Electronic commerce and document interchange:

EDI applications in the private and public sector

by

Kim Viborg Andersen, Niels Bjørn-Andersen & Niels Christian Juul

Released May 12th 1998
 

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About the survey

Publication in 3rd USENIX Workshop on Electronic Commerce, September 1998

Publication in World Computer Conference (ITBM) in Beijing, China, August 2000

Danish version

Abstract
Application of electronic commerce and electronic document interchange are an incentive to automate, informatize and reorganize work processes in our own and our business partners' organizations.

In the mid-1990s a range of highly industrialized countries such as the US, Sweden, the Netherlands and, in particular, Denmark took the initiative to increase application of EDI between companies and between companies and the public sector.

In Denmark, a number of partners adopted a plan of action for electronic commerce in 1996 - a plan that became known as the EDI Agenda. The plan focused heavily on increasing application of the international EDIFACT standards in business-to-business transactions. This international standard was considered a means to facilitate the globalization of Danish trade and industry in addition to a reduction of the administrative loads (waste work) internally in the value chain and in the communication with the public sector.

Since then a range of selective tests have been made of the scale of the EDIFACT dissemination in 1995, 1996 and 1997 by e.g. the Confederation of Danish Industries and the Ministry of Education and Research (1996, 1997). The measurements indicate that an increasing number of companies and public organizations exchange data electronically from computer to computer in connection with placing orders, invoicing, shipping, pharmacy prescriptions, reporting, etc.

However, the selective tests have also shown that a range of companies still apply their own standards in the interchange of data with their business partners - the so-called proprietary standards. The media, in particular, has been preoccupied with ensuring that the transport for interchange of data is not merely their own data links and VANS-operators (such as Dan Net A/S, IBM and Kommunedata), but also TCP/IP protocols on the Internet and their own closed networks, Extranet/Intranet.

In 1996, EDI solutions were almost synonymous with transport via a company’s own data links or VANS-operators. The data format was normally proprietary on the company’s own links and EDIFACT-based via VANS. Such solutions were characterized by high supply security and data protection. Since then, the Internet technology has made its breakthrough with Internet as a method of transport, open client/server solutions by means of World Wide Web technology, e-mail standards with document attachments and application of all these technologies on both the Internet and the closed networks between business partners. Today, these alternatives open up for new and mixed EDI-solutions, which in different measures apply EDIFACT-messages or existing proprietary message formats. The Internet technologies also allow EDI solutions where it is mostly one of the partners in the data interchange who benefits from the full integration between the data interchange and the company’s own data processing. In such circumstances, the other partner has no cost increases worth mentioning.

In principle, the EDI application can be quantified in several ways today. First, the interchange of data can be viewed partly in terms of the transport level (normally the company’s own network, VANS or the Internet) and partly in terms of the message format (normally the company’s own formats or EDIFACT-based formats). Second, an important parameter is the degree of integration between data interchange and data processing, partly in the company and partly in the company’s cooperative partners. The extent of the integration will typically vary at the two ends when the cooperative partners do not have EDI integrated directly with their own systems. Normally, we will see this solution in the application of form-based EDI, where the cooperative partners apply e.g. a Webbrowser in which a form is completed/updated and returned electronically to the company’s systems. In relation to the company/consumer this solution can be seen as the first step in electronic commerce, but it can also be applied between cooperative companies.

A complete classification of today’s EDI application will include more than twelve categories which in this report have been grouped into three items:

• Proprietary standards that include all EDI where the messages are never based on EDIFACT standards.

• EDIFACT-based standards that include all EDI where the message on its way is based on EDIFACT, i.e. also form-based EDI that is converted to EDIFACT "on the reverse side".

• Browser-EDI that describes the form-based EDI that is not EDIFACT-based (and not converted to EDIFACT "on the reverse side").

1. There has been a sharp increase in the number of companies capable of sending and receiving EDIFACT messages. The analysis of the number of users of the EDIFACT standard in Denmark shows a particular increase in the number of small companies among the new users of EDIFACT. From 1995 to 1996 the total number of companies that could send/receive EDIFACT messages increased by 26 per cent compared to 31 per cent from 1996 to 1997. Among the small companies the increase amounted to 90 per cent from 1996 to 1997.
2. More EDIFACT messages have been sent via VANS measured both in terms of number and size. From 1995-1997 the EDIFACT application has increased on average by approx. 45 per cent annually in terms of number of messages and by approx. 33 per cent in terms of size of messages. If we compare the number of bytes via VANS in EDIFACT-format in December 1997 with the number in January 1995, the increase amounts to approx. 82 per cent over the three years. Measured in terms of messages, the study shows that 176 per cent more messages were sent in December 1997 compared with January 1995.
3. An increase in EDI application is first and foremost seen in the first links in the supply chain, in a few business sectors and in the large companies. It is especially the health sector, the distributive trades and the financial sector that account for the marked increase in EDIFACT traffic via VANS. In the distribution of goods it is the large retail chains that are at the front in EDIFACT application, while the large companies such as Mærsk, Lego, Grundfos and Danfoss have been the motive force within the industry.
4. EDI application involves especially placing of orders and invoices that are sent electronically between companies. However, the two types of documents are often supplemented by a range of other documents such as change in orders, time of delivery and payment.
5. A meaningful application of EDIFACT requires a substantial volume and accrual in addition to determined formats in the individual business transactions. This is a crucial barrier to the dissemination of EDIFACT application in connection with deliveries from supply companies to e.g. public organizations.
6. At present, it is very limited how much companies apply browser-EDI for business-to-business trade. Only five per cent of the companies have used the Internet for electronic commerce, whereas approx. 35 per cent of the companies use EDI via VANS or proprietary (closed) circuits. As yet, the companies are not convinced that supply security and data protection can be guaranteed on the Internet.
7. It is predicted that browser-EDI, which can be called a relatively inexpensive integration of the extreme ends of the value chains, will continue to make headway with great benefits for that end of the communication where the EDI, possibly the EDIFACT message, is integrated into the company’s other business processes. Therefore, the solution must be seen as a first step towards full integration in the "browser end" in order that data also can be interchanged electronically with the other business processes.
8. The companies will increasingly apply browser-EDI so they themselves can offer "VANS-services" and service/sales via Web-pages on the Internet. According to our estimates this will not reduce the number of companies that apply EAN-numbers or the number and the size of EDIFACT-transmissions.
9. Modern management accounting systems have a considerable potential in connection with increasing EDI application. There are substantial tasks ahead in connection with an integration of EDI into the companies’ internal systems.
10. At present, the public sector is not the primary force within EDIFACT application, with the exception of the MedCom-project (the health sector). In 1998, we will see a range of EDIFACT initiatives, but the major part will tend toward datawarehousing and datamining by means of EDI. And a substantial part of these via browser-EDI. We have yet to see the full impact of EDIFACT application on the public sector.
11. It is expected that the public sector will apply electronic procurement more and more, not only via Basis Procurement, but also via on-line booking and reservation at e.g. DSB (the Danish state-owned railway company), SAS, hotels, bookstores, software firms, consultants, educational establishments, etc. It is characteristic that public organizations are focusing more on alleviating the administrative load in their own work processes rather than on the interchange with their cooperative partners.
12. It is in our favor that current EDI-pilot projects in the public sector are rendered visible for other companies, public institutions and trade associations. Such measures will reinforce further EDI application.
13. The importance of the EDI Agenda cannot be quantified directly, and although it has never been the direct purpose of our study to measure the effects of the Agenda, a picture begins to emerge, nevertheless. When we look at the large companies (Danfoss, Grundfos, FDB, etc.) it is characteristic that they have no need for the EDI Agenda. They manage well without the Agenda and have been able to "order" their suppliers and shipping agents to use EDI. On the other hand, it is evident that the EDI Agenda has played a major role in giving EDI a higher priority on the agenda of trade associations and in the public sector. The interest in EDI has been very poor among the major part of trade association members and most public organizations. In such a situation, where EDI projects have competed with other developments projects (introduction of SAP, year 2000 problems, etc.), the EDI Agenda has helped to place EDI on the agenda through stimulating a range of projects that otherwise would not have been organized until a later date.
14. The potential for introducing further EDI solutions is smaller in the financial sector than in other sectors, as banks and insurance companies already have an extensive EDI application in proprietary formats. The coming change of all communication between all parties on the mortgage credit market to a total EDIFACT-based Intranet solution indicates a change in technology. We estimate that there is a potential for EDI to increase by 20-40 per cent in the financial/insurance sector over the next three years. In addition, we expect a sharp increase in the customer-oriented services via the Internet.
15. Within the transport sector, where EDI has been applied for a number of years, it is estimated that further EDI solutions will increase by 20-40 per cent over the next three years.
16. The potential for additional EDI solutions within production and commerce is considerable, partly because the number of applications are relatively few, and partly because there is an excellent potential for enhancing efficiency. The only applications that have some importance are found in retail at the end of the value chain towards the suppliers, in large manufacturing companies towards their suppliers and in agriculture. Apart from agriculture, where EDI is estimated to increase by 30-40 per cent over the next three years, EDI within the other areas is estimated to increase by 70-95 per cent. In other words, we expect an extremely large increase in EDI applications within this sector.
17. We also estimate that the potential for further EDI solutions within the public sector will be considerable over the next three years. According to our estimation EDI applications will increase by approximately 50 per cent.

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The publication is also available in a hard copy verion published by Samfundslitteratur. For more information, please send an e-mail to andersen@cbs.dk

About the study

This report has been made at the request of the Danish EDI Council who asked us to make a survey of the EDI development in the period 1995-1997 and to give a prognosis of EDI application in the years to come.

The data retrieval has been made from January 6 1998 to April 2 1998. Based on a cooperative agreement with the Center for IT Research we will conduct further interviews until August 31 1998 and make a data analysis in order to establish the scope of electronic commerce in the public and private sector.

We are greatly indebted to VANS-operators, companies and public organizations for their readiness to cooperate and participate in the interviews.

The research assistants, Lotte Mangor, M.Sc. student in Economics and Business Administration, and Tine Bjørn-Andersen, M.Sc. student in Business Administration and Computer Science, have assisted in the data processing of the material collected. However, it is solely the authors who are responsible for the report: associate professor Kim Viborg Andersen (project manager), professor Niels Bjørn-Andersen and associate professor Niels Christian Juul, Department of Informatics, Copenhagen Business School.

For further information on the report, please contact Kim Viborg Andersen, by tel.: +45-3815-2437 , fax. +45-3815-2437 or by  e-mail. at andersen@cbs.dk