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EDI (Electronic Data Interchange)

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EDI is a set of protocols for conducting electronic business over computer networks. Traditionally, these networks have been private WANS; but EDI is now done over the Internet. EDI defines the electronic exchange of structured business data, such as purchase orders, invoices, and shipping notices, typically between one organization and another. The relationship is usually between a vendor and customer. For example, EDI provides a way for a customer's computer to place orders for goods with a vendor's computers, based on reorder levels. The EDI system coordinates the transaction, initiates deliveries, and generates invoices.

It is important to differentiate between EDI and electronic commerce. Electronic commerce encompasses all aspects of electronic business exchanges, including person-to-person interaction (collaboration), money transfers, data sharing and exchange, Web site merchant systems, and so on. EDI is a subset of electronic commerce that encompasses the exchange of business information in a standardized electronic form. Standard form defines things like the layout of information for an invoice or purchase order.

EDI can reduce costs, workforce requirements, and errors associated with retyping orders, invoices, and other documents. With EDI, computer data already entered by one organization is made available to a business partner. EDI is typically handled using store-and-forward technologies similar to e-mail. A third party such as GEIS (General Electric Information Service) often serves as a "middleman" to help organizations establish business relationships and handle business transactions.

EDI can be thought of in terms of messages exchanged between businesses that are engaged in electronic commerce. Within a message is a basic unit of information called the data element. A message may consist of many data elements. For example, each line item on an invoice is a data element. All the data elements form a compound document, which is essentially a business form. An EDI message also includes a field definition table that provides information about the data elements in the message, such as whether an element is mandatory or optional, how many characters it has, and whether it is numeric or alphabetic. String identifiers define things like data element names and a data dictionary reference number. The data element dictionary defines the content and meaning of data elements.

EDI was first developed by the automobile/transportation industry in the 1970s. Today, it is widely used in a variety of industries, including distribution, finance and accounting, health care, manufacturing, purchasing, retail, tax form filing, and shipping. Early EDI packages used rather simple standard forms that forced companies to convert data to fit the forms. Newer EDI systems allow companies to create custom systems using simple programming or authoring tools. Even more recently, EDI has been adapted for the Internet and to work with XML, as discussed later.

There are two approaches to implementing EDI. Many large organizations acquire or build their own proprietary systems, often in association with their business partners. If a business partner is small, it may have little choice but to adopt the proprietary system of its much larger business associate. The other approach is to work with a VAN (value added network) provider, which provides EDI transaction services, security, document interchange assistance, standard message formats, communication protocols, and communication parameters for EDI. Most VANs also provide a network on which to transmit information. VAN providers include

In many ways, the Internet is a better medium for implementing EDI than using value added network providers or installing private leased lines. The Internet is already in place as a business-to-business communication system. The startup costs are cheaper and, in most cases, the organization is already connected to the Internet. This makes it easier for more businesses to join the electronic commerce web, especially those who previously could not afford the expense of EDI.

The use of VPNs is growing for EDI and e-commerce-related traffic. A VPN can secure and give preferential treatment to EDI traffic. The term extranet is usually used to refer to a secure Internet connection between trading partners. The protocol for VPNs are L2TP (Layer 2 Tunneling Protocol), PPTP (Point-to-Point Tunneling Protocol), and the IETF's IPSec (IP Security). See "VPN (Virtual Private Network)."

EDI Standards and Initiatives

There are several EDI standards that have been around for many years. But as the Internet took hold, new techniques for implementing EDI developed in groups and consortiums such as the W3C (World Wide Web Consortium), Commerce-Net, Rosetta Net, and Open Buying on the Internet (OBI). The Web sites for these organizations are listed on the related entries page.

New EDI standards are currently under development. Some examples are described here.

  • ANSI ASC X12 (American National Standards-X12)    X12 is a standard that defines many different types of documents, including air shipments, student loan applications, injury and illness reports, and shipment and billing notices. The ANSI (American National Standards Institute) assigned responsibility for development of EDI standards to the ASC (Accredited Standards Committee) X12 organization in 1979. X12 has roots in work done in the shipping industry by the TDCC (Transportation Data Coordinating Committee) and work done in the food distribution industry by the UCC (Uniform Code Council).

  • UN/EDIFACT    UN/EDIFACT (United Nations/Electronic Data Interchange for Administration Commerce and Transport) is an international set of EDI standards that are published by the United Nations Trade Data Interchange Directory (UNTDID). The standards include syntax rules and implementation guidelines; message design guidelines, directory sets defining messages, data elements, and code sets, among other definitions. It is built upon X12 and TDI (Trade Data Interchange), the latter being a generic EDI standard used in Europe.

  • Open-EDI    The ISO (International Standards Organization) and IEC (International Electrical Committee) are developing an EDI reference model under a joint committee called Open-EDI. The goal of Open-EDI is to allow electronic transactions among "multiple autonomous organizations" that may or may not have any prior business relationships. In other words, businesses should be able to establish trading partners over networks like the Internet upon first contact and without any pre-agreement, assuming trust systems are in place. See the Web site and

For additional information about standards, refer to the DISA (Data Interchange Standards Association) at the Web site listed on the related entries page. Another good Web site that lists common EDI and e-commerce standards is European Commission's Open Information Interchange (OII) Web site. The Web site addresses are on the related entries page.


While EDI is still a widely used electronic commerce technology, smaller businesses often have a difficult time implementing it. XML is proving to be a good technology for business information exchange. In addition, existing EDI data formats can be translated into XML. At some point, EDI will blur into XML-based electronic commerce solutions. Many vendors have already developed transition products that help companies' integration of EDI and XML systems.

By combining EDI and XML, the previously designed message formats and element dictionaries of EDI carried into the XML realm, where file formats and schema exist to represent data and data structures. Data exchanged in XML is easy to search, decode, manipulate, and display in a consistent way. See "XML (Extensible Markup Language)" or visit the XML/EDI Group Web page listed on the related entries page.

EDI and the IETF

A turning point for EDI on the Internet came in 1995, upon publication of RFC 1767 (MIME Encapsulation of EDI Objects, March 1995). This RFC defines how electronic mail can be used as a delivery mechanism for electronic transactions. The specification defines how to encapsulate EDI exchanges into MIME messages. The RFC does not specify any changes to EDI itself. It simply defines another way to exchange EDI transactions beyond those already defined.

Internet RFC 1865 (EDI Meets the Internet Frequently Asked Questions About Electronic Data Interchange on the Internet, January 1996) provides answers to many EDI-over-the- Internet questions. It points out the potential benefits of the Internet for EDI, including common standards and interoperability, traffic routing that makes any-to-any connections possible, and distributed directory services for identifying and contacting other organizations.

The IETF Working Group called "Electronic Data Interchange-Internet Integration (ediint)" was formed to expand the use of EDI on the Internet. The group is working on security issues such as EDI transaction integrity, privacy and nonrepudiation in various forms. It is also working on standards that are needed to ensure interoperability between EDI packages over Internet. In addition, it is also defining how current Internet standards can be used to achieve interoperable EDI for real-time transactions (a problem, since the Internet is based on best-effort IP services).

Copyright (c) 2001 Tom Sheldon and Big Sur Multimedia.
All rights reserved under Pan American and International copyright conventions.