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Explain EDI (Electronic Data Interchange) and EDI Layered Architecture

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ediExplanation of EDI and EDI Layered Architecture,
Fundamentals of E-commerce Notes | Sixth Semester,
BSc.CSIT | Tribhuvan University (TU)

Electronic Data Interchange
Electronic data interchange (EDI) is defined as the inter-process communication (computer application to computer application) of business information in a standardized electronic form. In short, EDI communicates information for business transactions between the computer systems of companies, government organizations, small businesses, and banks.

Using EDI, trading partners establish computer-to-computer links that enable them to exchange information electronically. This allows businesses to better cope with a growing avalanche (too many) of paperwork: purchase orders, invoices, confirmation notices, shipping receipts, and other documents. With the aid of EDI, all these documents are in electronic form, which aliases more work automation to occur and even alters the way business is done.

The primary benefit of EDI to business is a considerable reduction in transaction costs, by improving the speed and efficiency of filling orders. Studies show that it takes up to five times as long to process a purchase order manually as it does electronically.

Ironically, despite these advantages, EDI is not (yet) widely used. It is estimated that out of millions of businesses in the United States, only 44,000 companies exchange business data electronically. Only about 10 percent of these companies use EDI for financial transactions. Moreover, no more than fifty banks have the capability of providing complete financial EDI services to their corporate customers. The joke in industry is that most companies are so unfamiliar with EDI they don’t even know how to spell it.

EDI Layered Architecture
Electronic data interchange architecture specifies four layers: the semantic (or application) layer, the standards translation layer, the packing (or transport) layer, and the physical network infrastructure layer as shown in figure below.

Layered Architecture of EDIFig: Layered Architecture of EDI

The EDI semantic layer
It describes the business application that is driving EDI. For a procurement application, this translates into requests for quotes, price quotes, purchase orders, acknowledgments, and invoices. This layer is specific to a company and the software it uses. In other words, the user interface is customized to local environments.

EDI Standard Layer
The information seen at the EDI semantic layer must be translated from a company-specific form to a more generic or universal form so that it can be sent to various trading partners, who could be using a variety of software applications at their end. To achieve this, companies must adopt universal EDI standards that lay out the acceptable fields of business forms. What complicates matters is the presence of two competing standards that define the content and structure of EDI forms: the X12 standard, developed by the American National Standards Institute (ANSI), and EDIFACT, developed by United Nations Economic Commission for Europe (UN /ECE).

EDI Transport Layer
When the trading partner sends a document, the EDI translation software converts the proprietary format into a standard mutually agreed on by the processing systems. When a company receives the document, their EDI translation software automatically changes the standard format into the proprietary format of their document processing software so that the company can manipulate the information in whatever way it chooses to.

Physical Layer
Dial-up lines, Internet, value added network, etc.

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