Value-Added Network (VAN): Definition, How It Works, and Purpose

What Is a 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 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 lines.

How a Value-Added Network (VAN) Works

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 that show 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. Not only is using a VAN more efficient and more accurate, but it also saves the cost of hiring human data-entry professionals for the exchange of information.

Like many pre-Internet technologies, VANs have had to reinvent themselves to remain relevant going forward. Today, VANs offer services that go above and beyond mailboxes for EDI exchange and retrieval, authentication of messages, and archival of past transactions. Modern VANs create value for businesses by offering automatic backups of EDI data, flexible access to that data via secure web portals, and unlimited data pricing packages.