Section: ELECTRONIC BUSINESS
Third-party networks or value added networks (VANs) are in competition with each other, so they have an incentive to offer good services at competitive prices to business customers. All VANs are not the same. In this volatile market, selecting an EDI third-party network should be a carefully considered process to ensure that users can take full advantage of offered services. This article presents a framework for the selection of an EDI third-party network.
SEVERAL COMPANIES TURN TO electronic data interchange (EDI) to increase efficiency and productivity, allowing companies to respond to customers' demands more accurately and confidently than before. The major improvement results from the automatic transfer of information from computer to computer, which reduces time for rekeying information and reduces costly errors. Thus, companies have applied a number of EDI-based solutions to improve business processes. EDI has spread in all major industries. A sample of EDI applications currently includes international trade, financial EDI, electronic funds transfer (EFT), insurance, and manufacturing/retailing procurement. In a typical EDI network there is a hybrid of direct computer-to-computer links between the major trading partners. The majorit), communicate by means of an EDI mailbox and a VAN, or third-party communication network. Successful EDI implementation results from several key issues. The most important ones are the determination of communication type and the selection of VAN. Different VANs can respond differently to a company's needs. Some VANs have advantages in technology strength. Some offer low prices. Thus, the selection of communication type and VAN needs a careful investigation to ensure that a company can gain maximum benefits from EDI implementation, and the selected alternatives can serve a company's needs without introducing problems. This article presents the appropriate criteria for selection of EDI communication means and EDI third-party networks.
EDI COMMUNICATION MEANS
The idea behind EDI is fairly simple. EDI is the computer-to-computer exchange of business documents in a structured format based upon agreed-upon standards. At the sending location, information, such as a purchase order, is converted into an EDI transaction. The transaction then is sent electronically through either a VAN, a direct link, or the Internet. At the receiving end, it is converted from the EDI format into a form that the business can use. The possible communication means to implement EDI are:
· Point-to-point link
· Third-party network
· EDI on Internet
· EDI on intranet
· EDI to fax/fax to EDI
Point-to-Point Link (Direct Link)
Only a few companies employ this option because of its several limitations. A company trades electronically only among its subsidiaries or affiliates through this means. Most users put information on business documents into proprietary format and send them over a public telephone network. The receiving parties then access the system at a scheduled time and pick up the data sent for them. The data later is translated back into normal business forms.
A company implementing this means needs advanced knowledge of computers, telecommunications, and EDI to address such issues as how to communicate data among partners and integrating EDI with in-house applications. Computer staff needs to be assigned to handle all processes including designing, set-up, testing, maintenance, and providing all support. Normally, it is the existing staff who is also responsible for other systems. Thus, the company can save a lot of implementation and ongoing costs, where a lot of resources are needed. Another alternative is outsourcing of technology, but the costs will then be higher.
Normally, this means has been employed to trade only within affiliated companies because proprietary document format limits users from exchanging forms with outsiders. The system cannot handle other standards.
Exchanging documents over a public telephone line, a user can trade without limitation of service area. By setting up the systems at each partner's premises, they can transmit data to one another with only the normal telephone charge. The major problem of using a public network is unavailability of facilities. In addition, the performance is questionable. This could be avoided by using a leased line, with higher costs. No dialing is required, and data can be transferred faster. Direct link option requires that operational sessions be scheduled in advance.
Third-Party Network
New EDI trading partners seldom communicate directly, but rather use the services of a third-party VAN. EDI VAN provides a proprietary communications network to connect trading partners, regardless of individual hardware platforms or communications protocols. Each partner connects to the VAN, and the VAN manages the connections to all the trading partners. Senders leave data in the mailbox waiting for receivers to retrieve at a time of their own convenience. VAN also provides data security and other services, such as converting documents through different formats and standards and interconnection to other networks.
Although VANs offer a lot of benefits, some disadvantages can be perceived. Most businesses find that expenses for using VANs are costly. The investment is not cost-effective when compared to the services. And if there is no interconnection among VANs, users cannot trade with desired partners on different VANs, or they have to subscribe to more than one VAN.
EDI on the Internet
Innovations in the Internet are creating new EDI communication means. The Internet offers businesses unlimited potential for reaching new trading partners and customers efficiently and cost-effectively. Although the Internet is used mostly for electronic mail, information searches, and file transfers, it is used increasingly for EDI.
The major type of EDI on the Internet is provided by an EDI service provider. A company can access the Internet EDI service using only a commercial Web browser, identification code (ID), and password. GE TradeWeb is the first forms-based EDI service on the World Wide Web (WWW). It does not require users to purchase hardware or software to participate in electronic trading. All that is required is a computer, Internet service, and a Web browser to access electronic business forms from the Web page. A sender gets into its account (using a password) and adds information in HTML format to be sent to a trading partner. GEIS will translate the data into ANSI or EDIFACT formats, and then send it along -- either by the Internet or intranet. This will better enable companies to trade electronically with their smaller suppliers and customers who lack in-house EDI capabilities, thus improving their productivity.
Although there are many positive aspects to the Internet, there are issues that require consideration. Security and bandwidth constraints are the major ones.
EDI on Intranet
Internet-based technologies such as Web browser software and standard TCP/IP communication protocols facilitate the growth and expansion of interest in the intranet as a common communication platform for business-to-business and business-to-individual communication. Currently intranets are being set up to improve communication and the exchange of information largely within organizations. An intranet is not only faster than the fax, but also more secure than the open Internet as a network for exchanging information.
The same Internet EDI service could be implemented to send data along the intranet mainly to communicate within a company. EDI on the intranet also has the potential to draw smaller companies into electronic trading because use of Web browser software and TCP/IP-based connection is likely to be cheaper than a fully integrated EDI solution. It also offers the larger organization a valuable solution to the problem of how to handle low volume orders without implementing a fully integrated EDI. An important point is that links can be developed with known customers and suppliers to use an intranet right down the supply chain.
EDI to Fax/Fax to EDI
An EDI service provider also can provide a service of converting EDI format to fax. An EDI-to-fax and fax-to-EDI conversion service was designed to give EDI access to companies without requiring expensive software packages. A user needs a fax machine to send and receive EDI documents to and from customers and suppliers. This option is becoming popular when one trading partner is very large and the other is quite small, and the transaction volume is minimal. Although tile bigger company has implemented EDI successfully with its top suppliers, the smaller company claims EDI is not cost-effective. To realize the greatest benefit of EDI, the bigger company needs all its suppliers to be involved eventually. Hence, the company manages to create the new application that directly sends an EDI purchase order to the smaller supplier who receives it on paper fax.
From a physical perspective, there are inherent problems with fax technology. Plain-paper printing and delivery notifications are only possible on some fax machines. Therefore, it may be uncertain whether the receiving party actually received the document. Moreover, the fax message may fade out within six months, so it is difficult to maintain a proper audit trail. The biggest issue is the need to re-enter information from a paper fax into a computer application capable of processing data. Rekeying data is not only time-wasting, but invariably results in errors.
COMPARISON OF COMMUNICATION MEANS
One important step in EDI implementation is the selection of EDI communication means. Most companies find that the decision is made for them by their trading partners. Most EDI users started implementation because of the pressure from their business partners. To be able to trade electronically with those influential partners, they tend to use the same means. Some considerations are taken into account when companies can make their own choices. The major factors m selecting EDI communication means are
· data security
· service areas
· number of trading partners
· ease of implementation and maintenance
· costs
· expertise needed
· advanced operational schedules
Exhibit 1 shows a comparison of important EDI means factors.
A point-to-point link is an effective and cost-saving choice for a firm that has high internal expertise of computers and communications. This means is suitable for exchanging data within a limited number of trading partners who basically are subsidiaries and affiliates. Transmitting data to partners located outside a city is possible because a service boundary is limited by a telephone service. Implementation and operational costs are low, but a firm has to trade off with low security of a public telephone network. A leased line or satellite may be needed, but with extra costs.
EDI on an intranet is another alternative for exchanging business documents among a limited number of trading partners. Advantages over direct link option are high security as well as ease of implementation and maintenance.
A third-party network is a convenient and efficient alternative for a firm that has low expertise or prefers to outsource technology. As an intermediary, a service provider handles all communications among trading partners. A firm can trade with a wide range of trading partners using accepted EDI standards. Worldwide communication is possible if the VAN serves globally or interconnects to other VANs. Communication over a proprietary network is costly, but high security is guaranteed.
EDI on the Internet is a good choice for firms that need to trade globally, and costs are low. It is also easy to implement. Although VANs provide data security mechanisms such as encryption, security on the Internet is still in doubt.
The EDI-to-fax/fax-to-EDI option is a suitable alternative for a small firm, not ready to implement fully integrated EDI, to be able to trade with a big partner. The user can send and receive data by fax instead. This option broadens trading partners at low costs.
CRITERIA FOR EDI THIRD-PARTY NETWORK SELECTION
Among the communication means, the commercial third-party network seems to be the preferred means to implement EDI, owing to its efficiency and convenience. Exhibit 2 presents the framework for EDI third-party network selection. In the case that both firms are new EDI adopters, subscribing to the same VAN is the best solution. When using the same VAN is not possible, selection criteria will apply.
In the other case in which one firm is a current EDI user through a VAN, it may be requested of a new trading partner to subscribe to the same VAN for effective implementation. Lack of interconnection with other VANs can be another reason. If the VAN of the prior user provides interconnection, more alternatives need to be evaluated against selection criteria.
Normally, all VANs offer a short period of trial for users to evaluate their services. During the trial period, the VAN helps coordination with the trading partners in design, implementation, and bringing up the system so all partners can investigate both technical performance and services. Firms may collect information from experienced customers, computer magazines, or even service providers to help in the evaluation. Major criteria for EDI third-party network selection are
· security factors
· technical factors
· supporting services
· economic issue
· maintenance issue
· VAN qualification
GCBbPIBbPIPIBGCBbPIBGCBbPIBGCBbPIBGCBbPIBbPIPIBbPIPIBbPIPIPIPIPIPIBbPIPIBbPIPIBbPIPIBbPIPIPZBbBbPXPIPIBbPIPIPIHarbinger, "Value Added Network Services," 1996. URL:http://www.harbinger.com/services/hcvan.html
EDI World Institute, The Way EDI Guide for Small and Medium-Sized Enterprises, Canada, 1995.
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By Vatcharaporn Esichaikul and Chatiya Chaichotiranant
VATCHARAPORN ESICHAIKUL is an assistant professor of computer science and information management at the School of Advanced Technologies, Asian Institute of Technology, Klong Luang, Thailand
CHATIYA CHAICHOTIRANANT is a business operations officer at Iridium Southeast Asia Co., Ltd.
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Source: Information Systems Management, Winter99, Vol. 16 Issue 1, p26, 6p, 1 diagram.
Item Number: 1394168