The Relevance of Electronic Data Interchange For E-Business Today - Case Study Example

A REPORT ABOUT THE RELEVANCE OF EDI FOR E-BUSINESS TODAY By Location Introduction The report helps business managers to acknowledge the relevance of implementing EDI by emphasizing that they should implement this information system since the relative advantages of EDI are worth the complexity and costs incurred during implementation. Electronic Data Interchange (EDI) refers to electronic interchange of business information such invoices, purchase orders, bills of lading, inventory information, and other confirmations, between trade partners or organizations in a standardized format. Most organizations make use of EDI to enable easy transfer of data and information between departments or divisions of the organization including purchases, shipping, and financial statements. When organizations implement EDI in payment of employees, especially in companies and banks, this institution uses the term FEDI (Financial Electronic Data Interchange) (Schneider 2013, p. 138). For business managers, with the current use of extranets, intranets, digital currency, and electronic catalogues, they should acknowledge EDI’s relevance for e-business today. However, implementation of EDI in business organization not only brings positive impacts, but it also has some negative impacts, which can cause negative effects to users who are using recent versions of documents instead of a business partner (McGrath 2010, p. 76). The aim of this report is to enlighten business owners the relevance of EDI in e-business today. Background EDI is the electronic communications or exchange of business transactions between business organizations. It entails computer-to-computer communications directly to order systems and vendor databases. In the year 1996, the NIST defined EDI as a computer-to-computer transaction of severely formatted information representing documents rather than financial instruments. It means exchange of a series of messages between two or more parties, whereby one serves as a sender and the one a receiver (Zainol 2009, p. 256). The originator transmits the formatted data that represent a document to the receiver through physical transportation on electronic media storage such as CDs or USB Flash disks or via telecommunication (Zekos 2008, p. 67). Problem statement Despite the relative advantages of EDI, most business organizations still have challenges in implementing EDIs in their operations. However, the entire process of implementing EDI is complex and this is the reason why there is still a large group of organizations that uses the traditional mode of transmitting transactions (Zainol 2009, p. 259). In addition, the process of implementing EDI and training employees to achieve the necessary skills to use these information systems is extremely costly. Aim The aim of this report is to help business managers to understand the relevance of implementing EDI. Objectives To find out the future of EDI. To find out the relevance of implementing EDI. To do SWOT analysis of EDI. To discuss the best EDI standards. Methodology The data used to formulate this report were collected from a small-scale survey of some of the success business organizations in the United States that have already implemented EDI in their transaction operations. The survey focused on two senior executives from each organization (one from purchase/sales department and the other one from Information System (IS) department). All the executives gave out matching responses to a survey that focused on measuring the complexity and cost of implementing EDI as well as its relative advantages. The following case study emphasizes that implementation of EDI in e-business today brings a great positive change in the conduction of transactions inter-organizational relationships. Case study for a Knife Sharpening Manufacturer A knife Sharpening Manufacturer, which has been leading, for the last twenty years needs to correct its supply chain inefficiencies. The company also wants to improve its relations with customers by increasing the speed of orders and invoice transactions and ensure quality and customized services to its customers. Objective-The main objective of this company is to switch all its transactions to electronic transactions to enable elimination of inefficiency in its supply chain. Steps to success- the manufacture implemented EDI-based services designed for medium and small-sized business to fasten business operations and automate transaction of orders and invoices. The manufacturer chose a PC-based product to enable compliance of ASN (Advanced Ship Notice). However, accuracy of shipment was essential to ensure that the manufacturer meets the requirements of all customers. The company also kept its tradition invoice and order system transaction for specialists or smaller transactions. Findings/relevance of EDI The results of the conducted multivariate regression analysis revealed that technical complexity, costs, and relative advantages were the main factors of EDI adaptation. The results of the survey also revealed that cost and technical complexity were the main challenges that face most business organizations, hence the reason why, despite technology advancement, some organizations are still using the traditional mode of transacting documents. However, according to the above case study, managers who still prefer the traditional transaction modes should understand that, although EDI has disadvantages, the benefits it brings to e-business outweigh these disadvantages, especially cost since the benefits an organization gain from use of EDIs are worth the cost incurred. For instance, the manufacturer was able to save from reduced customer service costs and the improvement of the shipment accuracy. Shifting from the traditional data transaction system to the new EDI enabled the company to reduce its costs by approximately 30% in decreased paper-handling costs and customer services expenses. Due to improved accuracy in shipment, the company was able to reduce charge-backs and claims thus increasing the merchandise movement to its customers. Lastly, the company was also able to improve its relationships with customers because of decrease in customer returns. The return rate, sometimes could reach as low as one return per ten thousand orders. SWOT analysis/discusion Strengths-with the increasing use of Electronic Data Interchange in almost all large business organizations, both employees and customers are enjoying quick transfer of business documents and reduced processing errors hence allowing business transactions to be carried out more efficiently. This is because EDI involve the use of networks, which have high upload and download speed hence making business organizations improve customer service efficiency (Zhaku, Fetaji and Fetaji 2005, p. 15). EDI system enables easy storage and retrieval of data thus making all business transactions real-time. Weakness- the current online marketing is necessary for displaying products and service information to customers as well as selling them. Therefore, a weak online display of information may result in EDI losing its opportunities. The XML used by EDI is less standardized and, therefore most users argue that XML has many standards. Currently, there a number of standardizing institutions, leading to development of several document formats (Zhaku, Fetaji and Fetaji 2005, p. 23). This standardization of document formats results to numerous challenges hence affecting the entire cross compatibility process. The current standard organizations come up with new standards after the end of each year and this can cause negative impacts to business organizations that are using current versions of document formats instead of a business partners. The cost that business organizations incur during the implementation and maintenance of EDI systems are high and can result to lost opportunity for the EDI. This is because for the small business organizations that may wish to use EDI may be hindered to do so by the expenses. Most business organizations that use EDI are unable to collaborate with other business, which have not yet installed EDI into their information systems since EDI means that a business organization can only work with another business if only it also use a similar data transaction mode (EDI) (Schneider 2013, p. 177). This may also disallow the small business organizations that are able to collaborate with the big business organization thus resulting to lost opportunities for EDIs. Opportunities- greater innovation in e-business can assist EDI of business organizations to produce products and services that are unique from other competing business organization. This uniqueness highly enables many e-business organizations attract and sustain a large population of customers (Kamel 2006, p. 43). Such unique features include time saving due to real-time data process. In addition, new services that EDI brings into a business may help the EDI to be able to meet all needs of the organization’s customers. These new services enable expansion of the EDI’s business as well as diversifying the base of the customers (Zhaku, Fetaji and Fetaji 2005, p. 45). Additionally, these new services bring significant impacts towards operations of an e-business and thus an EDI analysts needs to add more weight on it. New international markets are currently growing at a faster rate thus enabling EDI usage to expand at a faster rate too. This fast growth of national and internal markets have contributed to increased demand of EDI bys many business organizations to enable them collaborate with their partners internally. This market growth has resulted in many business organization implement EDI in their offices to enhance faster data transmission, error reduction, and quick data storage and retrieval (Zhaku, Fetaji and Fetaji 2005, p. 67). Global markets provide new EDI opportunities for business expansion and increasing sales volumes hence making the businesses enjoy maximum revenues. Threats- most businesses are suffering from the side effects brought by bad economy conditions. Bad economies as well hurt EDI’s business through reductions of the number latent customers. Secondly, there are numerous international competitors, which are challenging to combat. This challenge occurs because these global competitors have numerous competitive benefits hence giving them benefit over the EDI (Zhaku, Fetaji and Fetaji 2005, p. 76). Mature markets are highly competitive. Therefore, for EDI to advance and grow in these mature market segments, it has to ensure that it has a large market share. However, this is extremely difficult and expensive too. This intense competition lowers the profits of EDI simply because competitors are able to entice the customers with their superior products and services. Unfortunately, customers have a tendency of changing their tastes within a short duration of time (Kamel 2006, p. 46). Since EDI focuses on determining the products and services that customers highly appreciates, the customer’ change of taste can pose threats to the growth of EDI in e-business. The future of EDI The old UN/EDIFACT is widely used today yet there are predictions that the current XML EDI standards will replace the old EDIFACT. XML is far much better that EDIFACT and most companies have started implementing it although you have to choose among many XML standards for instance, UN/CEFACT and UBL.The predictions are that, business organizations will currently live in this mixed field of technology but in future they will be able to choose the best technology to rely on. Best EDI standards EDI standards refers to the formats for EDI documents. This type of format specifies the type of documents that an EDI system can process. The trading partners or the type of industry determines the type of EDI standards to be used. There are two categories of EDI standards, which include Proprietary standards and public standards. Proprietary standards refers to those standards that are tailored for a specific company or industry, while public standards are those standards that can be used by many industries. Currently, the BISG supports three types of EDI standards, which include X12 EDI standards, v5030, X12 EDI standards, v4010, and X12 EDI standards, v3060. EDI model Figure 1: EDI model http://kb.datainterchange.com/Education/What-Is-EDI/The-EDI-Model.aspx According to the above model, EDI has three logical layer of standards. The layers are required to enable transfer of information. Each layer has its own control standards. This structure of EDI allows for its flexibility and future amendments to improve performance and enables easy incorporation of standards. Summary Implementation of EDI in e-business is relevant since it plays a vital role in reducing the cost most business organization incurs when processing and sending information in hard copies. EDI also reduces the paper usage and eliminates paper processing since all information are transacted in softcopies (Eiselen 2005, p. 7). Apart from the reduction of paper processing, EDI also ensures that employees are able use time appropriately hence reducing repletion of similar transactions. The use of EDI although it has disadvantages, the relative advantages outweigh these disadvantages, especially cost for the benefits an organization gain from use of EDIs are worth the cost incurred. Evaluation/conclusion For business managers, they should shift from traditional data transaction systems to the current EDI systems to enable them improve their business transactions and shipment accuracy (Phang & Seng 2009, p. 67). The above case study indicates that business organizations benefit a lot from implementing EDI systems. For instance, its implementation will enable business owners to benefit from reduced customer service costs and the improvement of the shipment accuracy (Marquess 2007, p. 74). However, for business analysts, they should consider the advantages and disadvantages that the business will face due to implementation of the EDI. Although there are some threats that hinder growth of EDI, according to the current growth of international markets, it will essential for all businesses to switch from using the traditional data processing systems to EDI systems to ensure that they meet the requirements of all customers. Bibliography Baden-Fuller, C, & Morgan, MS 2010, Business models as models. Long Range Planning, 43(2), 156-171. Eiselen, S 2005, Electronic Data Interchange Agreement, The. S. Afr, Mercantile LJ, 7, 1-15. Horning, RA 2009, Symposium Presentation, Legal Recognition of Digital Signatures, A Global Status Report, Hastings Comm, & Ent, LJ, 22, 191. Kamel, S 2006, Electronic business in developing countries: opportunities and challenges. Hershey, Pa. [u.a.], Idea Group Publ. Marquess, K 2007, Sign on the Dot-Com Line, ABA Journal, 86(10), 74-76. McGrath, RG 2010, Business models: A discovery driven approach, Long range planning, 43(2), 247-261. Phang, A, & Seng, D 2009, Singapore Electronic Transactions Act 1998 and the Proposed Article 2B of the Uniform Commercial Code, The. Intl JL & Info, Tech., 7, 103. Schneider, GP, 2013, E-business revenue models, Andover: Cengage Learning, pp.137-182. Zainol, ZA 2009, Electronic data interchange (EDI) and formation of contract: a Malaysian perspective, International Journal of Law and Information Technology, 7(3), 256-269. Zekos, G 2008, The Use of Electronic Technology in Maritime Transport: the Economic Necessity and the Legal Framework in European Union Law,Web Journal CLI. Zhaku, R, Fetaji, M, & Fetaji, B 2005, Analysis of e-Commerce Application in Macedonia and Albania. Zott, C, Amit, R, & Massa, L 2010, The business model: Theoretical roots, recent developments, and future research, WP-862, IESE, September, Available at: http://www. iese. edu/research/pdfs/DI-0862-E. pdf. 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