EDI has three major components:
The following definitions and illustrations provide an EDI overview:
Dual-purpose software that converts files to or from EDI format. In the case of outbound documents, an internal application file format is converted into an EDI format. For inbound documents, the EDI format is converted into an internal application file format. It is neither necessary for trading partners to use the same translation software, nor is it necessary for them to have similar hardware platforms. Software and hardware independence is one of the major advantages of EDI.
See the diagram below:
How it works
The transmission and reception of electronic data between trading partners using compatible hardware and software, or a value-added network (VAN). A VAN is a third-party service provider that receives, stores, and forwards data to trading partners. VAN EDI traffic is actually transmitted over the telephone network using either a dial-up or leased line. Most trading partners prefer to use a VAN because they:
- Provide a security buffer between trading partners
- Eliminate the need for compatible communications hardware and software
The main disadvantage of using a VAN is cost. It is considerably more cost-effective to transmit EDI data directly to a trading partner.
There are three ways that EDI communications are accomplished:
- When the sender and the receiver utilize the same VAN (VAN "A" in the illustration), the sender transmits the EDI data to the common VAN. The VAN automatically transfers the data to the receiver's electronic mailbox and the receiver extracts the data at his convenience.
- When the sender and receiver utilize different VANs, the sender transmits the EDI data to his/her VAN (VAN "B" in the illustration). VAN "B" automatically transfers the data to the receiver's VAN (VAN "C" in the illustration). VAN "C" transfers the data to the receiver's electronic mailbox, and the receiver extracts the data at his/her convenience.
- When the sender and receiver communicate directly, there are no VANs involved. The data is simply transmitted from sender to receiver.