VAN Pricing Structures

VANs bill in various ways for services rendered. Typically, customers can pick and choose from an array of VAN service and be billed accordingly., These sevices may include EDI translation software and support, EDI to fax support, email capability, inter-VAN connectivity, and, most commonly, transmission of X.12 documents.

Account Start-UP Costs:

Opening an account with a VAN incurs start-up costs as well as other variable costs such as mailbox/ network fees. The network usage fee is a flat monthly rate that applies, whether or not the services are used. The network usage fee can also include a mailbox fee for maintaining an account and a password. Each account has a “mailbox” through which companies exchange EDI data.

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The overall start-up costs vary depending on the EDI readiness of the organization and the trading partner, the number of trading partners, line attachment options(asynchronous), and software application options.

VAN Usage or Variable Costs:

VANs charge session fees based on the of their services. Unlike the postal service, which charges only to send a letter, most VANs charge to both send and receive data. If a user agrees to cover all of the transaction costs, the VAN can charge twice for each transaction: 1) when the user sends or receives, and 2) when a trading partner sends or receives.

The customer pays according to volume of usage. Usage is defined as the number of transactions sent and received by the customer or the trading partner. Transaction fee assessment is not consistent or straightforward. Some VANs allow users to “bundle” several transaction sets into a single envelope, as though sending several invoices in one paper envelope. Other VANs open the “ interchange” and charge for each transaction set in the envelope. Other support and software costs are hidden. The session fee is a variable cost related to envelope/message fee delivery of functionally similar EDI documents. Support fee generally applies to updates to the software and telephone support for the VANs that provide software. Some VANs provide free software that works only with its sponsoring VAN. Other VANs provide customized software that may or may not operate with other VANs.

Interconnect Costs:

A company that exchanges EDI data with a trading partner that subscribes to a different VAN will pay a VAN interconnect fee. Most VANs offer interconnects, but they often charge monthly fees for using them and may have other charges as well.

If no transactions are sent, there is only the monthly charge for the mailbox and interconnect fee. Since most VANs offer volume discounts, the variable costs per transaction will decrease as the number of transactions sent increases.

7.6

INTERNET-BASED EDI

Several factors make the Internet useful for EDI:

 Flat-pricing that is not dependent on the amount of information transferred. The Internet flat-rate model is better for the customer as opposed to the standard VAN approach of charges per character.

 Cheap access with the low cost of connection – often a flat monthly fee for leased line or dial-up access. Business users have access to commercial and noncommercial Internet services in some 140 countries providing ubiquitous network coverage.

 Common mail standards and proven networking and interoperable systems; another attraction is that Internet mail standards are nonproprietary and handle congestion and message routing exceptionally well. It has been noted that sometimes on a VAN network an e-mail message can take hours or days to reach its destination, while on the Internet it usually takes seconds to minutes.

 Security- public-key encryption techniques are being incorporated in various electronic mail systems. This will enable systems to ensure the privacy of EDI messages and give users a way to verify the sender or recipient.

Electronic commerce services on the Internet differ from earlier value added network offerings in several respects. First, they’re based on established technologies and applications available from independent vendors, whereas more traditional services are based on proprietary software and front ends. Not only does the proprietary approach limit interoperability, but it also narrows application choices. Older services limited the customer to what the vendor was willing to provide. Nonproprietary solutions, in contrast, allow the customer to choose the level of service needed. In addition, because the Internet supplies users with a working software infrastructure, VANs can work with companies to configure their applications for interacting with business partners.

7.7 SUMMARY

This chapter gave us an insight into the various concepts of EDI implementation. We began with a discussion of the various units needed to implement EDI – namely EDI standard, translation software, trading partners, banks, VANs etc. WE also noted that the EDI standards can be though to be consisting of transaction sets, each set made up of data segments, the data segments themselves are a collection of data elements.

We next learnt that the EDI software implementation is made up of four layers – the Business application, Internal format conversion, EDI translator and EDI envelope for document messaging. WE briefly went into the details of each of them. The cost of EDI implementation was also dealt with – the various constituents that make up for the fixed costs and the variable costs. The chapter ended with a discussion on value – added Networks, their merits and demerits and their costing structure.

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7.8 QUESTIONS

1. List any four components of EDI implementation. 2. What is the common structure of EDI messages? 3. What are the four layers of EDI implementation? 4. List any three disadvantages of custom translators. 5. What are main types of EDI access methods? 6. What are the costs of EDI implementation. 7. List the factors that affect the fixed costs. 8. What are the disadvantages of VANs for EDI. 9. List the main costs of VAN.

10. List four advantages of Internets.

11. How much will an EDI implemention cost?

12. What is VAN? with the help of a diagram explain the functions of third party VAN. 13. What is EDI? List the factors that make the intenet useful for EDI.

7.8.1 Answers

1. EDI standard, translation software, trading partners, value added networks etc.

2. Each message is made up of transaction sets which are divided into data segments, which in turn are made up of data elements.

3. Business application layer, format conversion layer, translator layer and envelop for document messaging.

4. They are restrictive, difficult to up date and are unsupported.

5. Direct dialing, limited Third party VAN and full service Third party VAN 6. Fixed costs, Maintenance fees, VAN charges.

7. Volume of documents, cost of EDI translation software and implementation time. 8. Slowness, high costs.

9. Account startup costs, usage costs and interconnect costs. 10. Flat pricing, cheap access, common standards and secure

Chapter 8

Intra organizational Electronic