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Understanding the Basics of EDI

Understanding the Basics of EDI

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What is B2B EDI?

B2B (Business-to-Business) EDI is simply the use of Electronic Data Interchange for the purposes of exchanging documents between trading companies.  Using B2B EDI, a vendor might send exchange purchase orders and invoices with its customers in place of paper methods.  B2B EDI has been in use in some form or other for a number of decades and has made the exchange of transaction information significantly faster and more efficient in a number of industries.  Through B2B EDI small and large organizations alike can benefit from improved efficiency, reduced costs and greater throughput.

How B2B EDI Works

B2B EDI begins with the translation of data into a standardized form.  This translation is done by the EDI translator, a software tool that can take inputed data (whether manually or through integration) and translated to or from the EDI standard.  The B2B EDI transfer takes place after this translation is complete.  While B2B EDI standards govern how EDI should look they do not provide any standards for how the should be exchanged, but there are two prevailing methods.

The First B2B EDI Exchange

The first B2B EDI exchange method involves dedicated networks known as Value Added Networks (VANs); the second B2B EDI exchange method involves sending data over the Internet. To enable B2B EDI over the Internet many companies use FTP (File Transfer Protocol), FTPS (Secure File Transfer Protocol) or AS2/AS3 (Applicability Statement 2 or 3). Internet B2B EDI is by far the most inexpensive since VAN charges can become onerous over time. Walmart was the first company to utilize AS2 communications in a major manner for B2B EDI.

B2B EDI Standards

As mentioned earlier, B2B EDI is governed by a number of standards that control how EDI documents should be formatted.  The ANSI X12 standard is the most commonly accepted B2B EDI standard in the US, while the UN/EDIFACT BN2B EDI standard is prevalent outside the United States.  There are other minor B2B EDI standards in use around the world including the UK-based Tradacoms standard and the ODETTE B2B EDI standard that is heavily used in the European automotive industry.

History of B2B EDI

B2BN EDI has been available in the US in one form or another since the mid 1960’s. In 1968 a group of railroad companies concerned with the quality of inter-company communication and the exchange of transportation data created a consortium to find a solution. This organization became known as the Transportation Data Coordinating Committee (TDDC).  While this was happening, other multi-national corporations such as General Motors, Sears and K-Mart were investigating ways to improve inter-corporate communication—especially concerning the movement of documents such as purchase orders and invoices, by using proprietary electronic systems with their larger trading partners.  While these systems were not true “B2B EDI”, they laid the groundwork for what would eventually become the B2B EDI standard. By the mid 80’s, K-Mart was the largest user of such an “B2B EDI” system, with well over 500 companies using their EPOS electronic system.

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