Value-Added Network (VAN)

DEFINITION of 'Value-Added Network (VAN)'

A value-added network (VAN) is a private, hosted service that provides companies with a secure way to send and share data with its counterparties. Value-added networks were a common way to to facilitate electronic data interchange (EDI) between companies. As the internet created competition for this service with the advent of secure email, VANs responded by expanding their service offerings to include things like message encryption, secure email and management reporting. A value-added network simplifies the communications process by reducing the number of parties with which a company needs to communicate. The VAN accomplishes this by acting as an intermediary between business partners that share standards based or proprietary data. VANs are set up with audit capabilities so that the data being exchanged is formatted correctly and validated before it is transferred to the next party. VANs are sometimes referred to as added-value networks or turnkey communications line. 

BREAKING DOWN 'Value-Added Network (VAN)'

Value-added networks are generally used by large companies for efficient supply chain management with their suppliers, or by industry consortiums or telecommunications companies. VANs usually operate in a mailbox setting, wherein a company sends a transaction to a VAN and the VAN places it in the receiver's mailbox. The receiver contacts the VAN and picks up the transaction, and then sends a transaction of its own. The system is similar to email, except that it is used for standardized structured data rather than unstructured text.

VANs in the Internet Era

The ubiquity of the internet has lessened the attraction of VANs, largely due to cost considerations. Simply put, it is often more cost-effective to move data over the internet than to pay the minimum monthly fees and per-character charges included in typical VAN contracts. VANs have countered the challenge from the internet by focusing on specific industry verticals such as healthcare, retail and manufacturing. These industries have unique data integrity and security concerns that make VANs a true value added solution. The data being exchanged through the VAN can be formatted to go directly into the software application of the receiving organization, an enterprise resource planning (ERP) suite for example. This direct exchange between two companies increases the speed of commerce while also reducing the chances of human errors that occur with manual data entry. VANs can also provide visibility tools which shows the delivery status of data and some corresponding workflows, allowing companies to better coordinate dependent activities through the system rather than exchanging phone calls and emails. Like many pre-internet technologies, VANs have had to reinvent themselves to remain relevant going forward.