enable the sales force to respond
more quickly and accurately to customer requests. Tying the warehouse to
the sales force is therefore critical. Because many companies use third-
party warehouses, integration of inventory information is also an important
factor in accuracy.

Bar codes have been widely used for more than 30 years. Today, com-
panies use bar codes for everything from identifying conference attendees
to managing insurance forms. An old technology that has captured our
imaginations again recently is radio frequency identification (RFID). RFID
technology is gaining popularity as another, complementary technology for
enabling automatic data capture (as we’ll discuss in greater detail in a
future chapter). Adhered to almost anything, from clothing to shipment
boxes, RFID tags enable fast and accurate tracking of a particular instance
of an item to a shipment of goods. Automated data-capture tools such as
bar coding and RFID result in fewer errors and faster turnaround times.
EDI and Payment Cards

Swipe cards, such as credit/debit cards and access key cards, are widely
used today and are familiar to most of us. These cards work by storing
small units of data that card readers can access.
Smart cards differ from swipe cards in that each card contains a micro-
processor chip (which can be an RFID tag), enabling the card to store
thousands of bits of data. Smart cards can perform computations. In addi-
tion to a microprocessor, they contain an operating system, files, and algo-
rithms. They can be used for payment, authorization, identification, and
much more.
Smart cards interface with card readers in two ways. Contact smart
cards must be inserted into a reader; contactless smart cards exchange
information with a reader using a radio frequency device. Although both
types of cards can be very useful to the everyday consumer, the contact
cards are much more common. Contactless cards can play a significant
role in business because no action is required by the cardholder other
than being within inches of the card reader to exchange signals.
Smart cards use RFID technology to effectively combine several tech-
nologies. They can be used to track products or product status on a man-
ufacturing shop floor or in a distribution center. They can also be used to
exchange data (certainly in a standard format) and to help manage work-
flow. In most environments today, applications that work with bar codes
could be implemented with smart cards. The difference is that bar codes
can only be read, while smart cards can also perform logical computations
and have data written back to them, making the data more accurate and
meaningful.

Chapter 2 EDI 27
For example, manufacturing and distribution companies can use the

contactless smart card to better track products. Containers, pallets, and
boxes can interact with a card reader as they travel via a conveyer during
a manufacturing or distribution process. Data can be read and written
back onto the RFID tag as the items move. In the transportation industry,
train cars can check in and out at key contact points, letting users track
the exact status of a shipment.
In the healthcare field, insured patients could be issued smart cards
containing personal information (e.g., Social Security number, date of
birth, allergies) and insurance information (e.g., policy number, group
number, deductible, and co-payment). A patient could use the card to
check in with his or her primary physician. At the conclusion of the visit,
the physician could request lab work or prescribe medicine and simply
upload that information to the smart card. The patient could then use the
card at the pharmacy to obtain medications (with the smart card reporting
any personal drug interactions or allergies). The card could also be used at
the laboratory to download exact specifications, the doctor’s office notes,
and other relevant information.
Coupled with complementary technologies such as EDI, smart-card
technology offers a compelling advantage to those who use it as a business
strategy. Imagine that in a distribution company, as the smart card identi-
fies the items traveling to the shipping department, the ASN is created on
the fly. In the healthcare example, the lab request can be uploaded to the
card as a standard EDI transaction; in the financial industry, payments can
be processed as standard EDI transactions.
Smart-card technology isn’t yet standardized, but organizations such
as the International Standards Organization (ISO) and ANSI are working
together to develop industry standards.
EDI and Telephony

Computer telephony integration (CTI) is a technology that merges voice and
data services — specifically, telephone systems and computer systems. For
years, businesses have used call centers for telemarketing and help-desk
assistance. Banks and credit-card companies are examples of companies
that use CTI systems. When you call a credit-card company, you some-
times must enter your account information using your telephone keypad.
When you eventually talk to an operator, that person knows your name,
address, and purchasing and credit history. With this information, the

operator can handle the call more efficiently and in a way that makes the
experience seem more personal to the customer.
With Web ordering more predominant these days, telephony-based
order-taking isn’t as popular as it once was. However, due to limited or no
Internet access in some cases (e.g., in remote areas), the telephone con-
tinues to play an integral role in connecting customers and suppliers. Using
the telephone keypad, a customer can place an order, check order status,
or make changes to an order. The supplier can take the order information
and create an EDI transaction set before routing it for integration with
back-end applications.
This approach offers two advantages. First, the telephony-based order or
other transaction can be routed through the same integration routines as
all other EDI-based transactions, creating a more consistent and auditable
environment. Second, in some instances the transaction is routed or for-
warded to another organization that can accept EDI, without further work.
For instance, when an order is received via the CTI system and converted
to EDI, it can be routed to integrate with the supplier’s applications. At the
same time, the EDI order can be forwarded to another supplier or to a dis-
tributor for drop shipment.
Call centers have long used telephony successfully for retail-to-consumer
trade, so companies are now taking advantage of call centers (and related
e-commerce technologies) to facilitate business-to-business transactions.
Workflow Automation
With workflow, internal and external processes and transactions are auto-
mated to eliminate as much reliance on human interaction or intervention
as possible. Transactions enter businesses through gateways such as direct
connections, private networks, value-added networks (VANs), and the Inter-
net and are exchanged in the form of EDI, File Transfer Protocol (FTP), pro-
prietary formatted files, fax, telephony, Web forms, images, and e-mail.
The objective of workflow automation is to allow for the efficient manip-
ulation of electronic data. The data can be consolidated at the workstation
level, routed to appropriate users based on specified criteria, queried for
further action, or integrated with application systems. Without workflow
automation, processes could be held indefinitely, transactions could be
dropped and not noticed, and we’d need to rely on manual procedures to
ensure information gets to the right people on time.
Workflow tools are quite user-friendly. Using graphical objects to develop
diagram flows, a user can design a workflow definition using a mouse and

Chapter 2 EDI 29
point-and-click. Within the process definition, logic processing lets informa-

tion or transactions be routed to different users based on specific criteria.
Consider, for example, vendor invoices coming in from a variety of
sources. Some invoices must always be reviewed by accounting personnel.
Some, depending on dollar value, may be routed directly to the accounts
payable system, while others must be reviewed, have general ledger num-
bers assigned by one person in accounting, and be forwarded to another
person for final review and approval before integration with accounts
payable. Other invoices may need to be queued for a rendezvous process
because additional data or transactions are needed for further processing.
Workflow holds the invoice until the specified data arrives, integrates every-
thing, and releases the document for the next decision step. Should there
be a need for a change in the process, changes to the workflow process are
an easy point-and-click away.
The key to using workflow automation successfully is not to view it as
a process-automation tool. Workflow automation is at its best when used to
give companies the ability to quickly identify and respond to changes. Work-
flow traditionally has provided the opportunity for internal connectivity, but
it can also be used for inter-organizational connectivity. While EDI, e-mail,
document management, workgroup, and similar technologies let us auto-
mate and expedite information access, workflow enables the automation of
the processing of this information. It is the process that defines the cap-
turing, scheduling, routing, decision-making, archiving, integrating, and
finally automating of the information exchange. The power of workflow
automation lies in its use with other e-commerce technologies.
Conclusion
Whether as first-time implementers or existing EDI users, many businesses
today find themselves at the crossroads of technological advancements in
EDI, wondering how to move forward. To preserve existing investments in
EDI, many opt for making little or no change to their setup until they must.
But new standards, use of the Internet as the transaction transport mech-
anism, and integration of EDI with other technologies can make EDI one of
the most powerful tools a company can have in the new economy.

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These alternatives certainly can speed up the process of document

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ordered goods using possibly dozens of business documents. Let’s look at

The Birth of EDI

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enable the worldwide exchange of standard transactions around the globe.

EDI Document Exchange

Customer’s ERP EDI

Proprietary-format EDI-standard orders

Supplier’s ERP EDI

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In addition to the trucking and rail industries, other transportation

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Healthcare and Insurance

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entire medical supply chain, from manufacturer to healthcare provider and

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EDI Around the World

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Other Parts of the World

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In 1991, the Advance Cargo Information Service (CIS) was established

Integration with Other Technologies

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EDI and Web Forms

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EDI and Document Management

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• Electronic templates are

• Documents are printed in-

• Business documents are

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OCR, ICR, and Other EDM Tools

EDM and EDI

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Another point of streamlining is in the storage of the order data. Imaged

EDI and Bar Coding

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EDI and Payment Cards

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For example, manufacturing and distribution companies can use the

EDI and Telephony

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point-and-click. Within the process definition, logic processing lets informa-

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