The origins of e-procurement begin in the 1980s, with the development of electronic data interchange (EDI). This development, while ancient by today‟s standards, was groundbreaking for the time. EDI allowed customers and suppliers to send and receive orders (and invoices as well) using call-forward networks.
In the 1990s, technology, as it tends to do, improved and software companies began to develop electronic catalogues specifically for use by vendors. Since, e-procurement software has become an amalgam of the two: a platform for sending and receiving orders (as well as myriad other expenses such as travel) and various catalogues. Marketplaces have also proven to be a popular addition to e-procurement software. Marketplaces, to borrow CIPS‟ definition, are: virtual marketplaces for suppliers, distributors, agents and customers.”
Electronic Data Interchange May be defined as;
The technique based on agreed standards, which facilitates business transactions in standardized electronic form in an automated manner directly from a computer application from one organization to another.
How EDI works
1. Company A creates a purchase order using its internal business software
2. EDI software translates the order
3. Company A sends the Ksh. 850 purchase order to Company over a third party value added network (VAN) or encrypted in EDIFACT(EDI for Administration, Commerce and Transport developed by the UN for the purpose of providing EDI standards that would support world trade).
4. Company B receives the 850 purchase order document and will translate it from EDI to its propriety format and, typically, company B will send an acknowledgement to company A.
EDI at the supermarket
One of the best examples of EDI is EPOS (electronic point of sale) at the supermarket. When a product is purchased the checkout operator scans a barcode on its label, which automatically registers the price on the cash till. The same signal also triggers a computer process that reorders the item from the manufacturer, sets off a production cycle, and arranges invoicing, payment and transportation of the new order. EDI effectively puts the product back on the shelf with a minimum of human involvement.
Advantages of EDI
1. Quick processing of information.
2. Better customer service.
3. Increased productivity.
4. Cost efficiency.
5. Improved billing.
6. Distortion and exaggeration of supply and demand information is eliminated through real time strategy
7. It speeds transactions, reduce costs and error rates.
Limitations of EDI
1. The setup and maintenance of EDI system is expensive.
2. Business processes depended on EDI standard format and when the format changed then the business process has to be changed accordingly.
3. EDI systems are vulnerable to attack form viruses, malware and other frauds
4. Business incur staff training cost for them to run EDI enabled software.
5. Some organizations stops doing business with those that don‟t use EDI