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EDI—A strategic weapon in international trade
16
Long Range Planning, Vol. 21, Ko. 2, pp. 46 to 53, 1991 Printed in Great Britain
0024--6301/91 s3.00 + .oo Pergamon Press plc
ED1 A Strategic Weapon International Trade Gerrit K. Jansse/ls
arzd Llido Cllyvers
While electronic data interchange will in the long term be a necessity for industry there are problems to be solved before it is generally accepted. Close co-operation between European standard committees and the European community is recommended if European industry as a whole is not to fall behind in the development.
The Role POOV ~)VJdJYOhdOJJ
in
of EDI $-Goons
NJd
~OCJJrWJts
in international trade is The present situation remarkable: goods arrive at their destination before their associated documents. Creating documents, mailing them to the freight forxvardcr and handling them in the port of departure can take 5-14 days, while the goods can be transported to the port in 1 day. On the other hand, mailing documents to the exporter, from the esporter to his bank, from the exporter’s bank to the importer’s bank abroad and acknowledging the latter requires 10 days to 3 weeks, while the transport from the port of departure to the port ofdestination takes 3-20 days, according to the destination. Due to this lack of synchronization, the goods are immobilized at various links of the logistics chain. Goods have to be stored, guarded, the)- are open to risk and, most of all, they incur an investment cost. Thus there is an urgent need to line up the document stream with the goods flow in international trade and to speed up the whole process by automatization and electronic data interchange (EDI), as well as by standardization and simplification of trade procedures and documents. The E,@t of EDI Instead of exchanging paper documents (invoices, orders, customs documents, . . .) EDI provides an electronic exchange of messages agreed between Gerrit K. Janssens and Ludo Cuyvers are both at the State University of Antwerp, Middelheimlaan 1, B-2020 Antwerp, Belgium.
trade partners. The receiver can complete these messages and forward them to partners further along the trade chain or within his own company. This means that EDI differs from other information systems in two ways: it is inter-organizational and it is co-operative. Inter-organizational information systems (IOSs) have developed during past years due to economic, technological and organizational changes, and are nowadays recognized as company resources.’ IOSs can be either competitive or co-operative. The most famous example among the competitive IOSs is the airline reservation system SABRE developed by American Airline. More recently co-operative information systems have become important, because the mutual benefits of multi-partner alliances may often outweigh the possible gains offered by competitive systems.’ EDI is such a co-operative information system. In a future competitive Europe a mistake on the possibilities of telecommunications can be fatal. Companies run the risk of missing opportunities of vertical integration with customers and suppliers and of lacking an accurate response to new products and services using telecommunication means. By 1995 it is expected that all over the world at least 400,000 companies will be confronted with EDI, be it directly or indirectly, distributed as follows: 35 per cent in Europe, 50 per cent in the United States and 15 per cent in Japan and South-East Asia.
The Development
of ED1
The U&T-stnndards Starting in 1960, the Economic Commision for Europe of the United Nations (the UN/ECE Working Party 4) spent a great deal of effort on designing: and harmonizing standards for uniform trade documents. Since then, three standards have been developed : ”
”
A the UN Layout (UNLK) >
Key
for
Trade
Documents
ED&A *
the ECEjUNCTAD rectory (TDED),
Trade
Data Elements
Di-
ti the ECE/UNCTAD Trade Data Interchange Directory (UN/TDI), from which the later EDIFACT would grow (cfr. infra). L41igtln~rt1tof Trade Docrwlerzts A standard form has been developed, which was accepted as ISO-norm (IS0 3535). On this document, various information elements have their fixed position, e.g. the date of transport, the name of the carrier, etc. By means of ‘masks’ new documents can be derived from this standard form by means of simple seroxing (e.g. an invoice using a transport document). In this way, rime-consuming and errorproducing production of documents was avoided. Stafldardized
Documerzt
Data
While assigning fixed positions for document data to the standard form. a set of the commonly appearing data are collected in the Trade Data Elements Directory (TDED). By this a glossary has been compiled supplying a standardized vocabulary for future messages. Electrorlic
Message
TraBc
The first important step towards electronic message traffic was the development of the Trade Data Interchange Directory (TDID). The TDID contained a terminology, syntax rules and standards for the eschange of messages composed by these rules. A hierarchy within the message was agreed upon: a message consists of segments, each segment is made up of data elements and each data element of a sequence of characters from an agreed character set. At a later stage, this electronic message traffic has been called Electronic Data Interchange (EDI). Formally ED1 can be defined as the electronic exchange of structured data from computer to computer by means of agreed message standards. For the practical execution of message traffic a detailed agreement is required on data elements, codes, syntax rules and message formats. These agreements should be realized via international ED1 committees.
Strategic
Weapon
in International
Trade
47
Within this framework European industries are supported in their EDI-normalization tasks. The industries are represented in working groups cooperating in the development of messages. Among these we find Odette (Organization for Data Eschange by Tele Transmission in Europe), CEFIC (Conseil Europecn des Federations de I’Industrie Chimique), EAN (International Article Numbering Association) and EDIFICE (Electronic Data Interchange Forum for companies with interest in Computing and Electronics).
The ED1 Standard Statzdard
Committees
Committees
in Europe
and the Urzited States
By the end of the 197Os, basically tlvo organizations were engaged in the standardization process of a syntax to format data for transmission and deformat data at reception: the UN/ECE Working Party 4 in Europe and the JEDI-co-ordination committee (Joint Electronic Data Interchange) in the U.S. The JEDI committee has seven members: the ANSIcommittee for Business Data Interchange (ANSIX12), the Automotive Industry Action Group (AIAG), the National Bureau of Standards, the Motor Industry, the Ocean Industry, the Rail Industry and the Uniform Communication Standards. JEDI stated its goal as follows: ‘the advantage of using a truly common data dictionary, a common set of structural rules for building and interpreting transaction sets and a common segment directory’.’ The two sets of standards, which were developed, were quite different because the UN-development focused on the requirements for international trade while the U.S. concentrated its development on the big ED1 market in the U.S. On the other hand, neither could afford at a later stage, their standards becoming competitors. Therefore, from 1985 on, meetings have been held with UN/ECE’s Working Party 4 and JEDI, aiming at (1) identifying the differences between both syntaxes, and (2) making a comparison of data element and message/transaction standards. EDIFACT
The European Community recognized the strategic importance of ED1 through its TEDIS program, launched in 1988.’ The program has four goals:
(1) to
avoid an uncontrolled expansion of data communication netn-orks resulting in incompatibilities;
(2) to
encourage the development tation of data communication and medium-sized companies;
and implemensystems in small
(3) to stimulate the European industry tics hardware and services; (1) to support EDIFACT).
the use of common
for telemastandards
(as
Since 1985 both groups worked towards a common standard to be called EDIFACT (ED1 Standard For Administration, Commerce and Trade). The EDIFACT syntax has been accepted by the IS0 in 1987, and published under the norm IS0 9735. In 1988 the UN agreed to maintain the standards. Messages which have been developed according to the UN/EDIFACT standards are: a commercial invoice, an order, a transport message and a customs message. The ANSI X12-committee works closely together with UN/EDIFACT to develop message formats. X12 wishes to become a legal subset of UN/EDIFACT so that all transactions according to the X12-syntas should be compatible Lvith the UN/EDIFACT messages.
43
Long Range
The EDIFACT
Planning
standard
Vol. 21
contains
April 1991
five tools:
(1) a
vocabulary (Trade Data Elements Director) or TDED). These are standard norions concerning trade transactions, logistics operations and administrative formalities:
(3
a s)-ntax for the compilation
of messages;
of standard (3) a set of rules for the composition messages (quotation, order, packaging, invoicing. . . .); (A) a vocabulary messages;
ofalready
developed
segments and
rules (the UN Layout (5) a set of representation Key for Trade Documents, i.e. the IS0 norm 6332). The physical representation is still rcquircd in those steps of the trade process v,rhere a separation exists between man/machine or in which a Lvritten trace of the transactions is desirable. Standards like EDIFACT accepted, because:
(1)
need years before they arc
a small
understanding of the svntax, a good deal of programming is required ivithin the company for a successful operation of EDI. Information has to be translated from application software at the company level into ED1 formats. This takes place in the ED1 software by means of an ‘Interface File’. Without this, ED1 would only be a simple electronic mail system. Before a transaction set (i.e. a group of logically connected data segments) can be transmitted, the ED1 information should be translated into ED1 transaction sets. The data elements, originating from the application soft\\-are, are put into their of transplace in the segments. At the reception action sets the variable length structure mostly is converted into fixed length fields and, at a later stage, these elements are put in the right place in the internal application software. Besides translation, more recent versions of EDI software offer additional services, such as the automatic acknowledgement of a transaction reception, the management of transaction control numbers and the maintenance of standards.
(3)
(3)
EDI Documents Descriprim 0Jar1 EDI
Doc~wwr
The smallest unit in an ED1 document is the data element. Data elements are aggregated in data segments. An example of a se_gmcnt is for example an invoice line consisting ot individual data elements, such as: quantity, unit. product identification code and price. Data elements in such a segment are of variable length. A minimum or maximum length can be specified. The field uses only-as many characters as necessary. This means if the tleld ‘product number’ can contain from 1 to 10 characters and the product number is six characters long, only these six characters will be stored. This avoids unnecessary storage and transmission of non-used characters. The fields are separated by a delimiter (a *), which allows to skip non-mandatory data elements (by sending two **, one after the other). Chracteristics
Although
oj- EDI
a clerk
Sqfiware
is not
supposed
to have
an)
ED1 documents are transmitted via a communications network. Generally speaking one can say that there are four possibilities: direct dialling, public data networks, managed data networks and private data networks. Direct dialling, public data networks and private data networks establish a direct link between trading partners. Direct diahg uses modems to connect communicating parties by means of ordinary telephone lines. Public data networks are networks offered by the PTTs as a service in which the sender makes a connection to its local access point to the network. At the reception side the network system sets up a connection and the messages for this destination arc delivered. Within the network the responsibility of transmission is with the network services. Some private networks in multinational organizations have a lot of data to be transmitted. The costs are not determined by the amount of data transmitted but by the hiring cost of the transmission lines. All these direct link techcompatibility of hardware, and, niques require because ED1 does not provide any mailbox, documents should be transmitted at agreed moments in time. If a company wishes to communicate with different partners using different hardware, it can cause a lot of trouble. The solution to this problem is the use of a network offered by a rhird party supplier. They allow communication bet\\-een trading partners Tvith differing hardLyare (this means, the supplier’s software does the translation). In addition, they offer mailboxes, translation, registration of and reports on messages.
ED&--A Strategic V&e Added ,C’etworks Third party suppliers are called suppliers of a Value Added Network (or shortly VAN). They offer added value to the pure data transport service, hired at the PTTs. The quality ofVANs differs by the way they; are open to connectivity, their price level and by tactors as security and reliability. The requirements of an ED1 user vir-li-vis his third party can be formulated as follows: (1) he wants to make a choice between direct links; (2) he wants to make messages and syntax;
a choice
VANS and
between
(3) he wants to make use of ED1 from application programmes even if they different computers systems.
EDI various run on
If a company opts for going with a third party supplier, it still has to decide upon which supplier. To make a successful evaluation the following factors should be taken into account: (1) It%nt cnrr a network supplier do for me? Of course all suppliers can deliver a network and install it. A good buyer, however, wanting to reach a greater number of smaller suppliers, also expects from his third party training of his suppliers and support. If his trading partners are mostly all of the same industry, it can be important to buy a network which others in this industry have already. Large industries have industrial associations which can develop industry specific standards, offer a helpdesk to their new users and act as a listening ear to the users’ problems. (2) LVhat does the price structure look like? It seems logical that a supplier of a VAN charges the use of his network according to the number of transmitted characters. However, some suppliers additionally charge a fixed amount per transmitted document, regardless of its length. Others require minimal record lengths. These are hidden costs for a user using mainly short records. Price structures can vary a lot which can be confusing. In order to make a good evaluation of different suppliers, a user should have a fairly good idea of the frequency and volume of document transmissions, document size, time of transmission during the day, etc. (3) TVhiclz servicer does the supplierprovide? A primary requirement is of course the installation of the netvvork and provision for the transmission of messages. Other users, mainly the smaller ones, also expect some form of consulting from the supplier, i.e. if the company cannot provide the necessary personnel for ED1 support. (4) What associations!
is
the
slcpplier’s
position
towards
trade
The more a VAN supplier is linked to these associations, the more influential he is and the
Weapon
in International
stronger his position to provide better services in the long run.
Trade the same or even
It is highly improbable that one single VAN can serve the needs of a multinational, multi-market company. VAN suppliers, aware of this. non- build interVAN bridges. So, the companies are confronted with one more choice: either LISC independent links to different VANS or make use of an interVAN bridge. The choice of the latter can be successful if: (1) full-auditing exists on internetwork transactions, (2) the charges to cross VANS are smaller than the installation cost of different links, and (3) the bridge can provide similar services as each individual link does. An Implement&ml
Process@
EDZ
A successful implementation of ED1 technology be done in six steps according to Pugsley?
can
(1) Complete trrrderstnrldirlg of EDI. Hovv much knowledge a company must acquire on ED1 depends on the internal efforts it spends on it. If no external consultants are hired in the process, this level of understanding should be quite high. One of the ways to get the necessary knowledge is to become a member of one of the groups developing standard messages. (2) Agree OHstarld‘lrds wit/l brtsirless pmtrzers. After the company has found a suitable business partner, very clear agreements should be made on which standard (or a variant of it, if necessary) to use. Once agreed on the standard. further agreements should be concluded on the transactions (invoice, order, . . .). It does not only concern the message syntas (ANSI X12, TRADACOMS or EDIFACT), but also the file transfer protocol, which is both in Europe and in the U.S. the de j&to standard RJE (Remote Job Entry 2780 or 3780), in spite of its shortcomings for EDI. Especially in Europe there is an inclination towards X.400 as the file transfer protocol for the future. However. as long as the suitability of X.400 is not generally accepted, some industry groups apply specific file transfer protocols (e.g. the Odette transfer protocol). (3) Modify e.uisrirlg systems. In-house computer applications should be modified in such a w-ay that they allow EDI. If no system is available that can accept batch input of messages (e.g. orders), each order note should be printed and keyed in again (which of course is contrary to the ED1 goals!). At the output side, e.g. invoices should be selected for ED1 out of the vvhole bunch of invoices. Good ED1 software should provide an ‘application interface’, which should be accessible from different programming languages. By this, a wider range of existing application softvvare can be reached. (4) Trarzslnte dm. Transactions must be translated into ED1 messages. Various translation modules are necessary to translate data into different standards
30
Long Range
Planning
Vol. 2-t
April 1991
(UN/EDIFACT. TRADACOMS, UN/TDI, . . .). This is true for the translation of data from an EDI package into a format compatible with the in-house application, as xvell as for the translation of the inhouse application into an EDI standard format.
(5) Prepare corlrrllllrlirnriLlr2r. One has to set up a network connection with the trading partners via a VAN or a direct link. In Europe, an EDI user has two options: the X.25 services provided by the public data networks, or the services offered by private Value Added Networks like GEISCO or MNS. (6) Management nrld &it of the whole process. A consistent management and audit must be realized between application and link. Management has the initial task of setting up a link with a trading partner and of checking whether the system is operational. Among daily management tasks are: archiving transactions, inspecting error log files (one has to check whether the transmitted data have arrived correctly at the receiver, otherlvise they have to be re-sent), and the changing ofpasswords. On request, at a later stage, the EDI link with the trading partner can be disconnected. If using a third party (VAN), tests must be executed in order to validate the service level.
An ED1 technology must also provide some security facilities as: (1) provide secure access to the system and to the use of it; (2) make traces for the audit; (3) create profiles definin, u the list of allowed transactions per trading partner; (4) make tables containing de;ails for the formatting of each transaction; and (5) acknowledge messages.
The company looks at EDI as just an information project, but EDI differs from a normal information systems project in some detail. Firstly it is not a completely ne\v system, but it interferes with existing systems. It xvi11often happen that orders or invoices are already produced by computer, and that after input of incoming invoices, payments are being made by means of the computer. Furthermore EDI systems require a great deal of maintenance. Standards are evolving and adding or omitting a trading partner \\-ill induce some ne\v adaptations.
In order to ensure the security of transmission a clear contract with the business partner is necessary. Such an ED1 contract has to specify: the fact that both parties will use ED1 for a number of transactions, which standards are agreed upon and which networks will be used. The International Chamber of Commerce publication no. 452, entitled ‘UNCID Uniform rule of conduct for interchange of data by tele-transmission’, provides an example of such a contract.
Benefits EDI The Benefits
and Disadvantages
of using
of EDI
The use of EDI avoids problems inherent in the traditional mode ofinformation exchange: slowness of execution and an enhanced probability of error while duplicating information. Moreover, there is the opportunity of integrating various information flows in the logistics process. The EEC programme TEDIS mentions four benefits of ED1 are explicitly mentioned? irzpcct of data, because it is no longer required to encode the data a second time. The cost of fixing data is lowered due to the fact that transmission can happen without human intervention. This also leads to fewer transcription errors, increasing the reliability of data,
(1) single
(4
better service to the client, due to a faster and more correct execution of the orders and a faster and more accurate information provision to clients. In this way the company puts itself into a stronger competitive position,
(3) better
inventory control, because of better sales forecasts, shorter delivery times and smaller buffer stocks. These benefits are strongest in a 2ust in time’ environment,
because no time (4) faster cycle sale/invoice/paytuent, is lost in sending orders, invoice or payments by mail. Money and goods gain a higher rotation. Savings with ED1 are realized as (1) savings in transport expenses, (2) capital savings due to a more efficient inventory management, and (3) savings in mail expenses. For this last issue, let us quote Beer:’ ‘The cost of mailing a first-class business letter to the United Kingdom from Canada is at present not less than 64 cents. The cost of electronic transmission of the corresponding information in recent pilot tests undertaken by the national trade facilitation bodies in the respective countries was about 1 cent.’ The benefits are quite substantial. The cost realized by paper work, errors, data redundancy, too big inventories, waiting times in offices, factories and customs offices should represent 10 per cent of the cost of the finished product. The production of documents for transport and the delays incurred by the production and control at different places of these documents should represent between 10 and 13 per cent of the total transport expenses.6 As a self-explanatory example we quote the figures published by Hewlett Packard of the savings they could realize in a purchasing environment:8 savings of 5-10 per cent of the work time of buyers; reduction of l-2 weeks in delivery times of an order; reduction of 3-5 per cent in administrative errors, resulting in a reduction of 30-40 per cent of return sendings of incorrectly delivered goods; savings of nearly 0.4 USD per order in the cost of
ED&--A mailing an order per cent). Problems
(corresponding
to a saving of 35
with the me of ED1
The theory and the concept of EDI are quite attractive and promising but in practice they can fail to attain the expected results. The whole idea of EDI turns on speed, but EDI documents are transmitted in batch and remain in the receiver’s mailbox until he is ready to pick up his messages. In this operation a lot of time can be lost. The unavoidable use of paper too can be a source of inefficiency. ED1 is described as a paperless information flow, but often paper documents are sent afterwards ‘just to be sure’ because of distrust of the system or because they are required formally by legal practice. A supplementary problem delaying the introduction of ED1 can be the cost/benefit justification, mostly because the benefits are hardly measurable. It seems however that the justification in many companies can be made on the basis of savings on order entry errors only. Even if it is difficult to figure out the economic benefits of EDI, the nonimplemenation of ED1 can cause a loss of clients wishing to use EDI. Not necessarily a disadvantage, but a new problem, is caused by the changed situation concerning irzternal control.’ Like the ‘paper’ world in which not everybody is allowed to produce trade documents, authorizations must be given per type of transaction. By this the production of a document clearly should show for later control purposes the ‘time of production’ and the ‘identification of the producer’. As one can no longer use the sequence in documents numbers, the ED1 system must provide a kind of transaction nrrmbering. This, of course, causes additional problems if the same transaction can be carried out by different people on different machines. Authorization is required, not only for the document production, but also for the sending of copies. A classical example, is the sending of copies to the finance department for approval of required credits. One can ask whether the duplication of data is required or Lvhether the software can solve this problem. With the transmission of a message some information must be expected concerning the arrival so that the sender is convinced that his message is not lost. A system ofpassword must be set up so that (1) no one can get access within the company, (2) no one can get the opportunity to use the EDI system of the trading partner illicitly. A Note on Cryptography Interchange
irz Electrorlic
Data
While implementing electronic message traffic, one must ensure two important properties of the ‘paper’ mailing system: (1) messages must beprivate; and (2) message must be able to carry signatlrres. To achieve the paperless electronic office written signatures
Strategic
Weapon
in International
Trade
should be replaced with digital signatures, envelopes with a code.
51 and the
To keep a communication private codes should be provided. The sender encodes each message before sending. The receiver (and no other unauthorized person) knows the decoding function to be applied in order to find the original message. With a code, one encounters the problem of distributing the encode keys to the parties involved. This must happen in another private transmission: it is found that it is impossible to let the system operate in a quick and cheap way.“’ Message authentication is a procedure which allows, once set up between two parties, verification messages. It allows the receiver to validate origin and destination of the message, as xvell as its contents, actuality and relative sequence in the communication.” While with message authentication the receiver can validate all those properties, they still cannot be proved nor verified by a third party. For this reason, digital signatures are required. Desirable properties of digital sigrlatftrej are: they must be difficult to counterfeit and they must be easy to verify. Contrary to a person’s written signature, a signature must be different for each use, otherwise they simply could be copied. In general a counterfeit-proof digital signature must depend on the message and a unique sequence number of the signer. The verifier, of course, needs to know any secret number.‘? Creating signatures with these properties nowadays can only be done by publickey techniques. A well-known technique is due to Rivest et al. (1978).” Legal
Aspects
of Electrorlic
Domrrrerlts
Another problem relates to the legal aspects of electronic documents. ED1 developments influence the existing legal framework and practice in international trade only with a considerable timelag. Two international codifications are worth mentioning in this respect: Incoterms 1990 and the Uniform Rules for Documentary Credits. The International Chamber of Commerce can be credited for both codifications. An interesting private initiative to enhance the speed of the documents and data flows is Sea Dots. (1) Irlcoterms 1990. The 1980 edition of the ICC Incoterms” opened the door for ED1 but nowhere did the codification mention explicitly electronic messages and documents. The main reason for the 1990 revision, however, ‘was the desire to adapt terms to the increasing use of electronic data interchange (EDI)‘.” ICC is very clear when stating the responsibilities of seller or buyer under the 13 and seller agreed to terms, that if the buyer communicate electronically, the usual transport document may be replaced by an equivalent ED1 message.
52
Long Range
Planning
Vol. 31
April 1991
With respect to the bill of lading, the problem remains if this has to be a negotiable document, i.e. to be used by the buyer as a means for transferring rights to the goods in transit to a new buyer. In that case an original paper document has to be supplied, which cannot be substituted by an EDI message. ICC espects, however, that in the near future the bill of lading \vill be replaced by ED1 procedures. Incoterms 1990 has already taken this into account. (2) C’tz$JformRulerfir D ocumerztary Credits. The 1983 revision of the ICC Uniform Rules enables information exchange between banks by teletransmission (art. 12, UCP, rev. 1983, see ICC, 1984, p. 26). It provides the opportunity for commercial partners and their banks, unless otherwise agreed, to use as an information medium with documentary credits, documents that are produced by computers. A condition is, however, that these documents are original and, if necessary, authenticated. Authentication in the present contest means a physical, electronic or other message enabling the receiver to identify the sender of the message (ICC, 1984, p. 4’j; Wheble, 1987, p. 2816). In spite of this mitigation, documentary credits practice often still requires a signature, either as a result of inertia or because of legal necessity. (3) Sen Dots. When shipped goods are sold several times during a voyage, the bill of lading had to be endorsed as well. This evidently increases the chance of loss or fraud. Therefore, Chase Manhattan Corp. established in 1981 Sea Dots Registry Ltd. (London) to remedy this situation. Sea Dots acts as agent of the seller, the buyer or the carrier of the goods. The bills of lading are filed and registered in the computer system of Sea Dots. Sea Dots also provided a solution for the lack of synchronization of the goods and documents flows. The filing and information system of Sea Dots transmits all the information contained in the bills of lading to the port of destination, thus avoiding much fuss, bother and paper work during the discharging of the vessel (non-negotiable delivery orders, letters of warranty, etc.). Sea Dots was primarily established for the facilitation of international trade in oil products, but is also suitable for trade and transportation of other basic commodities.
places in order to create lvorld-wide standards. UN/EDIFACT, g rown from the early work of the UN Economic Commision for Europe and the American JEDI co-ordination committee is such a world-wide standard. ED1 has a number of benefits if compared to traditional information exchange. Not only is the communication much faster but lack of synchronization with the goods flon- is solved. Also the probability of making errors in the copying and recopying of information does not exist in EDI. But, still today some judicial rules rely on paper documents and manual authentication. ED1 still poses some technical problems. Data generated by the in-house application software from the ED1 implementing company must be translated into ED1 formats, which does involve some programming. Furthermore a company must choose a network through \vhich it will communicate with its partners. The services of a supplier of Value Added Networks are very useful in this matter. The company xvi11 use the VAN-supplier who best meets its goals of service or who is the cheapest relatively, etc. Due to the complexity of the VAN market this is a ditiicult task.
Refererlces (1)
Ft. Suomi, resources, (1988).
(2)
B. C. McNurlin. The rise of co-operative 25 (6). 1-16 (1987).
(3)
Commissie van de Europese Gemeenschappen. tief, EUR 11883, p. 57 (1989).
(4)
B. Beer, The Link-up of machines, 7 (8), 459460 (1984).
(5)
W. Pugsley, Electronic Data Interchange-an the International HP Users Conference, BU/OA/OS, p. 13 (1989).
(6)
Commissie van de Europese Gemeenschappen, Mededeling van de Commissie aan de Raad betreffende datacommunicatie voor de handel TEDIS, COM(86) 662 def., 1 December (1986).
(7)
B. Beer, Several ALPS 7 (8). 460-461 (1984).
(8)
R. Hill, HP’s experiences Proc. International HP BU/NE/OB, p. 11 (1989).
(9)
D. M. Norris and E. Waples. Control of Electronic Data Interchange Systems, Journal of Systems Management 40 (3). 21-25 (1989).
Conclusion The electronic transmission of data betlveen trading is the only way to get rid of bad partners synchronization between a fast goods flow and a sIo\ver document and data flo\\-. The necessity for ED1 is felt increasingly by industry. This explains the intiatives tvhich were taken during past years to co-ordinate ED1 standards existing at different
Inter-organizational Information and
information Management,
converge,
systems as company 15 (2). 105-l 12
systems,
EDPAnalyzer,
EDI in perspec-
Transnational
Data
Report,
overview, Proc. of Brussels, paper
Transnational
Dafa
Electronic Data Interchange Users Conference, Brussels,
Report.
(EDI). paper
(10)
R. L. Rivest, A. Shamir and L. Adleman, A method digital signatures and public-key cryptosystems, cations of the ACM, 21 (2). 120-l 26 (1978).
(11)
R. R. Jueneman, S. M. Matyas and C. H. Meyer, Message authentication, IEEE Communications Magazine, 23 (9). 29-40 (1985).
(12)
J. K. Omura. communications,
Novel applications of /EEE Communications,
for obtaining Communi-
cryptography in digital 28 (5). 21-29 (1990).
EDI-A (13)
ICC. Guide
to Incoterms,
Paris, ICC Publrcation (14)
(15)
(16)
International No. 354
Chamber
of Commerce,
Strategic L. Cuyvers landse
(1980).
ICC, Incoterms. Commission on international Commercial Practice. Working Party Trade Terms, Document No. 462/l 1, international Chamber of Commerce, Paris, 12 February 1990, mrmeo (1990). ICC, Documentary Credits, UCP 197411983 Revisions Compared and Explained, International Chamber of Commerce, Paris, ICC Publication No. 411 (1984). B. Wheble (Ed.), Opinions of the ICC Banking Commission on Queries relating to Uniform Customs and Practice for Documentary Credits 1984-l 986, International Chamber of Commerce, Paris, ICC Publication No. 434 (1987).
J.
Weapon
and G. Vandewalle, handel,
Kempster. 23 (5).
Kluwer.
EDI:
69-71
the
Technrek
Antwerpen second
Trade
33
van de binnen-
en buiten-
(1987). generation,
Telecommunications,
(1989).
NN., Papierstroom indammen in internationale handel: van EDI naar EDIFACT, Berichten Buitenlandse Handel. No. 11, pp. 31-33 (1988). D. A. Schenck-Serrure. Echo, 38 (9). 3-14
De spits (1983).
in handelsdokumenten.
Transport
SIPROCOM, Gealigneerd documentensysteem. Belgische voor Buitenlandse Handel, Brussel, p. 37 (1979). D. Trafford. Europe-U.S. co-operation Journal. pp. 24-25 (1986) UN Economic (1984)
L. Cuyvers. G. K. Janssens and D. Schenck-Serrure, De standaardisering van de gegevensstroom in de internationale handel, Economisch en Sociaal Tijdschriff, 40 (2). 245-267 (1986).
in International
Commission
UN Economic Commissron Directory (1984).
for Europe,
for
for
Trade
Europe,
EDI,
Trade
Facilitation
Data Elements
Trade
Data
Dienst
Directory
Interchange
Long Range Planning, Vol. 21, Ko. 2, pp. 46 to 53, 1991 Printed in Great Britain
0024--6301/91 s3.00 + .oo Pergamon Press plc
ED1 A Strategic Weapon International Trade Gerrit K. Jansse/ls
arzd Llido Cllyvers
While electronic data interchange will in the long term be a necessity for industry there are problems to be solved before it is generally accepted. Close co-operation between European standard committees and the European community is recommended if European industry as a whole is not to fall behind in the development.
The Role POOV ~)VJdJYOhdOJJ
in
of EDI $-Goons
NJd
~OCJJrWJts
in international trade is The present situation remarkable: goods arrive at their destination before their associated documents. Creating documents, mailing them to the freight forxvardcr and handling them in the port of departure can take 5-14 days, while the goods can be transported to the port in 1 day. On the other hand, mailing documents to the exporter, from the esporter to his bank, from the exporter’s bank to the importer’s bank abroad and acknowledging the latter requires 10 days to 3 weeks, while the transport from the port of departure to the port ofdestination takes 3-20 days, according to the destination. Due to this lack of synchronization, the goods are immobilized at various links of the logistics chain. Goods have to be stored, guarded, the)- are open to risk and, most of all, they incur an investment cost. Thus there is an urgent need to line up the document stream with the goods flow in international trade and to speed up the whole process by automatization and electronic data interchange (EDI), as well as by standardization and simplification of trade procedures and documents. The E,@t of EDI Instead of exchanging paper documents (invoices, orders, customs documents, . . .) EDI provides an electronic exchange of messages agreed between Gerrit K. Janssens and Ludo Cuyvers are both at the State University of Antwerp, Middelheimlaan 1, B-2020 Antwerp, Belgium.
trade partners. The receiver can complete these messages and forward them to partners further along the trade chain or within his own company. This means that EDI differs from other information systems in two ways: it is inter-organizational and it is co-operative. Inter-organizational information systems (IOSs) have developed during past years due to economic, technological and organizational changes, and are nowadays recognized as company resources.’ IOSs can be either competitive or co-operative. The most famous example among the competitive IOSs is the airline reservation system SABRE developed by American Airline. More recently co-operative information systems have become important, because the mutual benefits of multi-partner alliances may often outweigh the possible gains offered by competitive systems.’ EDI is such a co-operative information system. In a future competitive Europe a mistake on the possibilities of telecommunications can be fatal. Companies run the risk of missing opportunities of vertical integration with customers and suppliers and of lacking an accurate response to new products and services using telecommunication means. By 1995 it is expected that all over the world at least 400,000 companies will be confronted with EDI, be it directly or indirectly, distributed as follows: 35 per cent in Europe, 50 per cent in the United States and 15 per cent in Japan and South-East Asia.
The Development
of ED1
The U&T-stnndards Starting in 1960, the Economic Commision for Europe of the United Nations (the UN/ECE Working Party 4) spent a great deal of effort on designing: and harmonizing standards for uniform trade documents. Since then, three standards have been developed : ”
”
A the UN Layout (UNLK) >
Key
for
Trade
Documents
ED&A *
the ECEjUNCTAD rectory (TDED),
Trade
Data Elements
Di-
ti the ECE/UNCTAD Trade Data Interchange Directory (UN/TDI), from which the later EDIFACT would grow (cfr. infra). L41igtln~rt1tof Trade Docrwlerzts A standard form has been developed, which was accepted as ISO-norm (IS0 3535). On this document, various information elements have their fixed position, e.g. the date of transport, the name of the carrier, etc. By means of ‘masks’ new documents can be derived from this standard form by means of simple seroxing (e.g. an invoice using a transport document). In this way, rime-consuming and errorproducing production of documents was avoided. Stafldardized
Documerzt
Data
While assigning fixed positions for document data to the standard form. a set of the commonly appearing data are collected in the Trade Data Elements Directory (TDED). By this a glossary has been compiled supplying a standardized vocabulary for future messages. Electrorlic
Message
TraBc
The first important step towards electronic message traffic was the development of the Trade Data Interchange Directory (TDID). The TDID contained a terminology, syntax rules and standards for the eschange of messages composed by these rules. A hierarchy within the message was agreed upon: a message consists of segments, each segment is made up of data elements and each data element of a sequence of characters from an agreed character set. At a later stage, this electronic message traffic has been called Electronic Data Interchange (EDI). Formally ED1 can be defined as the electronic exchange of structured data from computer to computer by means of agreed message standards. For the practical execution of message traffic a detailed agreement is required on data elements, codes, syntax rules and message formats. These agreements should be realized via international ED1 committees.
Strategic
Weapon
in International
Trade
47
Within this framework European industries are supported in their EDI-normalization tasks. The industries are represented in working groups cooperating in the development of messages. Among these we find Odette (Organization for Data Eschange by Tele Transmission in Europe), CEFIC (Conseil Europecn des Federations de I’Industrie Chimique), EAN (International Article Numbering Association) and EDIFICE (Electronic Data Interchange Forum for companies with interest in Computing and Electronics).
The ED1 Standard Statzdard
Committees
Committees
in Europe
and the Urzited States
By the end of the 197Os, basically tlvo organizations were engaged in the standardization process of a syntax to format data for transmission and deformat data at reception: the UN/ECE Working Party 4 in Europe and the JEDI-co-ordination committee (Joint Electronic Data Interchange) in the U.S. The JEDI committee has seven members: the ANSIcommittee for Business Data Interchange (ANSIX12), the Automotive Industry Action Group (AIAG), the National Bureau of Standards, the Motor Industry, the Ocean Industry, the Rail Industry and the Uniform Communication Standards. JEDI stated its goal as follows: ‘the advantage of using a truly common data dictionary, a common set of structural rules for building and interpreting transaction sets and a common segment directory’.’ The two sets of standards, which were developed, were quite different because the UN-development focused on the requirements for international trade while the U.S. concentrated its development on the big ED1 market in the U.S. On the other hand, neither could afford at a later stage, their standards becoming competitors. Therefore, from 1985 on, meetings have been held with UN/ECE’s Working Party 4 and JEDI, aiming at (1) identifying the differences between both syntaxes, and (2) making a comparison of data element and message/transaction standards. EDIFACT
The European Community recognized the strategic importance of ED1 through its TEDIS program, launched in 1988.’ The program has four goals:
(1) to
avoid an uncontrolled expansion of data communication netn-orks resulting in incompatibilities;
(2) to
encourage the development tation of data communication and medium-sized companies;
and implemensystems in small
(3) to stimulate the European industry tics hardware and services; (1) to support EDIFACT).
the use of common
for telemastandards
(as
Since 1985 both groups worked towards a common standard to be called EDIFACT (ED1 Standard For Administration, Commerce and Trade). The EDIFACT syntax has been accepted by the IS0 in 1987, and published under the norm IS0 9735. In 1988 the UN agreed to maintain the standards. Messages which have been developed according to the UN/EDIFACT standards are: a commercial invoice, an order, a transport message and a customs message. The ANSI X12-committee works closely together with UN/EDIFACT to develop message formats. X12 wishes to become a legal subset of UN/EDIFACT so that all transactions according to the X12-syntas should be compatible Lvith the UN/EDIFACT messages.
43
Long Range
The EDIFACT
Planning
standard
Vol. 21
contains
April 1991
five tools:
(1) a
vocabulary (Trade Data Elements Director) or TDED). These are standard norions concerning trade transactions, logistics operations and administrative formalities:
(3
a s)-ntax for the compilation
of messages;
of standard (3) a set of rules for the composition messages (quotation, order, packaging, invoicing. . . .); (A) a vocabulary messages;
ofalready
developed
segments and
rules (the UN Layout (5) a set of representation Key for Trade Documents, i.e. the IS0 norm 6332). The physical representation is still rcquircd in those steps of the trade process v,rhere a separation exists between man/machine or in which a Lvritten trace of the transactions is desirable. Standards like EDIFACT accepted, because:
(1)
need years before they arc
a small
understanding of the svntax, a good deal of programming is required ivithin the company for a successful operation of EDI. Information has to be translated from application software at the company level into ED1 formats. This takes place in the ED1 software by means of an ‘Interface File’. Without this, ED1 would only be a simple electronic mail system. Before a transaction set (i.e. a group of logically connected data segments) can be transmitted, the ED1 information should be translated into ED1 transaction sets. The data elements, originating from the application soft\\-are, are put into their of transplace in the segments. At the reception action sets the variable length structure mostly is converted into fixed length fields and, at a later stage, these elements are put in the right place in the internal application software. Besides translation, more recent versions of EDI software offer additional services, such as the automatic acknowledgement of a transaction reception, the management of transaction control numbers and the maintenance of standards.
(3)
(3)
EDI Documents Descriprim 0Jar1 EDI
Doc~wwr
The smallest unit in an ED1 document is the data element. Data elements are aggregated in data segments. An example of a se_gmcnt is for example an invoice line consisting ot individual data elements, such as: quantity, unit. product identification code and price. Data elements in such a segment are of variable length. A minimum or maximum length can be specified. The field uses only-as many characters as necessary. This means if the tleld ‘product number’ can contain from 1 to 10 characters and the product number is six characters long, only these six characters will be stored. This avoids unnecessary storage and transmission of non-used characters. The fields are separated by a delimiter (a *), which allows to skip non-mandatory data elements (by sending two **, one after the other). Chracteristics
Although
oj- EDI
a clerk
Sqfiware
is not
supposed
to have
an)
ED1 documents are transmitted via a communications network. Generally speaking one can say that there are four possibilities: direct dialling, public data networks, managed data networks and private data networks. Direct dialling, public data networks and private data networks establish a direct link between trading partners. Direct diahg uses modems to connect communicating parties by means of ordinary telephone lines. Public data networks are networks offered by the PTTs as a service in which the sender makes a connection to its local access point to the network. At the reception side the network system sets up a connection and the messages for this destination arc delivered. Within the network the responsibility of transmission is with the network services. Some private networks in multinational organizations have a lot of data to be transmitted. The costs are not determined by the amount of data transmitted but by the hiring cost of the transmission lines. All these direct link techcompatibility of hardware, and, niques require because ED1 does not provide any mailbox, documents should be transmitted at agreed moments in time. If a company wishes to communicate with different partners using different hardware, it can cause a lot of trouble. The solution to this problem is the use of a network offered by a rhird party supplier. They allow communication bet\\-een trading partners Tvith differing hardLyare (this means, the supplier’s software does the translation). In addition, they offer mailboxes, translation, registration of and reports on messages.
ED&--A Strategic V&e Added ,C’etworks Third party suppliers are called suppliers of a Value Added Network (or shortly VAN). They offer added value to the pure data transport service, hired at the PTTs. The quality ofVANs differs by the way they; are open to connectivity, their price level and by tactors as security and reliability. The requirements of an ED1 user vir-li-vis his third party can be formulated as follows: (1) he wants to make a choice between direct links; (2) he wants to make messages and syntax;
a choice
VANS and
between
(3) he wants to make use of ED1 from application programmes even if they different computers systems.
EDI various run on
If a company opts for going with a third party supplier, it still has to decide upon which supplier. To make a successful evaluation the following factors should be taken into account: (1) It%nt cnrr a network supplier do for me? Of course all suppliers can deliver a network and install it. A good buyer, however, wanting to reach a greater number of smaller suppliers, also expects from his third party training of his suppliers and support. If his trading partners are mostly all of the same industry, it can be important to buy a network which others in this industry have already. Large industries have industrial associations which can develop industry specific standards, offer a helpdesk to their new users and act as a listening ear to the users’ problems. (2) LVhat does the price structure look like? It seems logical that a supplier of a VAN charges the use of his network according to the number of transmitted characters. However, some suppliers additionally charge a fixed amount per transmitted document, regardless of its length. Others require minimal record lengths. These are hidden costs for a user using mainly short records. Price structures can vary a lot which can be confusing. In order to make a good evaluation of different suppliers, a user should have a fairly good idea of the frequency and volume of document transmissions, document size, time of transmission during the day, etc. (3) TVhiclz servicer does the supplierprovide? A primary requirement is of course the installation of the netvvork and provision for the transmission of messages. Other users, mainly the smaller ones, also expect some form of consulting from the supplier, i.e. if the company cannot provide the necessary personnel for ED1 support. (4) What associations!
is
the
slcpplier’s
position
towards
trade
The more a VAN supplier is linked to these associations, the more influential he is and the
Weapon
in International
stronger his position to provide better services in the long run.
Trade the same or even
It is highly improbable that one single VAN can serve the needs of a multinational, multi-market company. VAN suppliers, aware of this. non- build interVAN bridges. So, the companies are confronted with one more choice: either LISC independent links to different VANS or make use of an interVAN bridge. The choice of the latter can be successful if: (1) full-auditing exists on internetwork transactions, (2) the charges to cross VANS are smaller than the installation cost of different links, and (3) the bridge can provide similar services as each individual link does. An Implement&ml
Process@
EDZ
A successful implementation of ED1 technology be done in six steps according to Pugsley?
can
(1) Complete trrrderstnrldirlg of EDI. Hovv much knowledge a company must acquire on ED1 depends on the internal efforts it spends on it. If no external consultants are hired in the process, this level of understanding should be quite high. One of the ways to get the necessary knowledge is to become a member of one of the groups developing standard messages. (2) Agree OHstarld‘lrds wit/l brtsirless pmtrzers. After the company has found a suitable business partner, very clear agreements should be made on which standard (or a variant of it, if necessary) to use. Once agreed on the standard. further agreements should be concluded on the transactions (invoice, order, . . .). It does not only concern the message syntas (ANSI X12, TRADACOMS or EDIFACT), but also the file transfer protocol, which is both in Europe and in the U.S. the de j&to standard RJE (Remote Job Entry 2780 or 3780), in spite of its shortcomings for EDI. Especially in Europe there is an inclination towards X.400 as the file transfer protocol for the future. However. as long as the suitability of X.400 is not generally accepted, some industry groups apply specific file transfer protocols (e.g. the Odette transfer protocol). (3) Modify e.uisrirlg systems. In-house computer applications should be modified in such a w-ay that they allow EDI. If no system is available that can accept batch input of messages (e.g. orders), each order note should be printed and keyed in again (which of course is contrary to the ED1 goals!). At the output side, e.g. invoices should be selected for ED1 out of the vvhole bunch of invoices. Good ED1 software should provide an ‘application interface’, which should be accessible from different programming languages. By this, a wider range of existing application softvvare can be reached. (4) Trarzslnte dm. Transactions must be translated into ED1 messages. Various translation modules are necessary to translate data into different standards
30
Long Range
Planning
Vol. 2-t
April 1991
(UN/EDIFACT. TRADACOMS, UN/TDI, . . .). This is true for the translation of data from an EDI package into a format compatible with the in-house application, as xvell as for the translation of the inhouse application into an EDI standard format.
(5) Prepare corlrrllllrlirnriLlr2r. One has to set up a network connection with the trading partners via a VAN or a direct link. In Europe, an EDI user has two options: the X.25 services provided by the public data networks, or the services offered by private Value Added Networks like GEISCO or MNS. (6) Management nrld &it of the whole process. A consistent management and audit must be realized between application and link. Management has the initial task of setting up a link with a trading partner and of checking whether the system is operational. Among daily management tasks are: archiving transactions, inspecting error log files (one has to check whether the transmitted data have arrived correctly at the receiver, otherlvise they have to be re-sent), and the changing ofpasswords. On request, at a later stage, the EDI link with the trading partner can be disconnected. If using a third party (VAN), tests must be executed in order to validate the service level.
An ED1 technology must also provide some security facilities as: (1) provide secure access to the system and to the use of it; (2) make traces for the audit; (3) create profiles definin, u the list of allowed transactions per trading partner; (4) make tables containing de;ails for the formatting of each transaction; and (5) acknowledge messages.
The company looks at EDI as just an information project, but EDI differs from a normal information systems project in some detail. Firstly it is not a completely ne\v system, but it interferes with existing systems. It xvi11often happen that orders or invoices are already produced by computer, and that after input of incoming invoices, payments are being made by means of the computer. Furthermore EDI systems require a great deal of maintenance. Standards are evolving and adding or omitting a trading partner \\-ill induce some ne\v adaptations.
In order to ensure the security of transmission a clear contract with the business partner is necessary. Such an ED1 contract has to specify: the fact that both parties will use ED1 for a number of transactions, which standards are agreed upon and which networks will be used. The International Chamber of Commerce publication no. 452, entitled ‘UNCID Uniform rule of conduct for interchange of data by tele-transmission’, provides an example of such a contract.
Benefits EDI The Benefits
and Disadvantages
of using
of EDI
The use of EDI avoids problems inherent in the traditional mode ofinformation exchange: slowness of execution and an enhanced probability of error while duplicating information. Moreover, there is the opportunity of integrating various information flows in the logistics process. The EEC programme TEDIS mentions four benefits of ED1 are explicitly mentioned? irzpcct of data, because it is no longer required to encode the data a second time. The cost of fixing data is lowered due to the fact that transmission can happen without human intervention. This also leads to fewer transcription errors, increasing the reliability of data,
(1) single
(4
better service to the client, due to a faster and more correct execution of the orders and a faster and more accurate information provision to clients. In this way the company puts itself into a stronger competitive position,
(3) better
inventory control, because of better sales forecasts, shorter delivery times and smaller buffer stocks. These benefits are strongest in a 2ust in time’ environment,
because no time (4) faster cycle sale/invoice/paytuent, is lost in sending orders, invoice or payments by mail. Money and goods gain a higher rotation. Savings with ED1 are realized as (1) savings in transport expenses, (2) capital savings due to a more efficient inventory management, and (3) savings in mail expenses. For this last issue, let us quote Beer:’ ‘The cost of mailing a first-class business letter to the United Kingdom from Canada is at present not less than 64 cents. The cost of electronic transmission of the corresponding information in recent pilot tests undertaken by the national trade facilitation bodies in the respective countries was about 1 cent.’ The benefits are quite substantial. The cost realized by paper work, errors, data redundancy, too big inventories, waiting times in offices, factories and customs offices should represent 10 per cent of the cost of the finished product. The production of documents for transport and the delays incurred by the production and control at different places of these documents should represent between 10 and 13 per cent of the total transport expenses.6 As a self-explanatory example we quote the figures published by Hewlett Packard of the savings they could realize in a purchasing environment:8 savings of 5-10 per cent of the work time of buyers; reduction of l-2 weeks in delivery times of an order; reduction of 3-5 per cent in administrative errors, resulting in a reduction of 30-40 per cent of return sendings of incorrectly delivered goods; savings of nearly 0.4 USD per order in the cost of
ED&--A mailing an order per cent). Problems
(corresponding
to a saving of 35
with the me of ED1
The theory and the concept of EDI are quite attractive and promising but in practice they can fail to attain the expected results. The whole idea of EDI turns on speed, but EDI documents are transmitted in batch and remain in the receiver’s mailbox until he is ready to pick up his messages. In this operation a lot of time can be lost. The unavoidable use of paper too can be a source of inefficiency. ED1 is described as a paperless information flow, but often paper documents are sent afterwards ‘just to be sure’ because of distrust of the system or because they are required formally by legal practice. A supplementary problem delaying the introduction of ED1 can be the cost/benefit justification, mostly because the benefits are hardly measurable. It seems however that the justification in many companies can be made on the basis of savings on order entry errors only. Even if it is difficult to figure out the economic benefits of EDI, the nonimplemenation of ED1 can cause a loss of clients wishing to use EDI. Not necessarily a disadvantage, but a new problem, is caused by the changed situation concerning irzternal control.’ Like the ‘paper’ world in which not everybody is allowed to produce trade documents, authorizations must be given per type of transaction. By this the production of a document clearly should show for later control purposes the ‘time of production’ and the ‘identification of the producer’. As one can no longer use the sequence in documents numbers, the ED1 system must provide a kind of transaction nrrmbering. This, of course, causes additional problems if the same transaction can be carried out by different people on different machines. Authorization is required, not only for the document production, but also for the sending of copies. A classical example, is the sending of copies to the finance department for approval of required credits. One can ask whether the duplication of data is required or Lvhether the software can solve this problem. With the transmission of a message some information must be expected concerning the arrival so that the sender is convinced that his message is not lost. A system ofpassword must be set up so that (1) no one can get access within the company, (2) no one can get the opportunity to use the EDI system of the trading partner illicitly. A Note on Cryptography Interchange
irz Electrorlic
Data
While implementing electronic message traffic, one must ensure two important properties of the ‘paper’ mailing system: (1) messages must beprivate; and (2) message must be able to carry signatlrres. To achieve the paperless electronic office written signatures
Strategic
Weapon
in International
Trade
should be replaced with digital signatures, envelopes with a code.
51 and the
To keep a communication private codes should be provided. The sender encodes each message before sending. The receiver (and no other unauthorized person) knows the decoding function to be applied in order to find the original message. With a code, one encounters the problem of distributing the encode keys to the parties involved. This must happen in another private transmission: it is found that it is impossible to let the system operate in a quick and cheap way.“’ Message authentication is a procedure which allows, once set up between two parties, verification messages. It allows the receiver to validate origin and destination of the message, as xvell as its contents, actuality and relative sequence in the communication.” While with message authentication the receiver can validate all those properties, they still cannot be proved nor verified by a third party. For this reason, digital signatures are required. Desirable properties of digital sigrlatftrej are: they must be difficult to counterfeit and they must be easy to verify. Contrary to a person’s written signature, a signature must be different for each use, otherwise they simply could be copied. In general a counterfeit-proof digital signature must depend on the message and a unique sequence number of the signer. The verifier, of course, needs to know any secret number.‘? Creating signatures with these properties nowadays can only be done by publickey techniques. A well-known technique is due to Rivest et al. (1978).” Legal
Aspects
of Electrorlic
Domrrrerlts
Another problem relates to the legal aspects of electronic documents. ED1 developments influence the existing legal framework and practice in international trade only with a considerable timelag. Two international codifications are worth mentioning in this respect: Incoterms 1990 and the Uniform Rules for Documentary Credits. The International Chamber of Commerce can be credited for both codifications. An interesting private initiative to enhance the speed of the documents and data flows is Sea Dots. (1) Irlcoterms 1990. The 1980 edition of the ICC Incoterms” opened the door for ED1 but nowhere did the codification mention explicitly electronic messages and documents. The main reason for the 1990 revision, however, ‘was the desire to adapt terms to the increasing use of electronic data interchange (EDI)‘.” ICC is very clear when stating the responsibilities of seller or buyer under the 13 and seller agreed to terms, that if the buyer communicate electronically, the usual transport document may be replaced by an equivalent ED1 message.
52
Long Range
Planning
Vol. 31
April 1991
With respect to the bill of lading, the problem remains if this has to be a negotiable document, i.e. to be used by the buyer as a means for transferring rights to the goods in transit to a new buyer. In that case an original paper document has to be supplied, which cannot be substituted by an EDI message. ICC espects, however, that in the near future the bill of lading \vill be replaced by ED1 procedures. Incoterms 1990 has already taken this into account. (2) C’tz$JformRulerfir D ocumerztary Credits. The 1983 revision of the ICC Uniform Rules enables information exchange between banks by teletransmission (art. 12, UCP, rev. 1983, see ICC, 1984, p. 26). It provides the opportunity for commercial partners and their banks, unless otherwise agreed, to use as an information medium with documentary credits, documents that are produced by computers. A condition is, however, that these documents are original and, if necessary, authenticated. Authentication in the present contest means a physical, electronic or other message enabling the receiver to identify the sender of the message (ICC, 1984, p. 4’j; Wheble, 1987, p. 2816). In spite of this mitigation, documentary credits practice often still requires a signature, either as a result of inertia or because of legal necessity. (3) Sen Dots. When shipped goods are sold several times during a voyage, the bill of lading had to be endorsed as well. This evidently increases the chance of loss or fraud. Therefore, Chase Manhattan Corp. established in 1981 Sea Dots Registry Ltd. (London) to remedy this situation. Sea Dots acts as agent of the seller, the buyer or the carrier of the goods. The bills of lading are filed and registered in the computer system of Sea Dots. Sea Dots also provided a solution for the lack of synchronization of the goods and documents flows. The filing and information system of Sea Dots transmits all the information contained in the bills of lading to the port of destination, thus avoiding much fuss, bother and paper work during the discharging of the vessel (non-negotiable delivery orders, letters of warranty, etc.). Sea Dots was primarily established for the facilitation of international trade in oil products, but is also suitable for trade and transportation of other basic commodities.
places in order to create lvorld-wide standards. UN/EDIFACT, g rown from the early work of the UN Economic Commision for Europe and the American JEDI co-ordination committee is such a world-wide standard. ED1 has a number of benefits if compared to traditional information exchange. Not only is the communication much faster but lack of synchronization with the goods flon- is solved. Also the probability of making errors in the copying and recopying of information does not exist in EDI. But, still today some judicial rules rely on paper documents and manual authentication. ED1 still poses some technical problems. Data generated by the in-house application software from the ED1 implementing company must be translated into ED1 formats, which does involve some programming. Furthermore a company must choose a network through \vhich it will communicate with its partners. The services of a supplier of Value Added Networks are very useful in this matter. The company xvi11 use the VAN-supplier who best meets its goals of service or who is the cheapest relatively, etc. Due to the complexity of the VAN market this is a ditiicult task.
Refererlces (1)
Ft. Suomi, resources, (1988).
(2)
B. C. McNurlin. The rise of co-operative 25 (6). 1-16 (1987).
(3)
Commissie van de Europese Gemeenschappen. tief, EUR 11883, p. 57 (1989).
(4)
B. Beer, The Link-up of machines, 7 (8), 459460 (1984).
(5)
W. Pugsley, Electronic Data Interchange-an the International HP Users Conference, BU/OA/OS, p. 13 (1989).
(6)
Commissie van de Europese Gemeenschappen, Mededeling van de Commissie aan de Raad betreffende datacommunicatie voor de handel TEDIS, COM(86) 662 def., 1 December (1986).
(7)
B. Beer, Several ALPS 7 (8). 460-461 (1984).
(8)
R. Hill, HP’s experiences Proc. International HP BU/NE/OB, p. 11 (1989).
(9)
D. M. Norris and E. Waples. Control of Electronic Data Interchange Systems, Journal of Systems Management 40 (3). 21-25 (1989).
Conclusion The electronic transmission of data betlveen trading is the only way to get rid of bad partners synchronization between a fast goods flow and a sIo\ver document and data flo\\-. The necessity for ED1 is felt increasingly by industry. This explains the intiatives tvhich were taken during past years to co-ordinate ED1 standards existing at different
Inter-organizational Information and
information Management,
converge,
systems as company 15 (2). 105-l 12
systems,
EDPAnalyzer,
EDI in perspec-
Transnational
Data
Report,
overview, Proc. of Brussels, paper
Transnational
Dafa
Electronic Data Interchange Users Conference, Brussels,
Report.
(EDI). paper
(10)
R. L. Rivest, A. Shamir and L. Adleman, A method digital signatures and public-key cryptosystems, cations of the ACM, 21 (2). 120-l 26 (1978).
(11)
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