Various forms of exchanging files electronically have been around since the 1960’s. What we know as Electronic Data Interchange (EDI) today began in the mid 1980’s and it formalized the process for exchanging files in a structured and standard format. Over time EDI has evolved to include a broader range of technologies under the umbrella of Electronic Commerce (EC).
EDI is used in just about every industry to a varying degree. The reason it has been adopted by so many industries is that it offers companies the ability to become more efficient and productive, and therefore more competitive. EDI gained wide acceptance during the 1990’s backed by strong mandates from the retail, manufacturing and transportation industries. Some industries force EDI compliance on their trading partners while others are more casual at adopting the technology. Today’s global economy is putting more pressure on everyone to bring their costs down and EDI is one of the ways to reduce those costs. While EDI is the backbone of EC technology it is by no means the only technology available for increasing productivity.
Pre 1980’s – Before there was EDI
Prior to the mid 1980’s, exchanging computer files electronically was only realistic for large companies with mainframe computers and knowledgeable IT staff. It made economic sense to exchange files electronically only if you had large trading partners with high volumes of data. Data transmission lines were expensive which made reel-to-reel tapes the most practical medium. The structure of the files being exchanged was determined by one or both parties with no standards as a guide.
For all the other companies who didn’t have the computing power, expertise or resources to exchange files electronically, paper was the only option for conducting business.
Mid 1980’s – EDI attracts attention
The first EDI standards emerged in early 1980’s. The advent of the personal computer (PC) made EDI a possibility for any sized company. The first EDI translation software vendors and Value Added Networks began offering services to help large companies bring their smaller suppliers onto EDI. It seems trivial today, but using a PC, modem, EDI translation software and an electronic mailbox instead of paper was a drastic step. The start-up cost for suppliers easily reached $10,000 or more. What most ended up doing was ‘rip and read’ EDI which entailed receiving a document electronically, printing it on paper and re-keying it into their business application. To send a document back to their customer they would key the data into the EDI translation software. This process turned EDI into a glorified fax machine and integrating EDI into accounting / ERP software was the furthest thing from anyone’s mind.
Early to Mid 1990’s – E.D.I. or D.I.E.
Various industries, especially retail, continued to drive the adoption of EDI. Retailers were hungry for more and their suppliers reluctantly complied. The phrase ‘E.D.I. or D.I.E.’ surfaced as a warning for companies to adopt EDI technology or face the consequences of losing customers and falling behind competitors.
Large companies, who integrated EDI with their business applications from the beginning, were growing weary of the ‘rip and read’ habits of smaller companies. As the number of transactions started increasing for small companies, thoughts of integrating EDI started to surface and new vendors who offered software and services began to emerge.
Late 1990s – The Internet changes everything
EDI was no longer viewed as the only technology for doing business electronically. It became a ‘bad word’ to some and perceived as overly complicated and costly for small companies. The Internet and dot.com era spawned hundreds of new companies that were developing revolutionary applications for the Internet, some of which were going to replace ‘old’ technology like EDI. These applications were touted as drastically going to change the way companies do business.
The reality was that the companies who invested heavily in EDI were not about to throw away that investment and start all over again because of XML. Instead, new options including XML emerged from the Internet and made it possible for companies to achieve 100% adoption of E-commerce with their trading partners. Files could be transported via the Internet and web forms were an economic alternative for small companies to use.
Two significant developments in the late 1990’s were the realization that integrating EDI into business applications was a necessity, and the development of HIPAA EDI standards.
Large customers in the retail industry started imposing fines on their suppliers who made re-keying or other errors in their EDI data. This started to affect the profit margins of suppliers and one way to reduce errors was to integrate EDI with their accounting / ERP system.
The Health Insurance Portability and Accountability Act (HIPAA) of 1996 resulted in a set of EDI transactions being developed for the healthcare industry. This made a significant impact on the adoption of EDI in healthcare which is a large industry.
Early 2000’s – EDI thrives once again
EDI survived the dot.com crash and was not going away any time soon. The Internet helped take EDI to a new level much like the PC did in the 1980’s. Initiatives such as web EDI, EDI-INT and integrating EDI made significant gains. The developers of the most popular accounting / ERP applications also recognized the importance of allowing EDI and other data formats to be integrated with their products.
A new service that surfaced during this time was EDI outsourcing. Some companies became increasingly frustrated with EDI because they were always playing catch-up to new developments and demands from their trading partners and the costs were escalating.
As a result, EDI outsourcing, service bureaus and web EDI grew in popularity as companies would rather pay someone else to deal with the EDI headaches.
Today – Still more to come
The EC/EDI technology developments of the past two decades have made it possible to conduct business in ways that couldn’t have been imagined prior to the 1980’s. The Internet had the greatest impact and made it possible for any sized company to do business anywhere in the world. With all the technology options available, there is no reason why any company large or small, can’t use EC/EDI technology in their business. In fact, it’s mandatory if a business is going to survive.
Lee Mrkonjic is the Principal of Vantage Point & Associates, Inc. Lee can be reached at firstname.lastname@example.org.
Vantage Point publishes the EC-EDI Vendor Directory. More information on the online and hardcopy versions of this publications is available at http://www.ec-edi.biz/content/en/dir-intro.asp