EDI ACADEMY – The origin of electronic data interchange
EDI or Electronic Data Interchange is one of the technologies most widely used internationally in business. This system signalled a before and after in the trade relations of multiple economic sectors. This is why today we are launching the EDI Academy, a new weekly section to keep you up-to-date on everything surrounding this tool.
Back to the past
In the first instalment of the series, we go back in time to find out the origins of electronic data interchange. But first of all, it is important to define what EDI is. This is a technology that allows sharing of business information and documents between companies remotely, in a standardized and secure environment.
EDI came into being in the 60s with the aim of doing away with paper and fostering automation of business processes. Bear in mind that exchanging documents on paper is slow and difficult to manage, entails mistakes and requires a large storage space. But beyond that, the main issue is its high cost.
In those days, with the technology still in its infancy, there was a great variety of processors, operating systems and protocols. This made transactions between the different companies complicated. So, at the end of the 60s, work began in the United States on the search for a standard.
Automotive industry companies, which needed to change a huge amount of information for the supply chain to work successfully, formed the Transport Data Coordinating Committee (TDCC). This was the first step towards the creation, in 1979, of the American National Standards Institute ANSI X12 standard.
Following this rule, in the 80s a new milestone in the history of EDI appeared. A United Nations task force known as Working Party 4 created an international standard, which has become one of the most widely used nowadays: EDIFACT.
What was EDI like in the beginning?
Initially, in the 80s, EDI was based on simple one-page forms and basic transactions. The data structure used was very elementary (non-nested) and messages were transmitted slowly. This was compounded by the fact that part of the process was performed manually. This meant that only small document volumes could be sent.
Ultimately, we can say that in those days EDI was a limited use and not very versatile system. However, with the advent of the Internet, its implementation quickly spread. Internet made data exchange a fast and automatic technology, which enabled businesses to communicate in real-time and do away with paper-based transactions.
What is EDI like today?
EDI is currently used in all kinds of sectors, businesses and countries. The standardized nature of the system makes it possible to connect seamlessly with any partner and integrate the various messages usually exchanged in a commercial relationship (purchase orders, invoices, inventory reports, despatch advices, delivery notes etc.) into the IT system. In other words, EDI has come to replace other media such as fax, mail or e-mail.
Conceptually, the way the technology works is quite simple, especially in large and medium-sized companies that develop integration procedures. Business documents are generated in the company’s ERP or internal IT system. EDI software is integrated with the company's IT system and identifies the transaction type and recipient. Automatically, the message is "translated" into the standard required by the recipient company (EDIFACT, ANSI, X12, etc.) and forwarded via the agreed communication system (Private VAN, AS2, OFTP, Web Services, FTPS, etc.).
In the reverse process, the EDI software transforms the received message into the standard required by the receiving company’s ERP, integrating the transaction in the internal computer system automatically without human involvement. The entire process takes place in a question of seconds in a way that is totally transparent to the user. This automation increases productivity and cuts economic costs.
However, we must not forget that if anything has made EDI technology popular worldwide, it is its accessibility to any company regardless of their size or technological development. In current trade relations, for every large company with a properly developed technological background, we find hundreds of small companies which supply these big companies with products. For them, thanks to the explosion of cloud-based IT services, there are EDI WEB solutions that are easy-to-use and low cost. All they need is a computer and internet access to be able to exchange orders, invoices, shipping notices, delivery notes or any other document with their trading partners. This is the tipping point where it is perceived that a technology has permeated society: when its access is available to any person or business.
An informative initiative from EDICOM aimed at professionals wishing to broaden their knowledge of Electronic Data Interchange technology, known in the IT sector by its acronym EDI. In several instalments, the origin of this system is reviewed along with its evolution and application in multiple sectors. Should you have any remaining doubts or queries, all you need to do is ask us.