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CIT 245

By Mohammed A. Saleh

Organizations that use EDI It has potential applications where the

administration processes are computerized. Extensive users of EDI:1. Bhs- UK and European multiple retailer dealing

with fashion goods.- Deals with about 400 suppliers on a regular

basis and all orders are sent by EDI.- It uses JIT supply

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- Uses EDI to confirm supply delivery and communicate bar code information (delivery and packaging)

- Use of EDI is the back-end to an integrated merchandising, sales and replenishment system.

2. Lucas Rist- Car manufacturer using EDI as a facilitator of

JIT manufacturing system.- Responsible for electrical works on Rover

cars.3

- Rover sends L R a 10-day plan and later a provisional order, both by EDI.

- L R notifies Rover of when the parts will be dispatched.

- Rover adjusts it production schedule according.

- One missing part by Rover causes the production line to stop.

3. TeleOrdering- Book trade EDI system

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3. TeleOrdering- Book trade EDI system- Bookshops view a monthly catalogue; Book

in Print, to look up any book in print but not in stock.

- If a customer (bookshop) wants a book, the book ordering system will format an EDI order

- Makes it easy for publishers to market and quickly sell their books

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1. Hubs and Spokes - EDI has been adopted by large retail

organizations.- They then form extensive e-trading networks

with their supplier.- This EDI flow forms the hub and spoke

pattern, where the major organization is the hub and suppliers are the spokes.

- Orders sent from the hub to the spokes, who then transmit EDI invoices after the goods have been delivered.

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Figure 1: Hub and Spoke Trading Patterns

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HubHub

SpokeSpoke

SpokeSpoke

SpokeSpokeSpokeSpokeorder order

order

order

invoice

invoice

invoice

invoice

- Initially implemented with minimal suppliers then with time the system is extended

- In this pattern EDI is made a condition of trade

Bray (92): “…..If the Hub says ‘ thou shall trade electronically, the supplier have little option …”

Tesco: “EDI or DIE- Leads to closer user communities- The hub chooses the VADS and EDI

standards.8

- Works well if a supplier serves a single hub, but less satisfactory if the supplier trades with multiple hubs.

- With multiple hubs the supplier will join at least two VADS and follow a different EDI standard.

- It’s a complex pattern: Spokes intertwined and hubs are spokes of

other hubs. Different EDI standards used. VADS interconnectivity is a ‘nightmare..!’

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2. Overlapping User Communities- A spider web to the spoke organization

Figure 2: Overlapping Supply Networks 10

Super FoodSuper Food

Sava Food Sava Food

Save on

Food

Save on

Food

Fresh FruitFresh Fruit

Mighty Meat

Mighty Meat

Nuts NowNuts Now Very

VegVery Veg

Best Brea

d

Best Brea

d

- It shows conflicting requirements by the demanding customers.

- EDI development seems to result in network expansion and complexity.

3. Differing patterns of EDI- More patterns developed- They vary in the range of trading links

established and type of messaging used.- Retailing is a sector involving massive e-

trading and a pattern has been developed:-

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Major retail chains with EDI links Suppliers with links to several of the major

retail chains.- Spread of EDI to second tier supplier.- Suppliers acting at different layers increase

the network complexity.- Shown on Figure 3:

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Figure 3: Extended Supply Networks

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Super FoodSuper Food

Sava Food Sava Food

Save on

Food

Save on

Food

Fresh FruitFresh Fruit

Mighty Meat

Mighty Meat

Nuts NowNuts Now Very

VegVery Veg

Best Brea

d

Best Brea

d

Fred’s FlourFred’s Flour

Avril’s AppleAvril’s Apple

Pete’s PearsPete’s Pears

Ready RalsinReady Ralsin

- An alternative is the wholesaler pattern

Figure 4: Wholesaler Networks

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Henry’s Office Supply

Wholesale

Henry’s Office Supply

Wholesale

Kent councilKent

council

Pete’s PaperPete’s Paper

Pam’sPencilsPam’sPencils

PennyPens

PennyPens

Benny Bank

Benny Bank

Instant InsureInstant InsureAndy

Agent

Andy Agen

t

Sue ShopSue Shop

4. Co-operative User Communities- A good example is the TeleOrdering

network, all publishers and book retailers, large and small can take part in the network.

- This is setting up a co-operative community2. Open User Communities- cater for an established trading relationship

with EDI evolution - Principle barriers to EDI evolution of open

EDI trade:

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Networks Using more than one VADS in e-trading, due to

cross sector boundaries. Defining the membership of a VADS is a

problem. EDI Standards Standards have been developed on a national

basis or industry basis. For open trade a universal standard is required.

EDIFACT is trying to encompass the needs for all.

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Product Coding Product codes and quantity they imply. The need to use an acceptable coding

system, keeping in mind different sectors exist.

E.g. ANA code for food or an ISBN code for a book

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EDI Trade Exchanges Main use of EDI is for the execution and

settlement exchanges of the trade cycle. Exchanges take place within an agreed trade

relationship and in the context of a formal contract.

Basic pattern: Customer sends an order Supplier send goods + delivery note Supplier follows up delivery note with an invoice Customer makes payment against the invoice

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Figure 5: EDI Trade Document Exchanges

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CustomerCustomer SupplierSupplier

orderorder

del. notedel. note

invoiceinvoice

paymentpayment

EDI

Order- A contract for one specific consignment of

goods- Specifies what is wanted, quantity, where to

be delivered and who will pay.- Order allows amendment by customer.- Form of order widely used in commercial

transactions is the ‘call-of-order’.- Call-of-orders will be large quantities and for

an extended period the pros is in using EDI.

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Delivery note- A documentation stating where goods are

from and why they have been sent.- Entered into the computer system and

matched with the original order- Helps to identify any discrepancies. Invoice- Once goods have been delivered an invoice

is issued- Issued at the end of each order or at end

month.21

- EDI invoicing ensures reliability and accuracy of the invoice.

- No issues of lost invoices in the post.

Payment - Payment sent to the bank by using an EDI

payment message- Makes the whole process fast and swift.

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Business System Evolution Development of computers; mainframes,

micro to mini led to the growth of organizations.

Merging computers and telecomm has resulted into networking (LANs, MANs, WANs)

Networks have been used to integrate organization's business processes like customer file and interfaces to accounting systems.

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The integration of systems has been a factor for improving customer services and customer care.

However the integration systems stopped at the companies back and front doors.

Inside the company the order processing system formulated the replenishment demand, updated the stock file and made a posting to the accounting system but the order was printed on paper.

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These difficulties and inefficiencies is the Inter-organizational System (IOS).

The prime technology of IOS is EDI. The development of EDI and IOS has

changed the inter-organization business practices in much the same way as the evolution of IT and IS has radically changed intra-organizational procedures.

These developments of BIS can be represented as three stages:

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BusinessApplications

BusinessApplications

Internet enabled Systems

Internet enabled Systems

Inter-organizationalSystems

Inter-organizationalSystems

Integrated BusinessSystems

Integrated BusinessSystems

Represented a six stage maturity model:

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DiscoveryDiscovery

IntroductoryIntroductory

IntegrationIntegration

OperationalOperational

StrategicStrategic

InnovativeInnovative

Opportunities and implications of each stage are:

Discovery- An organization choosing to adopt EDI to

gain competitive advantage or solve and admin problem

- Arises from the realization from competitors. Introductory- Organizations start with a pilot scheme- Initiators of EDI networks choose one or two

trading partners with which to pilot a message.

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- Requires investment; direct costs include H/W and S/W

- Does not result in any cost saving or efficiency gain.

Integration- Further system development after gaining

practical experience.- Interfacing the EDI software with business

application so the EDI messages can be transferred electronically and automatically between the two systems.

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- To establish the EDI service the EDI software can be bought off-the-shelf.

- It is often an expensive stage. Operational- Integration realizes the EDI benefits of

saving time and avoiding errors.- Real benefits come with significant number

of trading partners.- The conversion of the major part of the trade

cycle, both in volume of trading partners and in numbers of message types is the known as the operational stage.

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- This stage speeds up transactions because of converting the trade cycle to operate electronically.

Strategic - Saving are made by replacing paper

documents by their electronic equivalent- Real opportunities come from making

changes to established business practice.- Significant progress made in the operational

stage brings out these opportunities.

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- The implementations of these changes however has to be strategic.

- Possible areas of change:i. Document matching- considerable problem in order processing - Customers match deliveries to orders and

invoices and suppliers payments to invoices.- Complexity is brought about by disparate

doc types, part deliveries and incorrect codes- The use of EDI makes the process easier. 32

ii. Time between formulating a replenishment demand to the order being processed by the supplier takes a long time.

- EDI give dramatic time-saving- Eliminated stock holding - Development of JIT and quick response

supply.

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Innovative - Establishing an operational EDI

infrastructure gives the possibility of changing the nature of the product and provision of new services.

- Open up new possibilities of competitive advantage.

- an example, Rover Cars have stopped producing cars for stock and only produce when they have a dealer’s order.

- EDI has reduced the supply and production time .

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Pick an organization that has implemented EDI. Try to identify the EDI maturity stages that, that organization has undergone. Briefly explaineach stage.

Requirements Word-processed – Times New Roman, 12 Should not exceed 2 pages Hand-in date 14th May, 2009 (after the

lecture)35