Page 272 - Electronic Commerce

Business-to-Business Activities: Improving Efficiency and Reducing Costs

Because EDI transactions are business contracts and often involve large amounts of
money, the existence of an independent audit log helps establish nonrepudiation.
Nonrepudiation is the ability to establish that a particular transaction actually occurred. It
prevents either party from repudiating, or denying, the transaction’s validity or existence.
In the past, VANs had one serious disadvantage: cost. Most VANs required an enrollment
fee, a monthly maintenance fee, and a transaction fee ranging from a few cents to a dollar
that was levied on each transaction. The up-front cost of implementing indirect connection
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EDI, including software, VAN enrollment fee, and hardware, could easily exceed $20,000.
Today, VAN costs are much lower because VANs use the Internet instead of leased
telecommunication lines to connect to their customers. Costs to begin EDI are less than
$5000, with monthly fees under $100 that include a generous transaction allowance.
Even small companies find that they can engage indirect connection EDI and sell to large
industrial and retail companies that require their vendors to use EDI.
Companies that provide VAN services today all use the Internet as their main data
communication technology. EDI on the Internet is called Internet EDI or Web EDI.It is
also called open EDI because the Internet is an open architecture network, as you learned
in Chapter 2. The EDIINT (Electronic Data Interchange-Internet Integration, also
abbreviated EDI-INT) set of protocols is the most common set used for the exchange of
EDI transaction sets over the Internet.
Most EDIINT exchanges today are encoded using the AS2 (Applicability Statement 2)
specification, which is based on the HTTP rules for Web page transfers, although some
companies are using a more secure specification, AS3 (Applicability Statement 3).
Walmart, for example, requires all of its vendors to use the EDIINT protocol transmitted
using AS2. Both AS2 and AS3 transmissions return secure electronic receipts to the
senders for every transaction, which helps establish nonrepudiation.

EDI Payments
Some EDI transaction sets provide instructions to a trading partner’s bank. These
transaction sets are negotiable instruments; that is, they are the electronic equivalent of
checks. All banks have the ability to perform electronic funds transfers (EFTs), which are
the movement of money from one bank account to another. The bank accounts involved in
EFTs may be customer accounts or the accounts that banks keep on their own behalf with
each other. When EFTs involve two banks, they are executed using an automated clearing
house (ACH) system, which is a service that banks use to manage their accounts with each
other. In the United States, banks can use the ACH operated by the U.S. Federal Reserve
Banks or one of the private ACHs operated by a group of banks or a separate company. You
will learn more about how banks process ACH payments in Chapter 11.

SUPPLY CHAIN MANAGEMENT USI NG
INTERNET T ECHNOLOGIES

You learned earlier in this chapter that the part of an industry value chain that precedes a
particular strategic business unit is called a supply chain. Many companies use strategic
alliances, partnerships, and long-term contracts to create relationships with other

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