How Supply Chain EDI Improves Efficiency and Reduces Costs

What is Supply Chain EDI?

Supply chain EDI can be quickly and narrowly defined as those transactions which support the procurement process, in other words, supply chain activities. Supply chain activities related to procurement include (1) Pre-Purchase Activities, (2) Purchase Activities and (3) Post Purchase Activities. If we accept Supply chain activities that includes purchase, prepurchase and post purchase activities, we may also surmise supply chain activities may extend to control activities, specifically receipt transactions such as CONTRL documents or Functional Acknowledgement (FAs,997s), perhaps even MDNs (Message Delivery Notifications). 

Accepting receipt transactions into the realm of supply chain activities also means, to some extent and with some businesses, supporting documents or transactions may be brought into scope. Supporting documents in the context of supply chain activities might therefore include border crossing documents, credit reports, electronic tax exemption certificates, even freight transactions and of course to some extent with some businesses.

The Role of EDI in Supply Chain Operations

If we look at Supply chain activities together as a predefined category, “supply chain EDI” we get a rather good idea which activities are core activities (1) Pre-Purchase Activities, (2) Purchase Activities and (3) Post Purchase Activities and which activities extend Supply Chain activities (A) Supporting documents and (B)Receipt transactions. Interestingly, all supply chain activities extend visibility into the supply chain in both directions and at the same time.

Key Supply Chain Transactions Managed by EDI

Key supply chain transactions are indeed managed by EDI, in fact millions of businesses rely on supply chain EDI technologies to answer the most pressing question in supply chain operations, that question, ‘Where’s My Stuff? A question of such magnitude begins long before a shipment ever takes place.

Pre-Purchase Activities

Pre-Purchase activities, transactions, or messages if you prefer may include such novelties as the Price/Sales Catalog message (832). While items and pricing may take place in other ways between a sales agent and buying agent, the Price/Sales Catalog message (832) is designed for system-to-system conveyance of price information. The Price/Sales Catalog message may include precise Item Identification (LIN) data, even specific details such as Country of Origin, style, style color and size.

Purchase Activities

Purchase Activities or Purchase Orders as they are commonly referred to include precise Item Identification (PO1) typically includes Bill to and Ship to information and can include Carrier Details (TD5), precise communication within the Purchase Order (PO) that directs the seller to a specific carrier (SCAC). POs can go on to define shipping services or services levels and even has the capacity as a ‘data carrier’ to make specific statements to the seller to use the ‘Best way’ to ship the products or ensure the delivery meets the Delivery Requested or Requested Ship date as required in the purchase order.

Post Purchase Activities

Information relayed by EDI between the buyer and the seller does not end with procurement. The buyer may include information material to determining ‘Where’s My Stuff?’ during the procurement process. Information necessary to identify the buyer’s delivery location(s) as it pertains to the order and shipment. Information which may even include Destination Quantities (SDQ) during the order process. Information which advises which items are intended for which location on the Expected Delivery Date. Precise detail, information critical to the determination of ‘Where’s My Stuff?’ included during the procurement process by way of key and supporting documents makes a ‘Where’s My Stuff?’ determination entirely predictable. The advent of AI, also built into today’s modern systems, means that systemic resolution of ‘Where’s My Stuff?’ Today is more of an automated process than it once was, a new process complete with delivery mechanisms such as dashboards and email alerting.

How EDI in supply chain helps streamline communication between trading partners

Post Purchase Activities often discounted offer insight, post purchase activities deliver an orderly and integrated means of communicating change deepening the understanding between the buyer and the seller.

Purchase Order Change Requests, whether Buyer Initiated (860) or Seller Initiated (860) communicate purchase order changes. Implementing Purchase Order Change Requests (850) or leveraging a ‘change by refresh’1 process for clients who expect their outbound orders to change or can anticipate the use of change or replacement orders can improve automation when implemented by an expert.

Post Purchase activities also include the Purchase Order Acknowledgment (855 or POA), a transaction that offers the benefit of supplying an efficient and integrated means of confirming buyer purchase orders or providing information regarding changes to buyer purchase orders. The POA simplifies the business relationship between buyers and sellers. It can even be used to inform interested parties such as brokers or distribution centers and contains all of the information normally associated with a purchase order. That being said, the Purchase Order Acknowledgment (855) typically contains information concerning the receiving location, a shipping date, and the products and quantities to be shipped not to mention the pertinent detail previously mentioned that typically accompany the PO.

Optional information such as product pricing, allowances and charges, and payment terms may also be included in the Purchase Order Acknowledgment and may be required by trading partners. Changes in availability during the procurement process may result in multiple Purchase Order Acknowledgments (855s), setting downstream expectations for multiple shipments which in turn would be followed by multiple invoices. Likewise, a single orders for multiple items, expected to be fulfilled in a timely manner may result in multiple shipments due to physical availability of products and factors such as release dates, schedule dates, 'on-sale' or embargo dates and availability when the order was placed.

Setting expectations for accessible data and the use of AI or AI Agents to improve visibility should be an everyday consideration and should be expected to increase over time just as the number and value of customers and suppliers increase and the value of the business grows. Facilitating a universal understanding supply chain EDI within the organization goes a long way to streamline communication, within the 4 walls of the business and between and among trading partners.

Purchase orders, invoices, shipping notices, and inventory updates

Purchase Activities and workflows that undertake alignment prior to order, delivery and pay go a long way in promoting visibility with or without AI. Tried and true, order-to-cash workflows rely on succinct business understanding. Look at inventory updates, while inventory positions are often systemically undertaken when sales have ended, understanding items and their permutations is critical path in understanding inventories, in other words, it is far easier to count an item when an item in all of their permutations are known.

We have all been in a retail store during inventory periods whether we realize it or not; at the very least observed a sign, a sign with 3 letters -DNI-. A sign that very simply indicates an item that should not be counted among those items scheduled for inventory. This is possible because items in all of their permutations is known and a non-working floor model, also known, has been differentiated from the items scheduled for inventory. This non inventory item may be a non-working floor model and may even use a different product identifier than a working model or it may not have a product identifier at all, indicating that it should not be counted among the items engaged in a cycle count. In short, differentiating specific items from all others at the beginning of the cycle, ensures that inventories at the end of the cycle are clearly understood and can be counted accurately.

How EDI in supply chain helps streamline communication between trading partners

EDI in supply chains helps streamline communication between trading partners by encouraging the use of structured data. EDI uses structured data, in the above business case – catalog data is structured to enter the environment in a predictable way in order to create and or update an internal catalog such that all items currently in inventory are known. Catalog items, identified by way of a unique identifiers are exposed to systems and personnel within that organization in such a way such that way individuals and systems within the organization can take control of each item (each, case, pack or pallet) and differentiate it from all other items, and organize it for purposes of handling, display, storage, even pick-pack and ship. Considering today’s more modern retail operation, understanding and organizing items for purposes of handling, display, storage, even pick-pack comes is more critical than ever. Take BOPIS for example, a ‘Buy Online, Pick Up In-Store’ model that allows customers to shop online and pick up their items at the store, where getting the right product to the customer at the right price is critical, and location (inventory) is similarly critical.

Faster order processing and reduced manual errors

The understanding that the use of EDI in supply chains helps streamline communication between trading partners and results in faster order processing and reduced errors become clearer still once we get past alignment and into the ordering process.

Following alignment, (1) Pre-Purchase Activities, the Buyers Enterprise Resource Planning (ERP) system triggers an order which generates an EDI Purchase order to the appropriate supplier. The data for the order comes from the internal catalog discussed earlier and is completely aligned with the seller’s system. The Item, item description, height, weight, and volume, in agreement between the buyers and sellers’ systems eliminating hand keying, the process automated, lessening the human impact by reducing the impact of any human interpretation, intervention,  and errors. The item is ordered without issue and the seller’s system is able to process the order automatically without hesitation and often automatically.

Improved inventory management and real-time shipment tracking

While the seller’s system processes the order, it applies business rules validating product availability, pricing, ship date, & locations by way of the internal catalog, sending an EDI Purchase Order Acknowledgement back the buyer and a shipping order to the distribution center (DC). Incidentally, it makes little difference whether the Purchase Order Acknowledgement is X12 or an API, a flat file, any other data structure; the point is the information is relayed automatically by way of an Electronic Data Interchange (EDI) and the result is improved efficiency and reduced cost through the use of supply chain EDI.

Lower operational costs and better supplier collaboration

While the suppliers EDI and ERP system has been updating the buyer, the supplier is simultaneously updating its operations team by creating a Warehouse Shipping Orders to the Distribution Center (DC). The Warehouse Shipping Order is a transaction that instructs the warehouse to pick, pack and ship the order. The Distribution Center (DC) will respond to the Supplier with a Warehouse Shipping Advice notification at or about the same time as the order has ‘left the building.’ If you live in an Amazon powered world, this is about the same time you receive that email that tells you your order has shipped. The suppliers EDI and ERP system updated automatically generates a notification to the buyer. That notification, an Advanced Ship Notice sent to the buyer’s EDI system which updates the buyer’s system, and once again it makes no difference whether the structure or the (EDI) message is X12, API, or another format, the point being the information, relayed automatically between the seller and the buyer by way of an Electronic Data Interchange (EDI) results in an accurate, efficient, error free manner, without human intervention, and at an affordable price improving efficiency and completely achievable using well defined supply chain EDI technologies.

How EDI Software Enhances Supply Chain Performance

Modern EDI solutions deliver software and platform solutions that accommodate and extend supply chain EDI beyond traditional (1) Pre-Purchase, (2) Purchase, and (3) Post Purchase supply chain activities, and they come in various configurations, too many for a single blog. The key takeaway is this. a complete EDI solution must include three key 3 components.

Transportation

A complete EDI solution must include Transportation or a Transportation Layer. A Transportation layer allows partners to exchange EDI trade messages and while VANs were once dominant in this space there are other methodologies including AS2 and APIs used to exchange EDI trade messages today and at a much lower cost, and depending on your business partner, you should be able to take advantage of more than one of these technologies and not be reliant, forced into or force your partners on one or another.

Transformation

A complete EDI solution must include transformation or a transformation layer where EDI trade messages are transformed into ‘something’ that your ERP system can consume, also known as mapping the process of transforming data from one format to another is critical path to ensure the smooth exchange of business documents between one system and another. Mapping ensures compatibility between trading partners without insisting on it with each party is responsible for their own transformations. Partners only need to agree on a format for exchange between them, and while standards may exist they exist only to support an exchange format and are by no means universal, resulting in universal frustration for many.

Integration

A complete EDI solution must include an integration layer, the integration layer is where the transformed EDI trade message is consumed and where the primary focus is the data path into the enterprise without manual intervention.

How cloud-based EDI software integrates with ERP and TMS systems

Integrations differ across the provider space, some including PartnerLinQ have built in tools like enterprise integration frameworks, common processing workflows, and semantic data products that make integration easy while other providers rely on custom integration. Among the tools to consider are cache & cross reference capabilities which serve to deliver item lookup, account and promotion look ups or capabilities. Integration methods which might include direct database integration, and transportation mechanisms such as AS2,, API calls, or web services with processing that might be limited or unlimited in terms scheduled execution or  timing.

Assessing business needs and partner requirements

Assessing business needs and partner requirements can be overwhelming even for the most talented business managers where the best, next step would be to talk to a professional in the space. A professional integration pre-sales professional will help you with articulation, will help you with communication, and will help you with assessment criteria. 

Articulation is the critical path for success, identifying to the point of precision being able to effectively articulate which is most important for your success and why it must be part of the discussion with your internal and external teams if for no other reason than comparing apples to apples. Quite frankly, there are multiple ways to get to the same place, articulation help with the question of which solution offers the better utility for the future, which are more efficient in achieving your current goals and which consider your future goals for example. 

Communication comes next. Developing specific selection criteria and determining which components are critical path, and which are not is where goals are clearly defined and then resolved during the assessment process to come, which leaves us with assessment. 

Assessment follows communication, evaluating and eliminating solutions based on experience and discoveries made in the articulation and communication phases.

Want to take the conversation further? Request a demo with PartnerLinQ today.