Towards paperless international trade: EDI and EDIFACT.

• Author: Bellego, Alain

How will you react when your major customer tells you, "Six months from now, we are going to penalize any suppliers from whom we receive paper invoices, order acknowledgements or price lists"? This will mean that, like a growing number of companies in Western Europe, North America, Asia and the Pacific region, your customer is now running his or her purchasing and payment system on the basis of electronic data interchange change (EDI). You therefore have no choice but to comply with this requirement if you want to avoid weakening your competitive position, and perhaps even losing a customer.

At the national level, governments that are not prompt in taking steps towards making EDI possible for their importers and exporters might well slow down their country's economic development. This is the negative side of the story.

On the positive side, rapid growth of EDI (including in government agencies, for example in the customs administration) shows that the advantages of this new business technique far outweigh any possible drawbacks. EDI is revolutionizing business management and administration. Although its most tangible, immediate result is the progressive elimination of paperwork and paper-based formalities and procedures, EDI concerns much more than just paper--it is an entirely new way of doing business.

Beginnings

EDI started in the United States in the 'seventies, first in the transport sector. In 1989 approximately 9,000 U.S. companies were using the technique. That figure jumped to 13,000 in 1990 and is expected to grow to 30,000 by the mid-1990s, essentially in the wholesale trade, manufacturing, retail trade, transport and communication sectors.

In the United Kingdom users total about 3,000. They cover various business activities-chemicals, electronics, motor manufacturing, retailing, construction, banking and international trade, as well as customs and other governmental services. It is estimated that 5,500 companies in Europe as a whole use EDI today. By 1994 that number is estimated to be 40,000.

In Singapore EDI started in early 1990 with 50 pilot users. By mid-1990 the figure rose to 1,000 and by the end of 1990 to 2,000. The current volume of EDI transactions in the Singapore EDI network "TradeNet" is an average of 50,000 messages per day (see below).

What EDI is

In simple terms EDI is paperless trading. It is the exchange of business information electronically between business partners, intermediaries, public authorities and others in a structured format, without any need for human interpretation or retyping.

The time and effort involved in typing, printing, copying, matching, verifying, correcting, stamping, signing, checking, archiving and retrieving the mass of paper required for an international trade transaction is considerable.

The diagram on page 12 illustrates one segment of such a transaction, showing some of the data flows between only six parties in a transaction (it does not cover aspects such as production, internal transport, insurance, payment, exchange control, or sanitary or phytosanitary controls).

In reality, 30 to 40 different documents, in over 360 copies, pass between up to 27 parties located in different countries in the course of an international trade transaction. If one party does not receive the information it needs to perform its function at the right time, the movement of the goods may be stopped, which contributes to warehouse or port congestion, keeps trucks idle at the border, causes risks of pilferage of deterioration, provokes delays and leads to customer dis-satisfaction.

Paper transmission is slow, prone to error and costly. It is also ineffective: the parties involved in a transaction interchange up to 200 information elements, 30 of which may be repeated up to 20 times.

Approximately 70% of the information that passes between the individual parties in a transport chain has to be re-entered by each party in its own information system, although the information itself is unchanged. The information shown on documents produced by a computer quite often has to be manually retyped (re-keyed) into another computer, with obvious risks of error (for example the switching of figures, resulting in wrong article numbers, quantities or values).

Using computers:

The obvious solution is to skip the "manual" handling of information and to have it routed directly from one computer to the other. As illustrated in the diagram on page 13, this eliminates the costs and delays involved in printing, mailing and receiving documents and re-keying the information. In the diagram, Company A's purchasing system communicates directly with Company B's order-entry system. The order produced by Company B's computer is in the format and uses the codes required by Company B's computer. No human intervention and error occur when the order goes out to the supplier.

When several partners come into the picture, as shown in the diagram on page 12, similar direct communication is possible between pairs of computers (for instance between exporters or importers and customs authorities, as is already the case in a number of countries, or between freight forwarders and shipping lines). If no common communication and data standards exist, each partner has to transmit the information in the format required by its correspondent's computer system.

In the example in the diagram, this means that each of the six parties would have to use and maintain 30 different formatting and communications softwares.

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