What is a VAN (value-added network)?

VAN or a value-added network refers to a private network between businesses that enables them to conduct electronic data interchange (EDI). 

VAN contracts are typically provided by telecommunications companies, industry groups, specialized VAN service providers, or large companies with enough resources to build a VAN connection. 

Typically, communication lines are leased out from the local telecommunications company for a network provider. As the network provider enhances the lines of communication with additional services, a private network is created. These networks offer added value to those using the closed network in the form of fast and secure data exchange (which explains the name value-added network). 

Historically VANs were set up to enable businesses to automate data entry as well as to send and receive data between trading partners. Since the rise of the internet, VAN providers reinvented themselves and switched to offering services like secure emailing, message encryption, and management reporting.  

VANs have become an important part of supply chain management in larger companies, and some businesses, like the finance sector, rely heavily on value-added networking to keep their information secure. 

What is the function of a VAN?

Since value-added networks are closed networks, the easiest way to visualize a VAN is to think of a mailbox setting. 

Let’s say that the business receives an order from their end-client. 

The person responsible for relaying the order to the supplier would log into the VAN operator gateway. The company would then send the purchase order to their VAN, and the network would place the order data to the supplier’s mailbox, who is part of the VAN. 

Since most VANs offer additional network services, aspects like the delivery status of an order can be monitored from afar.

Once the supplier has access to the VAN, they can collect the order data and send a reply if needed.

Companies that deal with a set of suppliers or partners (retailers or wholesalers) benefit from a value-added network. Security breaches are less frequent on a closed network, compared to using the public internet. 

VANs are similar to emailing but send and receive structured data, instead. Being able to relay data in particular formats will speed up the management reporting considerably. 

Types of VAN

The different types of VANs can be generally divided into three categories: 

• One-to-one. A simple VAN connection that is usually custom-built to relay messages exclusively between two partners. A company that has an exclusive deal with one supplier would benefit from a one-to-one VAN.
• Many-to-many. A bigger enterprise that connects suppliers and buyers, for example, would choose this since each member of the network can share data with anyone else on the network. A wholesaler that connects manufacturers with retailers would benefit from a many-to-many VAN.
• One-to-many. Similar to the previous model, with this type of VAN one business is connected to multiple others. A retailer dealing with multiple suppliers would benefit from a one-to-many VAN.   

What is EDI (electronic data interchange)?

Particularly before the internet became secure enough to facilitate data sharing, VANs were primarily used to share information between two or more parties over a closed network. 

EDI refers to the electronic exchange of data between a business and its partner. Usually, this refers to purchase data, shipping details, or other data that a business needs to share with other companies it works with. 

As closed networks can dedicate all the available resources for serving the data exchange between the network partners, value-added networks can be very fast. In fast-paced industries, like the financial sector, the speed of the EDI can make a huge difference.

Using EDI enables companies to exchange information in particular formats, such as ANSI, EDIFACT, TRADACOMS, XML, and CSV. Rather than having to spend time importing and exporting and re-entering data, VANs make the structured EDI easy. 

Benefits of VANs

Depending on your field, you might have different requirements for a VAN. You might require lightning-fast data exchange between your trading partners, or you might deal with sensitive data that really shouldn’t fall into the wrong hands.

There are many benefits of setting up a VAN, mainly: 

• Security. Since VANs are not connected to the internet, they are a more secure and encrypted environment, so no business secrets are seen by the wrong eyes. Hacking attempts are less frequent and much harder to successfully execute. 
• Speed. The data moves between one computer and another in real-time, so decisions can be made faster and business operations become faster. As the infrastructure is purpose-built for the networking parties, no resources are going to waste. 
• Accuracy and error correction. Because the data is only entered once, the level of data accuracy and overall recordkeeping becomes easier. Not having to export the data into different formats also reduces the chance of errors.
• Simplicity and standardization. As the data is sent in a pre-determined standardized format, an order process becomes simpler for everyone.