Electronic Data Interchange: How to Begin

Traditionally praised for its ability to save paper, EDI is now being recognized for its ability to improve the entire transaction process. Here's how to get EDI started in your agency.

by / May 31, 1995
June 95

Vendors: Sterling Software

Jurisdictions: Massachusetts

Electronic commerce

Bob Lynch

Manager, Government EDI Programs

Sterling Software

Electronic Data Interchange (EDI) is a technology whose time has clearly arrived - an advent marked most strikingly in government circles by President Clinton's 1993 order that all federal procurement for items less than $25,000 be done via an EDI transaction by 1997. While larger cities and counties are just starting to look at EDI, many state agencies have already deployed EDI in their procurement operations as well as in a broad range of other applications ranging from Workers Compensation and health care reporting to tax and UCC filings.

While there are significant paper savings to be achieved by using EDI systems, the primary benefit is the way it improves the fundamental transaction process itself. EDI leads to shortened time lines and improved information flow and yields major improvements in an organization's ability to:

- Reduce error rates, time delays, and labor costs

- Speed the processing of transactions

- Reduce inventory and lead times.

According to Nancy Burke, pilot manager for a major, statewide EDI procurement initiative for the Commonwealth of Massachusetts, the state plans to negotiate discounts from vendors based on EDI's anticipated benefits: increased efficiency and controls in ordering, disbursement of funds and payment processing.


To appreciate what EDI is, it is useful to understand what it is not. EDI is not electronic mail (although it may utilize mailboxes), because it deals with highly structured information such as purchase orders, credit memos and claims forms, while e-mail is chiefly ad hoc messages (though in some cases, an e-mail message may accompany an EDI document). Nor is EDI facsimile. Although the information transmitted may be the same, EDI captures it in data fields while a fax is simply an image. And don't confuse EDI with simple data file transmission, because EDI transactions must conform to standards for formatting and sequencing the data.

Each of these technologies is best suited to particular types of applications falling under the increasingly popular term, "electronic commerce" - the electronic flow of information between organizations. The best and most cost-beneficial applications for EDI are those involving high-volume exchange of standard forms or documents.

How does EDI work? Your computer system already serves as a repository for data related to government functions. Creating, sending, receiving and processing EDI documents can be automated and integrated with your existing computer applications. EDI extracts information from these applications and transmits paperless, computer-readable documents via telephone lines to the other party involved in the transaction. At the receiving end, the data can be fed directly into a computer system, where it is automatically processed and interfaced with the recipient's internal applications. All of this can be accomplished in minutes, without the rekeying, paper shuffling and attendant costs of manual document processing and delivery.


While other electronic commerce technologies employ public standards to support the exchange of individual bits of data, EDI standards go much further, providing a series of standards-based message formats that define electronic - that is, computer-readable - versions of entire documents. Thanks to these standards, organizations can let their computers do the talking directly, without human intervention.

All EDI standards consist of a data dictionary and syntax, which are analogous to the vocabulary and grammatical rules of a spoken language. Many of the earliest standard message formats were first created and adopted by specific industries. As EDI has evolved, the use of proprietary standards has lessened in favor of public EDI standards, which are supported by over 30 international standards organizations. Today, most government departments rely on the standards developed by the X12 - Data Interchange Standards Association (X12/DISA), the umbrella group for United States EDI standards, as chartered by the American National Standards Institute (ANSI).


The first step in investigating the use of EDI is to seek out the best application candidate. Most departments start with procurement, where the technology is already most prevalent. Look for documents that are the most time and content-critical, people-intensive, paper-intensive, error-prone, time-consuming and costly. Then look for high-volume "trading partners," the EDI industry term for suppliers and other collaborators in an organization's electronic commerce.

Though it can be difficult to assess either the total costs of a manual process, or the total value of EDI's indirect benefits such as accuracy, most EDI consultants and vendors can work with you to assemble a cost/benefit analysis to justify potential applications.


Once you have one or more existing internal applications that can interface with EDI and one or more trading partners with whom to communicate, you'll need to assemble the basic elements of an EDI system, including:

- A host computer system

- EDI software supporting translation and data mapping

- Communications hardware (modems) and software

- EDI value-added network service with electronic mailbox capability

EDI software exists for almost any hardware and operating system used by government organizations today. Though EDI can be performed on a stand-alone PC, this is usually only workable for a very small department or as a pilot for a larger implementation. Larger organizations must choose between running the EDI software on the same mid-range or mainframe platform as their application, or using a dedicated high-end PC as a front-end EDI server. To determine which platform best suits your EDI application, you'll need to consider the volume of anticipated transactions, the kind of data expected and the number of EDI trading partners.


The software needed for EDI can be bought in pieces or as an integrated package performing three essential functions: standards formatting, data mapping and communications. The cost of PC-based EDI software ranges from $1,000 to $7,000; for mid-range systems the cost ranges from $10,000 to $40,000; and for mainframe systems the cost can go up from there to as high as $100,000, depending on the system's sophistication and feature set.

The first function - standards formatting - is indispensable for companies interacting with a variety of EDI trading partners because it bridges multiple standards and versions. All EDI standards provide rules concerning the format and sequence of data in transactions/messages. These rules include requirements for presence, conditionality (or absence of individual data elements) and a syntax that governs the creation and interpretation of control segments.

EDI translation software embodies the rules of one or more EDI standards to ensure that the user's data conforms to the requirements of the selected EDI standard, regardless of whether the user is the originator or the recipient of the data.


The second and most labor-intensive aspect of EDI software deployment is a process called data mapping. Data mapping prepares existing business applications to accept and generate EDI communications. Data mapping software helps you specify the relationship between each data element in an EDI message, including its use by each trading partner and its corresponding field in an application.

The third essential EDI software function is the communications link that achieves the interchange of data using telecommunications lines. The software must accommodate the diverse communications protocols and line speeds used by your various EDI trading partners.


The two basic network options for sending and receiving EDI communications are direct connections or an EDI value-added network link between you and your trading partners. Value-added networks sort and deposit messages throughout the day for their clients. Typically, partners access their mailboxes once or twice a day to send and receive documents from their trading partners.

For government applications, third-party value-added networks are by far the most popular and practical solution. First, because an EDI network has the ability to provide a broad range of communications access alternatives - including various protocols, line speeds and communications options - you don't need to worry about the details of your trading partners' communications environments.

Second, networks offer error checking, audits, controls and security to ensure data integrity, quality, recoverability and safety. A variety of reports will let you track and monitor data flow. The network will also feature built-in redundancies in addition to physical and system security controls to protect data from loss and unauthorized access.

Finally, value-added networks can facilitate the critical process of identifying and adding new trading partners to your EDI program.


The organizational processes required to successfully implement EDI are not that much different from those of any other technology. The same standard planning and implementation processes apply as do general good practices such as establishing clear, achievable goals, getting buy-in across the organization and starting out with a pilot project.

Because the technology is mature and involves the use of existing applications, implementing EDI doesn't have to be a multi-year process. According to Burke, the Commonwealth of Massachusetts commenced its business and technical analyses in January 1994, sent its first transmission over a value-added network in October and expected to implement statewide - across 155 departments and over 300 sites - by April of this year.