EDI, which has been used for some 20 years, describes the electronic exchange of standard business documents between firms. A structured, standardized data format is used to exchange common business documents (e.g., invoices and shipping orders) between trading partners. In contrast to the free form of e-mail messages, EDI supports the exchange of repetitive, routine business transactions. Standards mean that routine electronic transactions can be concise and precise. The main standard used in the U.S. and Canada is known as ANSI X.12, and the major international standard is EDIFACT. Firms following the same standard can electronically share data. Before EDI, many standard messages between partners were generated by computer, printed, and mailed to the other party, that then manually entered the data into its computer. The main advantages of EDI are:
- paper handling is reduced, saving time and money;
- data are exchanged in real time;
- there are fewer errors since data are keyed only once;
- enhanced data sharing enables greater coordination of activities between business partners;
- money flows are accelerated and payments received sooner.
Despite these advantages, for most companies EDI is still the exception, not the rule. A recent survey in the United States showed that almost 80 percent of the information flow between firms is on paper. Paper should be the exception, not the rule. Most EDI traffic has been handled by value-added networks (VANs) or private networks. VANs add communication services to those provided by common carriers (e.g., AT&T in the U.S. and Telstra in Australia). However, these networks are too expensive for all but the largest 100,000 of the 6 million businesses in existence today in the United States. As a result, many businesses have not been able to participate in the benefits associated with EDI. However, the Internet will enable these smaller companies to take advantage of EDI.
Internet communication costs are typically less than with traditional EDI. In addition, the Internet is a global network potentially accessible by nearly every firm. Consequently, the Internet is displacing VANs as the electronic transport path between trading partners.
The simplest approach is to use the Internet as a means of replacing a VAN by using a commercially available Internet EDI package. EDI, with its roots in the 1960s, is a system for exchanging text, and the opportunity to use the multimedia capabilities of the Web is missed if a pure replacement strategy is applied. The multimedia capability of the Internet creates an opportunity for new applications that spawn a qualitatively different type of information exchange within a partnership. Once multimedia capability is added to the information exchange equation, then a new class of applications can be developed (e.g., educating the other partner about a firm's purchasing procedures).
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