Benefits Of EDI

Electronic Data Interchange (EDI) has been around in one form or another since 1977. Ultimately, EDI technology automates and integrates communication between two companies in their respective industry.

These firms are identified in the EDI world as Trading Partners. The documents that are transmitted between trading partners include items such as Sales Orders and Invoices, but the list of documents has grown over the years.  Let’s understand that communication mechanism and then discuss the documents that provide that network for businesses.

Value-Added Network In EDI

The communication of these documents, traditionally, went through an Intermediary.  The intermediary company is identified as a VAN (Value-Added Network).  Think of the VAN as an electronic post office.

When Company A wants to send a Purchase Order to Company B, their system, through mapping and communication software, will send an electronic file representing that Purchase Order to the VAN.  Company B can then check their account at the VAN and transmit the electronic file and import that into their system, through mapping and communication software, as a Sales Order.  This transaction reduces manual labor and eliminates the risk of any errors, As long as the mapping is complete and up-to-date.

The VAN charges the trading partners per kilo character (1000 characters) that exist in the file.  As the volume of transactions increases, so do the fees from the VAN.

The VAN can be eliminated from the communication between trading partners with the advent of secure AS2 / AS3 communication.  Using this method, a special piece of low cost communication software is installed on each trading partners system, and the software can be licensed per interchange partner.  Secure FTP (File Transfer Protocol) licenses can be secured and configured so that the file transmission is handled automatically without any VAN fees.  The most common EDI files map types are the 850 (Customer Purchase Order) 810 (Sales Invoice) and the 997 (Functional Acknowledgement).

Custom Purchase Orders In EDI

The 850 is sent from the buying trading partner to the selling trading partner.  It is a Purchase Order in the system of the Buying Trading Partner and becomes a Sales Order in the Selling Trading Partners system.  Once the file is received, the Selling Trading Partners system sends a 997, indicating that the file was received.  After the Selling company ships the Buying Company’s order, they send an 810.

This invoice is received by the buying trading partner and is automatically applied to the purchase order in their system.   You can see the efficiency that this type of closed loop/automated communicating can bring true value to trading partners leveraging this tool.

Advanced Shipping Notices In EDI

More advanced is the 856 (Advanced Shipping Notice/ASN) and the corresponding UCC128 labels.  Some retrial supply chain EDI trading partners require the use of an 856.  Think of it as an electronic Bill of Lading/Packing List.

This document includes the package level detail for every box/carton/pallet that is shipped.  The 856, on its own, is useless without the corresponding UCC128 labels.  The labels make it possible for a trading partner, when receiving the shipment, to simply scan the label and know precisely what’s in the package so that they know where it belongs in their store/ showroom/department/warehouse.

Failure to comply with the UCC128 and the 856 documents can result in workers having to open packages to identify specific items.  This results in a key term in the EDI world, Chargebacks.

EDI is often a necessity to do business with certain trading partners.  If not done properly, it could result in chargebacks eroding potential profits.  Chargebacks are usually related to Late ASNs, improper labeling, or other trading partner specific requirements.  This is only avoidable in an environment where the ASN transmission is triggered as a result of a truck pulling out of the shipping warehouse dock door.

Some business do batch transmission, or simply use a copy of the order, to create an ASN.  More sophisticated solutions capture Real-time Package Level Detail and transmit the ASN immediately to the trading partner.

Third Party Logistics In EDI

In the world of distribution, the 3PL (Third Party Logistics) warehouse is becoming very common.  Many of these warehouses are EDI enabled.  The WINS (Warehouse Information Notification Services) are the 940 (Warehouse Shipping Order), 945 (Warehouse Shipping Advice), 943 (Warehouse Stock Shipment Transfer Advice) and 944 (Warehouse Stock Transfer Receipt Advice).  These documents can help a trading partner to communicate with their 3PL.  The 940 advises the 3PL on what to ship to who and the 945 is sent back to the trading partner so they can provide an 810 to their customer.

Implementing robust EDI can provide deep value and a great degree of efficiency for any business that has trading partners who are compliant.