CE319 Week 11 Lab Answer

CE319 Week 11 Lab Answer

Working either individually or in groups, provide answers to the following questions: 1. List the four elements of an EDI system. The four elements of an EDI system are: 1. Structured data (orders, invoices, etc. using codes where possible). 2. Agreed message standards (EDI Standards, e.g. Tradacoms, ANSI X12, EDIFACT, etc.). 3. Computer systems (sending and receiving systems incorporating EDI Software). 4. Electronic means or transmission (an EDI network). These elements are included in the IDEA definition of EDI: 'The transfer of structured data, by agreed message standards, from one computer system to another, by electronic means.'

2. List the transaction types that take place between trading partners that seem suitable for EDI implementation. Suggest some communications that would not be suitable for this technology. EDI is normally only applicable where there is a high volume of standardised transactions. For trade transactions, the two exchanges that are most obviously suitable for EDI Implementation are:

Order Invoice Delivery Note Payment An electronic delivery note indicates the goods are on their way and it works well in the information system but it does not prove that the goods have actually been delivered - it can be supplemented with (say) bar codes on the packets in the consignment. Electronic (EDI) payment requires an electronic funds transfer (EFT) to the suppliers bank and a payment advice to the supplier - not a problem but more involved than the other transactions in the trade cycle. Search. Negotiate. After Sales - maintenance / return of goods. Page 1 of 5

Two further transactions where EDI is used are:

These serve to complete the execution / settlement loop but they are somewhat problematic:

Transactions where EDI is much less likely to be applicable are:

Iain Langdon

CE319 Week 11 Lab Answer These activities / transactions can be informal / unstructured and may be carried out using letters, telephone or face-to-face contact.

3. The advantages of EDI are typically given in comparison to paper orders; if the orders were sent by fax, which of the advantages would still apply? The use of fax in place of paper orders obviously has some effect in 'shortening ordering time' - at the very least it cuts out the time in the post. Use of fax at the customer end and at the supplier end only shortens processing time if fax orders are given priority over paper orders sent / arriving through the post. It is possible to automate the sending of faxes as direct output from the purchasing system such a facility also eliminates the time spent paper handling at the customer end. The use of fax does nothing to 'cut costs' (it may well be more expensive), does not 'eliminate errors' (faxed orders have to be typed in just like any other order) and neither does it provide a 'fast response'. The use of fax orders also has no significant advantage over paper orders in terms of 'accurate invoicing', 'payments', 'reduced stock holding', or 'cash flow'. Also there is no gain in 'business opportunity' or 'customer lock-in'.

4. For each stage of the business trade cycle list the stage specific advantages (and any disadvantages) of using EDI.

Customer

EDI
order delivery note invoice payment

Supplier

The most obvious overall advantages of EDI are speed of transmission (not just between organisations but direct from and to the applications that process the data) and the elimination of the need for paper handling. The principle disadvantage, for many organisations, is the cost of setting up and integrating EDI with their applications.

Iain Langdon

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CE319 Week 11 Lab Answer However, the question asked for specific advantages and disadvantages for the following stages in the trade cycle: Order Delivery note Invoice Payment

For the Order Stage speed is obviously important, particularly for just-in-time manufacture and quick response supply (and the advantages of reductions in stock holding, double handling of goods, storage space and capital employed are implicit in these methods). Further advantages are: Elimination of order entry / data preparation costs (for the supplier). Elimination of data input errors. Removal of ambiguities (the sending and receiving applications should be aligned on their use of codes and units). No manual check for errors in the ordering process.

The only disadvantage, other than the overhead of setting up the system is: An electronic Delivery Note is, arguably, the most problematic exchange in the electronic trade cycle. Advantages of the EDI delivery note are: Direct input into the Customers System. Automatic matching to the corresponding order / order line (the codes should be derived from the customer's order and therefore should automatically match). The electronic Delivery Note does not arrive with the goods and is not therefore proof of despatch or delivery.

The obvious (and crucial) disadvantage is that:

The EDI Delivery Note becomes, in effect, a despatch notification and has then to be supplemented by the input of a goods-in confirmation when the goods arrive at the customer site. This can be just a code and a bar-code label system is often used. For the Invoice Stage, speed could be seen as less important (although the accountants might dispute that). Advantages of electronic Invoices include: Direct input into the Customers System. Automatic matching to the corresponding order / order line and delivery note. Reduction in Invoice queries.

The processing of paper invoices can be a labour intensive task and, where queries do arise, delays to payment will often be considerable. Electronic invoicing can be a substantial cost saving and can eliminate most of the delays. Other than the set-up costs of the system there are no significant disadvantages to electronic Invoicing. Note, that some trading partners have eliminated the Invoice stage with the customer paying on delivery or self-invoicing

Iain Langdon

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CE319 Week 11 Lab Answer (think about it - the invoice stage provides no real information except price and that can be in the contract or on the delivery note). The final stage is Payment. Full electronic payment consists of an electronic funds transfer (EFT) to the supplier's bank and an electronic payment advice to the supplier. Electronic payment might be executed using a banking system (such as BACS in the UK) or it can be executed using (non proprietary) EDI. Electronic payment has the advantages of: For the customer, eliminating the messy business of producing cheques. For the supplier, it can (should) speed up the process and it eliminates the time consuming banking process. And it is also a cheaper process for the bank.

Whereas the electronic payment goes to the suppliers bank, the electronic payment advice is sent to the suppliers system. The advantages of the advice are: Automatic matching to Invoices which are then marked as paid. The electronic payment process needs to be based on trust. There is little advantage in having an electronic advice note if the banking of the corresponding payment if the corresponding payment is then checked manually (although this too could be automated using an electronic statement from the bank).

5. What problems might be encountered by a small food processing company, which supplies several supermarkets, when required by its customers to implement EDI. EDI is of greatest advantage to the large (hub) organisation and, generally, of less advantage to the smaller supplier organisation. The supplier organisation has the cost of implementing EDI when its volume of transactions may mean that it gains no real advantage (if, for example, they only get 5 orders a week they hardly need a computer based order processing system, let alone EDI). Also, if the supplier is using EDI for just-in-time or quick response supply then the costs of stock holding can be passed back down the logistics chain to the supplier. For the small food processor, problems in dealing with several supermarkets can include: All the supermarkets may not use the same VADS requiring the supplier to join more than one VADS. All the supermarkets may not be using the same EDI standard - and even if they do they will probably have interpreted it differently. The supermarkets may be using different message types and may have implemented different parts of the electronic trade cycle. The supermarkets may have differing coding requirements (although it is likely they will have standardised on EAN / UPC codes.)

Each different implementation is an extra cost to the small supplier and this is then compounded each time the customer updates or enhances their system. 6. EDI is typically applied to trade exchanges, orders, invoices, etc. but it can also be used for non-trade purposes. In the UK, students apply for university places through the UCAS Iain Langdon Page 4 of 5

CE319 Week 11 Lab Answer clearing centre. The procedure is that students submit their applications to UCAS and the clearing centre passes the application onto the preferred universities. Each university then accept, reject or make an offer and the decision is passed back to the student via the UCAS clearing centre. Suggest how EDI (and other ICT technologies) might be used to update such a scheme. EDI could be used for the University clearing system as follows: The clearing house enters the details of the application into their system. The application details are sent by EDI to the universities on the student's preferred list. After processing the application / interviewing the student each university sends its offer / rejection to the clearing house. The offer can be 'unconditional' or 'conditional' on the grades obtained to be in the 'A level' exams. 'A level' grades can then be sent, by the exam board, to the clearing house and matched to offers and the universities informed electronically of the outcome of each offer. The university, for students who have not met the conditional offer, can then reply electronically confirming the rejection or accepting the student on the grades obtained.

The main problem with all this is probably the data entry at the clearing house. The application form contains details of the student and the university applied for which is relatively easy to code and enter and is necessary for the running of the system. However, the application also contains statement and reference text which would add considerably to the data entry task. This issue could be got round by: Scanning in the form and then sending an image of the document not an elegant solution and expensive on storage and transmission time. Getting the applicants to complete the form on a computer and submit it over the web. This is attractive but the form would need to be tied up with the confidential reference material and there would need to be acceptable authentication procedures.

Parts of the UK UCAS application system are already operated electronically.

Iain Langdon

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