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Why do EDI standards dominate for electronic transactions?

The EDI standard format is the only option accepted by Walmart and other retailers. But as technology and data formats have changed over the years, is there a better way?

The electronic data interchange standard format -- commonly referred to as EDI standards or EDI -- are used to transact more electronic ordering around the globe than any other format. Why? The EDI standard format has a decades-long head start and is the only option accepted by retailers such as Walmart. But as technology and data formats have changed over the years, it seems logical that there must be a better way.

A short history of EDI standards

In 1968, the Transportation Data Coordinating Committee began to create a standard data format to be used to replace the paper versions of transoceanic shipping manifests. The format was designed to be flexible enough to accommodate the needs of multiple companies, regardless of their cargo or the differences in the way they did business. In 1973, file transfer between computers using FTP became available, and in 1975, the first true EDI standards were published. That coincided closely with the establishment of Telenet, the first service provider dedicated to exchanging EDI documents, which launched the year before. EDI standards were adopted by several grocery companies a couple years later, and in 1979, EDI became the American National Standards Institute Accredited Standards Committee (ANSI ASC) X12 standard. Once the standard was solidified, use expanded across multiple industries, and in 1991, nearly 12,000 businesses in the U.S. were using EDI.

In 2002, Walmart issued a mandate to its suppliers, explaining that the company would only issue orders in the EDI standard format. That move effectively solidified the adoption of EDI for all Walmart's suppliers. And once those companies had made the not-insignificant investment in time and technology, they began using it with their own trading partners. Today, more than 90% of the Fortune 500 use ANSI X12 or its international version, EDI for Administration, Commerce and Transport (EDIFACT), with more than 100,000 companies in the U.S. using it now.

Why EDI standards still dominate

The EDI standard format is an open text format that can be read and understood by an experienced professional, and it offers enough flexibility to accommodate every industry that's tried to adopt it. That makes it nearly universally appealing. But that doesn't mean there aren't other ways to exchange order information.

When the XML format first became viable in the early 1990s, its proponents envisioned transitioning from what was considered to be the arcane and outdated EDI standard to the more modern and flexible XML. At that time, the value-added networks (VANs), such as Telenet, which enabled the transfer of EDI documents, priced their services by the kilo-character (1,000 characters). EDI document files were large and numerous, meaning invoices from VANs grew with the volume of business. XML proponents believed the XML documents would be smaller and thus less expensive to transfer, as well as simpler to manage. Neither of these turned out to be significant advantages or reasons to uproot the thousands of trading systems that enabled trade for thousands of major enterprises.

Today, the EDI specification, XML and other formats account for the bulk of the transactions around the world for ordering and other supply chain documentation. EDI transactions are routinely translated from one company's version to another to conform with each enterprise's internal processes and ERP systems. Converting from EDI to XML has become routine as each trading partner chooses the format that best suits its needs, eliminating any reason to switch away from the EDI standard.

Converting transaction files between EDI and XML -- or even other formats -- is now a standard function that has made it simple for those companies already standardized on EDI X12 to do business with trading partners that use other formats. The ROI for switching from EDI to any other format simply isn't there, in large measure because internet connections have all but eliminated the costly VAN charges that were based on the volume of data.

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