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