The Impact of Electronic Data Interchange (EDI) on Competitiveness in Retail Supply Chains

Article excerpt

Increasingly, management attention is focusing on the issue of how the flows of material and information passing along the supply chain can be managed more effectively. Over the past number of years, developments have taken place in the information technology area which have helped companies to seek improvements not only in the management of such flows internally but also in the way in which they can communicate with other organisations.

This paper focuses on one such development--Electronic Data Interchange (EDI) and presents findings relating to a pilot EDI experiment carried out in the retail sector, in the Republic of Ireland.

ELECTRONIC DATA INTERCHANGE IN CONTEXT

The need to exchange data lies at the centre of the interaction process between buyers and sellers. In the typical business environment such data would include delivery notes, sales invoices, stock information, purchase order forms and other trading documents. With an ever-growing volume of business transactions, many companies are beginning to explore the possibility of moving towards "paperless trade" procedures in the leaner supply chains of the nineties. Benjamin et al. (1990) have documented the confusion that prevails in defining EDI in the context of inter organisational systems . For instance, Stock and Lambert (1989) describe EDI as simply a process where one computer communicates with another. However this definition is too simplistic in that it fails to identify the distinguishing characteristics of EDI. Cunningham and Tynan (1990) have criticised such loose definitions and suggest a more generic approach under the heading of electronic trading. This encapsulates three types of system, viz. person to person, computer to computer and person to computer. Ody (1990) observed that there are many ways of exchanging data electronically ranging from a magnetic tape sent by courier to permanent linking line systems. In an environment however where a company needs to establish links with many suppliers, it is not feasible to have a number of dedicated PCs, each communicating with a different customer via a fixed line. This is especially so in the retail sector where a large multiple such as Tesco, may have many branches, linking with hundreds of suppliers.

The distinctive feature of the EDI approach is that in order to transfer data to a remote location, the document must initially be converted into an agreed EDI syntax (grammar) and relayed in such a manner that it is error free and cannot be repudiated. Conversion of data to a specific syntax (e.g. the United Nations EDIFACT standard), takes place at the originator's premises. The resulting data in syntax is then transmitted via a third party value-added network (VAN) provider to be relayed to the intended destination. The service provider acts as an electronic "mailbox" and performs a number of functions:

* It will take in data on a 24-hour basis and hold it until the intended destination is ready for reception. This is convenient in cases of destination system failure or maintenance downtime and where there are different time zones between the trading partners.

* It records all transactions made and relays reports of data successfully or otherwise transmitted or received to the communicating parties. This nonrepudiation feature is important for audit purposes.

* It provides protection against accidentally lost information. Messages will be kept on the system until they are erased by others.

The data is received by the destination user by downloading the necessary information from the service provider. The data is still in its syntax format and is converted into a form understood by the destination location, i.e. for integration into their computer accounts and order processing system. In this context, electronic data interchange can be defined as the interchange of trading documents within internationally agreed formats and standards using value added services. …