EDI 101 \ History

Since the 1960s, many companies developed in-house computer systems and internal networks to streamline business functions. A typical example is the order processing system, which can process customer's orders with greater speed. Still, the speed in which a business could respond was determined by the communication link between the company and its customers. That communication link consists of the postal service and the telephone, and remains a slow and costly process even today.

Some business executives were working on methods to shortcut the conventional communication link. Electronic communications was a prime consideration in circumventing the paperwork/telephone problems. It soon became clear that linking up to other business electronically had one major initial problem, information format.

Very few companies use the same paper document format. One company's Purchase Order form looks different from another. The same holds true with computer systems. Information stored in one company's computer system may be in a different format than that required by others.

People can deal with format problems with relative ease. When an order processing clerk receives a purchase order form in an unfamiliar format, it's not a difficult task to analyze the new form and interpret the required information. Computers do not have that ability and require information in a specific format and in an exact order. You do not want your system to interpret your trading partner's purchase order number as the quantity ordered. That could easily happen if the two companies do not agree on a format and sequence of information they exchange with one another.

A supplier serving one customer can follow that customer's formats and rules for EDI. The problem arises when one supplier has to deal with different rules from different customers. Systems can be developed to interpret an electronic transaction from Company A differently from Company B. This approach, however, is extremely costly to develop and maintain and it doesn't solve the problem when Company C comes along and wants to do business electronically. A better approach would be support standards that all customers and suppliers could adopt.

EDI standards are a set of formats and protocols, much like a language, that trading partners agree to communicate to each other in. A good analogy can be found in the airline industry. All over the world there are airlines and airports in different countries. Pilots and crew may converse in their native tongue, but English is required from all aircraft to control tower communications. Could you imagine the confusion if there was not one standard language?