When: 1960s
Where: USA
Why: Fully automated transactions revolutionised business practice
How: The use of code in messages meant that computers could interpret them without the need for human intervention
Who: Edward A. Guilbert
Fact: The use of the term ‘mailbag’ to describe data files transferred over EDI comes from when businesses exchanged purchase orders via courier
Electronic Data Interchange, or EDI, can be described briefly as the replacement of paper-based business document exchanges with automated electronic equivalents. It is used extensively today by large retailers as their preferred method of issuing purchase orders to suppliers.
The gradual development of this simple concept has transformed the way companies do business with each other; by eliminating slow and tedious accounting processes and capacity for human error, the process of performing a transaction has been hugely improved.
And it’s not just business transactions that have been revolutionised by EDI – the invention also led to e-commerce, a huge leap forward for retail operations.
Although EDI is seen as a modern invention, its roots can be traced back to the 1840s, when the invention of the telegraph allowed near-instantaneous communication for the first time. The system was quickly put into use by the US railways, which used the technology to relay information about operations management. By the 1870s, the major railway companies had developed unique systems of code in telegraph messages to allow for faster communications and to stop competitors eavesdropping – laying the groundwork for the encrypted communications used in EDI today.
The first instance of a form of electronic interchange being used was in the late 1940s, when the US military devised an electronic system for stocking supply planes to Berlin using telex, radio teletype or telephone. In the early 1960s, while working for American chemical company DuPont, Sgt. Edward A. Guilbert, a US army logistics officer involved in the system used in Berlin, developed a system for sending electronic messages between the company and Chemical Leahman Tank Lines.
Despite this early inception, when the use of computers in large businesses became widespread in the 1960s, civilian transaction systems were still mostly stuck in the analogue age. Businesses communicated with each other via the tried-and-tested mediums of courier, teletype and (later) fax, with the data being painstakingly entered by hand into computers at either end – far from the ease of use offered by EDI systems today. This slow and tedious process actually increased the amount of time spent on administration and increased the potential for human error.
The roots of EDI can be traced back to the 1840s, when the invention of the telegraph allowed near-instantaneous communication for the first time.
By the late 1960s, many companies involved in transportation via rail, road, sea, and air used electronic manifests similar to those developed by Guilbert.Other major early adopters of what we would now call EDI systems were large buying organisations, such as supermarkets, chain stores and health services, who, independently of each other, developed proprietary systems for communicating business information between computers over a Value Added Network (a precursor to the internet which uses leased telephone lines to allow business partners to communicate) in the early 1970s. These large companies, such as Sears, had the financial muscle to influence their suppliers to adopt these standards, and for both parties the benefits soon became apparent – the speed and accuracy of computer-based transactions was unrivalled, and companies could also save on paper and postage.
In addition, the volume-based charges levied on Value Added Networks meant that businesses put an emphasis on conciseness, developing systems of coded data for their EDI systems, rather like the railway companies in the 1870s. Not only did this save money; the ability of computers to interpret code meant that transactions could be processed without the need for a live individual, greatly increasing efficiency. By the mid-1980s one such system, K-Mart’s EPOS, was being used by over 500 suppliers in the USA.
But the fact that each large company had developed a separate system for its digital transactions meant that EDI was a long way from being a truly widespread business tool. The systems were incompatible with each other, meaning that business-to-business transactions were often impossible, and if you were a supplier for multiple companies you would have to adopt multiple systems for digital transactions; the incredibly high cost of computers at the time meant that this was often a virtual impossibility.
A universal standard was needed, and in 1979 the US National Standards Institute began developing a uniform system for digital transactions, the ASC X12 (also known as ANSI ASC X12) standard, which is still in use today. Other standards followed, and sooner or later most businesses stopped using their in-house standards and switched to one of the national or international standards, such as the UN’s EDIFACT protocol, the most widely used standard outside the USA.
However, the high cost and low sophistication of computers were still barriers to EDI’s general adoption, and it was not until the late 1980s, when personal computers became more common, that use of EDI systems became widespread.
The fact that no human intervention is needed in an EDI system has driven a revolution in business-to-business (B2B) practice, dramatically improving the speed and efficiency of transactions and record-keeping, as well as reducing the cost of transactions, both for postage and packaging and for human assistance. As computers have become ever more sophisticated more innovation has crept in, allowing for further developments, such as planning and anticipating demand and managing complicated supply-chain operations – actions that would never have been possible in paper-based exchanges. By 1991, 12,000 businesses in the UK alone were using some form of EDI system.
The advent of the internet in the 1990s has allowed further improvements to the technology. With a universal means of communication, the dedicated leased lines needed for Value Added Network communications can be removed from the equation, allowing EDI software developers to focus on improving the connectivity and usability of the systems. This being said, a dwindling number of companies still use Value Added Network standards, on account of the support and infrastructure still in place.
The fact that no human intervention is needed in an EDI system has driven a revolution in business-to-business (B2B) practice, dramatically improving the speed and efficiency of transactions and record-keeping.
EDI systems are now virtually ubiquitous in one form or another in B2B exchanges, and the advances made in this field have led to internet-based e-commerce, a technology that revolutionised business-to-consumer (B2C) interaction.
Originally conceived in 1979 by British entrepreneur Michael Aldrich, e-commerce systems built upon the innovations of EDI and Electronic Funds Transfer (EFT) systems to allow consumers to interact directly with businesses using automated systems. Seen in a limited form in the 1980s with ATM cash machines and telephone banking, e-commerce took off in the mid-1990s with the introduction of high-speed internet protocol and the entry of pioneering online businesses such as eBay and Amazon.
After the dotcom crash of 2001, in which many e-commerce businesses failed because of unrealistic business models, many retailers with a strong offline presence moved into the field, and e-commerce is now big business – in 2010, online shoppers bought over £590bn worth of goods.
EDI in its original, leased-line form is being slowly phased out in favour of internet-based systems, but the revolution it brought about in business is here to stay, and its influence will be felt for a long time to come.
In 1991, the Data Interchange Standards Association created the Edward A. Guilbert e-Business Professional Award, a lifetime achievement honour bestowed each year in recognition of demonstrating ‘outstanding leadership in the e-business standards field’.