History of EDI

Although the business computer enabled companies to store and process data electronically, companies needed an expedient method to communicate the data. This method was realized by the widespread use of computer telecommunications. Using telecommunications, companies could transmit data electronically over telephone lines, and have the data input directly into a trading partner's business application. These electronic interchanges improved response time, reduced paperwork, and eliminated the potential for transcription errors. Computer telecommunications, however, only solved part of the problem.

Early electronic interchanges were based on proprietary formats agreed between two trading partners. Due to differing document formats, it was difficult for a company to exchange data electronically with many trading partners. What was needed was a standard format for the data being exchanged.

In the 1960's a cooperative effort between industry groups produced a first attempt at these common data formats. The formats, however, were only for purchasing, transportation, and finance data, and were used primarily for intra-industry transactions. It was not until the late 1970's that work began for national Electronic Data Interchange (EDI) standards. Both users and vendors input their requirements to create a set of standard data formats that:

  • were hardware independent;
  • were unambiguous, such that they could be used by all trading partners;
  • reduced the labor-intensive tasks of exchanging data (e.g., data re-entry); and
  • allowed the sender of the data to control the exchange, including knowing if and when the recipient received the transaction.

The Problem Addressed by EDI

Companies have used paper as the traditional medium for conducting business. Company records are filed on paper, and paper forms are mailed between companies to exchange information. The advent of the business computer has enabled companies to process data electronically; however, the exchange of this data between companies still relies heavily on the postal system. Oftentimes, a company will enter data into a business application, print a form containing the data, and mail this form to a trading partner. The trading partner, after receiving the form, re-keys the data into another business application. Inherent in this process are poor response times - use of the postal system can add days to the exchange process, excessive paperwork for both companies involved in the exchange, and the potential for errors as information is transcribed.


The EDI translation process converts application data to and from communications-ready EDI data. The communications service, however, is not part of the translation process. The EDI standards do not specify how EDI data is to be transmitted to a trading partner. Currently, bulk file transfer protocols (e.g., bisynchronous and asynchronous) are used to convey the majority of EDI traffic.

EDI trading partners seldom communicate directly, but rather, use the services of a third-party Value-Added Network (VAN). EDI VANs provide a communications network to connect trading partners, regardless of individual hardware platforms or communications protocols. Each partner connects to the VAN, and the VAN manages the connections to all the trading partners.

VANs also serve as a document clearinghouse, either providing a mailbox service to store received interchanges until a user is ready to download them, or proactively delivering interchanges to a user. The proactive delivery service can be immediate (i.e., interchanges are delivered as soon as they are received) or scheduled (i.e., interchanges are delivered at a specific time of day). Additionally, the proactive delivery service can be defined by document type or trading partner. For example, a user can request immediate delivery of all purchase orders, or request delivery of all interchanges from the XYZ Company at 3:00 PM.