If you work with data integration in any kind of supply chain related role, it’s likely you will encounter electronic data interchange (EDI). Although EDI is an older technology which is gradually being replaced by alternatives like application programming interfaces (APIs), it’s still very commonly used in the supply chain and logistics domains. There are a huge number of legacy EDI implementations that are driving some of the worlds largest supply chains.

EDI was the standard method to implement business-to-business integration in the 1990s and 2000s. EDI messages follow standards that were set by organizations like the American National Standards Institute (ANSI X12) and the United Nations (UN/EDIFACT). The X12 standard is far more popular especially in US companies. X12 defines hundreds of message types which are specified using three digit numbers. For example an X12 850 message is used to send orders.

X12 messages are frequently used for purchasing communications between buyers and suppliers. Also there are several common X12 messages that support warehousing and fulfillment operations. In fact if you sell through the Amazon Vendor Central program, the primary method for electronic communications with Amazon about inventory and orders is X12 EDI messages. The same applies to many other retailers like Walmart.

EDI tends to stick around once it’s implemented. It takes a lot of coordination between trading partners to get EDI up and running initially. Once it’s in place, there are usually few business benefits to replacing EDI with newer technologies. Often EDI is involved in mission critical business processes that affect revenue. Therefore any changes to existing EDI integrations are risky and require much testing. There are a great many legacy EDI implementations running today that have been in place for years. No one wants to touch them unless it’s absolutely necessary.

Since supply chains are composed of independent companies collaborating around getting products to customers, EDI helps exchange data between these collaborators. Buyers, suppliers, carriers and third-party logistics providers use EDI to exchange data about orders, shipments and inventory. Without business-to-business (B2B) technology like EDI, these supply chain participants are forced to communicate manually with email and spreadsheets. This can be extremely inefficient and labor intensive. Information becomes very siloed in this case and there is no wholistic visibility about what’s currently happening with a particular order or product.

A lack of supply chain visibility often results in poor customer service and the tendency to increase safety stock in warehouses to fill orders. No company wants to store more inventory than is absolutely necessary because that hurts the bottom line. B2B connectivity like EDI improves information flow and is an effective path to optimizing a supply chain.

In this series of blog posts I will be focusing on three key supply chain processes: - Sourcing - Fulfillment - Inventory Management

Each of these processes can benefit from B2B integration technology like EDI. I’ll review the ANSI X12 messages that are mostly commonly used and how they fit into a typical business workflow. My examples will focus on a build-to-stock model where a US-based brand is sourcing finished goods from an overseas manufacturer and storing it in a US warehouse to fulfill orders coming from US consumers. This is probably the most common supply chain model we see today, and the trend toward direct-to-consumer eCommerce is making it more common for US brands to sell directly to consumers as opposed to selling through brick-and-mortar retailers.

In this post I will focus on sourcing. Before a brand can sell product to consumers in the US, it must be sourced from a manufacturer (which I’ll generally refer to as a supplier). The sourcing process (also referred to as procurement) includes supplier bidding, negotiation, purchasing, shipping, and payment. It’s quite common for US brands to source from low-cost countries, so often purchases will involve international shipping and customs clearance before the product becomes available.

Purchase Order (EDI 850)

After initial negotiation about product characteristics, quality and price is completed, the buyer sends a purchase order to the supplier. Prior to the Internet, a purchase order was a physical document or a fax. Now purchase orders are sent electronically through email or B2B messaging. The X12 EDI message used for purchase orders is the 850 message. This includes the following data elements: - Purchase Order Number - Purchase Order Date - Buyer Details - Supplier Details - Ship To Address - Promotions or Allowances - Terms of Sale - Requested Delivery Date - Product Numbers (SKUs) - Order Quantity - Unit of Measure

In some implementations, an X12 855 message is sent from the supplier back to the buyer confirming acknowledgement of the PO.

Advanced Shipment Notice (EDI 856)

Once the supplier finishes production and ships the order, they need to notify the buyer of the shipment details. The X12 856 message is used for sending this advanced shipment notification (ASN). An ASN is usually generated after the shipment has been booked with the carrier. Planned shipment details like the waybill number and expected delivery date can be included in the ASN. The ASN is sent to the buyer but also may need to be sent to a 3PL that is handling order fulfillment on behalf of the buyer. Here are the date elements that are usually included in an 856: - ASN Number - ASN Date - Ship From Address - Ship to Address - Carrier - Shipping Mode (i.e. air, ocean, parcel) - Waybill Number - Shipment Weight and Dimensions - Shipment Method of Payment (i.e. Prepaid or Collect) - Date Shipped - Expected Delivery Date - Ocean Container Number (if applicable) - Pallet Details (may include an SSCC serial number) - Buyer Purchase Order Number - Seller Sales Order Number - Product Numbers (SKUs) - Ship Quantities - Unit of Measure - Lot Numbers or Serial Numbers

Goods Receipt (EDI 861)

When the shipment arrives at the destination warehouse, the buyer or it’s 3PL will check the contents of the shipment and make sure it matches what was sent in the ASN. Also the PO number is validated to make sure that the shipment does in fact match an open purchase order. After this check, the shipment will be put away into inventory and be made available for fulfillment. To communicate the results of this process back to the supplier, an X12 861 Receiving Notice message is used. The 861 confirms the SKUs and quantities received. If there is a variance between expected and received product details, this can be communicated to the supplier in the 861. Depending on the incoterms of the order, the transmission of the 861 may trigger the supplier’s financial system to recognize revenue and issue an invoice to the buyer. Here are the typical data elements sent in a X12 861: - Receipt Number - Receipt Date - Receipt Location - ASN Number - Buyer Purchase Order Number - Seller Sales Order Number - Product Numbers (SKUs) - Ship Quantities - Unit of Measure - Lot Numbers or Serial Numbers - Details about damaged products

Invoice (EDI 810)

To send an invoice to the buyer, the supplier can use the X12 810 message. This indicates to the buyer that it’s time to remit payment for the received goods back to the supplier. The 810 will include payment terms and possibly banking information for payment. The buyer will often load 810 messages into their accounts payable system to automate payments. They payment itself is made using standard methods like ACH or wire transfer. However there is a related remittance advice message (X12 820) that is sometimes used to provide remittance information back to the supplier. Here are the data elements usually included in an 810: - Invoice Number - Invoice date - Invoicing Party - Bill To Party - Payment Terms - Remittance Instructions - Product / Service Description - Unit price - Invoice Amount - Sales Tax Amounts - Invoice Currency

Business Benefits

The EDI messages I have reviewed in this post support a highly automated workflow between a buyer and a supplier. Streamlining sourcing using these EDI messages can offer significant benefits to both parties: - Reduces the labor for the buyer to process a purchase order - Reduces the labor for the supplier to process the sales order on their side - Increases visibility about order status - Reduces the labor to receive the product at the destination warehouse - Reduces labor both for the buyer and supplier to remit and receive payment - Speeds up the procure-to-pay cycle time for the buyer, resulting in better cash flow

In the next post I will focus on EDI messages that are used for the order fulfillment process. See you there!

• DataIntegration
• SupplyChain

About the Author

John Berry has spent the last 30 years building software and data solutions for some of the world's most well-known supply chains. He believes supply chain and logistics are great career paths for those looking to establish technology careers. He is currently the IT Director for JUSDA Supply Chain Management, a member of the Foxconn Technology Group. In this role he leads a team that develops technology solutions for the global manufacturing supply chain. John is a contributor to the upcoming book The Digital Transformation of Logistics: Demystifying Impacts of the Fourth Industrial Revolution published by IEEE Press.

Want to learn how to use data integration techniques to optimize business results and supercharge your career? Enroll in John's Data Integration Fundamentals course on Udemy.