Unit 4 Electronic Data Interchange Bcom Notes
Unit 4 Electronic Data Interchange Bcom Notes:- In this post, you will get the notes of B.com 3rd year Information Technology, by reading this post you can score well in the exam, hope that this post has helped you with this post to all your friends and all groups right now I must share it so that every student can read this post and it can also be helped in this post. Electronic Data Interchange Notes
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Electronic Data Interchange
The electronic data interchange process is the computer-to-computer exchange of business documents between companies. EDI replaces the faxing and mailing of paper documents.
EDI documents use specific computer record formats that are based on widely accepted standards. However, each company will use the flexibility allowed by the standards in a unique way that fits their business needs.
EDI is used in a variety of industries. Over 160,000 companies have made the switch to EDI to improve their efficiencies. Many of these companies require all of their partners to also use EDI.
Definition of EDI
The sending and/or receiving party involved Trading Partner: in the exchange of EDI transmissions.
Translator: Software that is used to convert standardized EDI data to a corporate proprietary format and vice versa.
Transaction Set: The EDI format for a business document, such as an investor report, purchase order or invoice. Standards: Guidelines that provide the definition and format of business documents, allowing EDI linked computers to speak the same language.
Mapping: The process of identifying the standard data elements relationship to the application data elements.
EDP (electronic data processing) is the processing of data by a computer and its programs in an environment involving electronic communication. EDP evolved from DP data processing, a term master files, booking and ticketing transactions to an airlines reservation system, billing for utility services. EDP electronic data processing, an infrequently used term for what is today usually called Electronic Data Processing EDP.
Why use EDI
Primary Benefits of EDI are the ability to:
- Submit the same EDI transaction set, tailored to meet specific agency requirements, to all your government trading partners.
- Receive more timely feedback from Ginnie Mae about the status of your loan processing submissions.
- Receive information from Ginnie Mae about problems with the reported data in time to correct it for the next quarterly cycle.
Characteristics of EDI
Following are the main characteristics of EDI:
- EDI requires you to follow standards that define the format and content of business documents, giving sending and receiving computers the ability to “speak the same language.”
- In EDI the data is in a format that does not require human interpretation. With the proper translation software, each computer can automatically process EDI data and sent it to the appropriate files, applications, or other computer platforms for further action.
- The data is sent from one computer to another without manual intervention and without re-entry of data, eliminating delays and manual errors.
- EDI is used for the exchange of business documents, including purchases orders and invoices etc. EDI is not planned for the exchange of data, unless it consists of a specific business document.
Procedure of EDI
- The sender’s database contains data generated by the application software. The application software may be a ready-made package or custom developed. The sender generates a purchase order on the computer.
- Check the document and save data in the format of predefined EDI interface file. This file contains the order information in a form that can be ready by the EDI translation software. This translation program translates data into an electronic document formatted according to EDI standards.
- The communications software adds appropriate communications protocol to the EDI document in preparation for transmission over telephone lines.
- Using a modem and telephone line, the sender transmits the electronic standard purchase order to the receiver’s computer.
- The communication software on the sender computer reads and converts the communications protocols to open the electronic document. The purchase order is now in a recognizable format in a file and is available on the receiver computer.
- The receiver’s translation software reads the file from the EDI format and places the order information in a file which contain the translated purchase order information in a format predefined by the sender.
- The interface programs perform edits and checks before the data is integrated with the receiver’s application software. Receiver’s computer can now process the sender order.
- Upon receipt of the electronic purchase order on its computer, the receiver can verify receipt of the document by automatically generating and sending an acknowledgment via the same route in reverse.
Advantages of Electronic Data Interchange
The EDI process provides many benefits.
- Computer-to-computer exchange of information is much less expensive than handling paper documents. Studies have shown that manually processing a paper-based order can cost $70 or more while processing an EDI order costs less than one dollar.
- Much less labour time is required.
- Fewer errors occur because computer systems process the documents rather than processing by hand.
- Business transactions flow faster.
- Faster transactions support reduction in inventory levels, better use of warehouse space, fewer out-of-stock occurrences and lower freight costs.
- Paper purchase orders can take up to 10 days from the time the buyer prepares the order to when the supplier ships it. EDI orders can take as little as one day.
- As EDI is rolled out in an organisation, more sophisticated applications are often born. EDI can actually modify or eliminate certain business procedures. These forms of advanced EDI are generally employed by organisations that use EDI.
- EDI is a paper document replacement technique. In this technique existing paper document such as the purchase order and the invoice are replaced by EDI equivalents.
- The Order information the supplier receives is accurate. The data is sent quickly and therefore the supplier deals with more reliable information.
- EDI type vendor/customer relationship requires a true trading co-operation. It exists when a supplier and a customer work together very closely and rely on one another to conduct business.
- EDI will not make business transactio free, but among its tangible benefits are reduced expenses in several areas. One should have no trouble convincing management that EDI can save money if he points out areas that will show immediate results like paper and postage, labour, inventory and shipping.
- By replacing a paper document with an electronic document, one can reduced the cost of photostat of duplicating document and storage like cabinets and shelf’s etc.
Demerits of EDI
One main drawback to EDI is that companies must ensure that they have the resources in place to make an EDI program work; however, the need for buying and hiring these resources or outsourcing them may be offset by the increased efficiency that EDI provides.
These are the following demerits:
1.Vendors that claim they are EDI capable who do not have appropriate controls, may send some invoices electronically as well as on paper thus significantly increasing the number of duplicate payments.
- Implementing EDI requires support and training. At least one full-time EDI coordinator is necessary to maintain the EDI system and train management and users.
- Existing business application software must be changed and new software must be purchased to support EDI. New connections and monthly telephone and VAN charges also increase the cost of system.
Future of EDI
XML is the future of EDI. XML, with EDI as the foundation, provides everywhere connectivity and inter-operability.
(a) XML XML, (or Extensible Markup Language) is a new high-powered Web language developed for E-business. Unlike HTML that displays text and images now found on Web pages, XML enables the exchange of structured data over the Web.
(b) eb XML: ASC X12 is working carefully to enhance communications around the world by work on Electronic Business XML (ebXML). It plans a worldwide effort to develop a common framework for XML business messages.
Financial electronic data interchange
Financial EDI is to provide enterprises and individuals through Internet to stantly finish the payment and on-line money transferring. Adopting security protection technology, digital signature, could avoid falsification while data transferring on the Internet.
With more and more business being conducted electronically. electronic payment capability has become essential to success.
Benefits of FEDI
- With financial EDI, the payment and transfer of funds processes are brought together and finalized electronically rather than someone entering the data manually.
Not only does this eliminate paper-based, labor-intensive transactions, but it frees up personnel and eliminate postage, phone, fax and courier.
- Via EDI, details of transactions can be sent, received, evaluated and processed in a fraction of the time usually associated with business processes. This dramatically reduces the purchasing and payment cycle.
- EDI allows companies to reduce the cost of transactions and differentiate themselves from the competition by improving their business processes.
- By reducing communication time through EDI, invoices can be sent sooner and the invoice/payment cycle can be shortened helping to save money on interest and loans.
- Working capital needs are minimised and risk exposure decreases through the use of FEDI.
- FEDI, together with EDI, constitute an integrated electronic business process that enables business organisation to automate their entire operation from order and acquisition to payment and accounting.
Information Audit is a branch of general auditing concerned with control of information and communications technologies. Information auditors primarily study information systems and networks from the point of view of examining the effectiveness of their technical controls to minimise risks.
According to Greenstein Marilyne, “Information Audit is frequently described in terms of an inventory of the information.”
Characteristics of Information Audit
- Counting: The term ‘audit’ implies a counting. An information audit not only counts resources but also examines how they are being used, by whom and for what purpose.
- Examining the activities: The information audit examines the activities and tasks that occur in an organisation and identifies the information resources that support them.
- Mapping of Information: The information audit process enables the mapping of information flows within an organisation and between an organisation and its external environment.
- Identification of Gaps & duplication: As well as identifying efficient flows, information Audit also identifies gaps, duplications, bottlenecks and other inefficiencies in existing flows.
- Identification of existing channels: Information Audit identifies existing channels that can be utilised for knowledge transfer and areas of the organisation where there is a need for high quality knowledge that isn’t being met.