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E-commerce: What is it?

"Electronic commerce" is defined as the paperless exchange of business information using EDI, e-mail, electronic bulletin boards, electronic funds transfer and related technologies. EDI, or   electronic data interchange, is the computer-to-computer exchange of routine business information using a defined, public, standard format over third-party, value-added networks.

Typical e-commerce transactions include purchase orders, request for quotes, shipping authorizations, invoices, etc.  E-commerce allows a company to make money faster through reduced inventory and reduced operating expenses.

Why use E-commerce?

The question is not if you will have to use e-commerce, but when? EDI is rapidly becoming a requirement for many industries, particularly automotive and manufacturing, as well as retail and healthcare. The military and federal government mandate the use of EDI for many transactions. Armed with a personal computer, a modem and software, any company can  compete for lucrative EDI business.

What are the EDI Components?

The basic components of electronic data interchange (EDI) are: 

  • Software
  • Standards
  • Computer Equipment
  • Telecommunication Equipment
  • Trading Partners (Customers)
  • Value Added Networks (VANs)

 EDI Software products, computer and communications equipment, and VANs are all commercially available. EDI software products link companies to trading partners and provide interfaces with accounting, manufacturing resource planning (MRP) and inventory systems. Currently, there is a wide selection of EDI software available for all platforms, from personal computers to mainframes. The basic "hardware" required for EDI is a personal computer, a modem and a printer.

VANs provide services that are similar to the Post Office in that they gather, store and distribute electronic mail. VANs, such as AT&T, GE Information Services, Sprint, etc., provide small suppliers with access to customers through various telecommunications networks. Trading partners are companies that you do business with. Standards provide for a common communications medium. The EDI standard used in the United States is the American National Standards Institute (ANSI) X12 format.

How do I implement EDI?

 The most important thing to remember when considering an EDI system is that it is a "business decision." You should follow the same process that you would in purchasing any other piece of equipment or software for your company. There are hundreds of software products on the market and, because of this, it may appear to be more difficult than it needs to be. You should try to select EDI software that meets your business needs based on a predefined set of evaluation criteria. The same is true for VANs. There are over 60 commercial VANs in the United States. How do you select the one that is right for your business? Selecting a VAN is similar to selecting a long distance telephone provider. You should weigh costs versus the services provided, making sure that the VAN meets your business needs.

 For equipment, you may be able to use equipment that you already have in your company. If you plan to purchase dedicated equipment, select the components that will address your EDI needs, now and in the future.

What are the benefits of EDI?

The obvious benefits from EDI are:

  • Reduced inventory
  • Less clerical errors
  • Increased productivity
  • Lower cost per transaction
  • Improved customer relations
  • Shortened order cycle times

You should consider the above benefits, in addition to the capital costs, when deciding whether or not to implement EDI in your business. However, another very important consideration is that most of your current and potential customers will be using EDI. If you are not EDI capable you could lose your customers or, at a minimum, miss out on additional opportunities.

 How does the Internet impact EDI?

The Federal Government and most industries are rapidly integrating the Internet for EDI transactions, thereby replacing or supplementing the use of VANs. Improved connectivity, bandwidth, and security issues are being resolved, and as a result the Internet may become the preferred EDI medium.

Where can I get help?

Most EDI vendors will assist you with the selection and implementation of their products. However, you should shop around and examine at least three or four EDI products and evaluate them against your business requirements. In all cases, try the products before you buy them.

 If you feel that you need impartial advice and assistance in selecting and implementing an EDI System, you can contact the MTTC Electronic Commerce Director, Roy Coleman, at (502) 367-2186, ext. 307, e-mail: [email protected], for assistance. Also visit our website at The MTTC helps businesses with EDI and other e-commerce technologies.

119 Rochester Drive
Louisville, KY 40214
Tel: (502) 367-2186
Fax: (502) 367-4261
Email: [email protected]

Copyright 1998 MTTC

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