Technology is a strategically important tool in the digital world we live in today. It allows businesses to survive and even gain a competitive edge in today’s cutthroat market. Electronic data interchange, or EDI, is considered to be one of those tools – it has been around for more than forty years and never stopped playing a crucial role, especially in industries like supply chain, health care, and manufacturing. This article will closely examine EDI in manufacturing – what it is, why it matters, and some common EDI manufacturing transaction codes.
What is EDI?
Simply put, EDI or electronic data interchange is the exchange of electronic messages between two parties. EDI connects businesses directly to exchange documents using standardized document formats. There are often two main types of manufacturing EDI:
- EDI connecting to end customers via e-commerce platforms, or
- EDI integrating into manufacturers’ ERP
EDI is a reliable means of communication to connect anyone in the digital ecosystem: your trading partners, your customers, your suppliers, and more. This system of data exchange across numerous information systems is widespread across industries. It is likely to maintain its strong presence as it has been for the past forty years.
Why do you need EDI in manufacturing?
Businesses handle a large volume of transactions on a daily basis. Oftentimes, it is difficult trying to keep track of every single transaction, especially without the help of a tool as powerful as EDI. Non-EDI businesses may have issues involving:
- Inventory level management. The dependency on the manual data entry process – which often is extremely error-prone, may lead to dead inventory, overstocking, or damaged goods.
- Operation. Companies with fast-growing leads may have difficulty recruiting and training staff to keep the business operation flowing smoothly. Even when businesses believe they are fully staffed, they may still struggle to keep everything running due to low accuracy repetitive data entry tasks, and lack of visibility across the entire system.
- Costs. The process of manufacturing goods alone is already costly. Thus, the inability to keep track of your transactions may lead to chargebacks, harming the business’ bottom line: profit.
Manufacturing EDI has the ability to tap into and tackle most, if not all, of the above-mentioned problems. Below are the advantages of manufacturing EDI for you and your team to consider:
- End-to-end visibility. The enhanced visibility allows for better operation monitoring, minimizing problems involving inventory and wasted storage space. Better inventory management contributes to tighter supply chain management. Additionally, having manufacturing EDI fully integrated into the business’s internal system means that warehouse data is automatically synced with sales, accounting, or any other relevant data. There is no need for a complicated, error-prone data transmission method.
- Instant and effective communication. Not only does manufacturing EDI provides its users with enhanced visibility, but it also facilitates instant communication. The ability to connect any kind of data speedily minimizes possible complications involving the party’s business documents, allowing for faster processing and shortening the business cycle significantly. Effective communication also reduces chargebacks and SLA violations significantly – achieved thanks to the communication protocols, transaction codes, and standardized document formats.
- Boosted efficiency. Other than better visibility into the operation and better communication, the automation manufacturing EDI brings about visibly improves a business’ productivity. The reason behind this is the time saved from the automatically generated purchase orders, invoices, confirmations, and so on. As manual data entry is eliminated, there is no more back-and-forth correction – again, resulting in shorter, tighter business cycles. Furthermore, with EDI’s help, you can build in your partner’s requirements to make sure the demands are always met, minimizing any unwanted violations or chargebacks.
- Stronger relationships. Enhanced end-to-end visibility, effective communication, and improved efficiency all contribute to fostering stronger relationships with your partners and customers. The improved information sharing, faster response time, and low rate of errors will most certainly earn your business a positive reputation and trust.
Now, with the manufacturing EDI benefits in mind, it is time to dive deeper into the EDI transaction codes that are most frequently used in the manufacturing field.
EDI in manufacturing: The most commonly used transaction code
EDI 810 – Invoice
Also known as EDI Billing, this type of transaction code is often sent from the seller to the buyer. It is the digital version of the traditional paper invoice to request payment once an order has been completed. This document is not limited to any particular order type.
EDI 830- Planning Schedule with Release Capability
EDI 830 is typically sent from the manufacturer (buyer) to the supplier or vendor (seller). This document includes data regarding the upcoming anticipated orders. The information allows the seller to prepare the material and resources accordingly and depending on the inventory levels, fulfill the orders automatically. This is especially helpful when it comes to the Just-In-Time (JIT) inventory approach. This document may even remove the need for separate purchase order (PO).
EDI 832 – Sales Catalog
EDI 832 is a digital version of the traditional paper-based catalog. Manufacturers utilize EDI 832 in place of the paper catalog to give their supply chain, which includes retailers, distributors, dealers, and others, comprehensive product information. Another notable feature of EDI 832 is the fact that it can be updated in real-time, allowing for the most accurate information. Gone are the days you need to print and reprint every time a piece of product information is updated.
EDI 846 – Inventory Inquiry/Advice
Most commonly used in e-commerce. EDI 846 is used to inform the retailer (buyer) about the supplier’s (seller) inventory levels, including:
- Up-to-date inventory levels
- Committed inventory
- The amount of goods currently ordered
- The number of items that are back ordered
- The amount of inventory traveling
- Pending returns
EDI 850 – Purchase Order
EDI 850 is a document with information regarding an order sent from the buyer to the seller in place of the traditional email, fax, or calls. This order can be a single purchase, a recurring purchase, or a document sent to fix or delete order details.
EDI 855 – Purchase Order Acknowledgment
EDI 850 is a document that is sent from the buyer to the seller, and EDI 855 is a document that is returned to the buyer by the seller. The buyer may receive a confirmation from this response letting the buyer know that:
- The order was approved and is now being processed.
- The order has been approved, but with some modifications.
- The order was turned down.
EDI 856 – Advanced Shipping Notice
Retailers, producers, suppliers, and distributors regularly use EDI 856, also known as the Advanced shipping notice or ASN. The document is used to provide the recipient of the impending shipping with information regarding the upcoming order: the order number, the items, the shipment date, the anticipated delivery date, and the carrier. It is often requested a particular length of time before the order arrives.
EDI 860 – Purchase Order Change Request
EDI 860 is a document sent or received by a manufacturer (the buyer) to the seller when an adjustment needs to be made on the original purchase order (EDI 850). It is also used to let the seller know the changes are confirmed by the buyer to ensure the final order is accurate.
EDI 940 – Ship-from-warehouse
To formally request that a shipment be made to the location of the retailer, distributor, or grocer; a document to 3PLs (third-party logistics providers) is sent by suppliers or sellers known as an EDI 940 (ship-from-warehouse order or warehouse shipping order). An EDI 940 is a request to ship an item to one or more destinations. This document has helped cut down numerous paperwork that would have been involved should it be processed the traditional way.
EDI 943 – Warehouse Stock Transfer Shipment Advice
EDI 943 is a document used to let a remote warehouse know that a shipment has been made. It is often sent from the manufacturer to the warehouse. The biggest difference between EDI 943 and EDI 856 is that EDI 943 is used specifically for third-party warehouse locations.
EDI 943 is also used to approve a warehouse to accept a return from customers.
EDI 944 – Warehouse Stock Transfer Receipt Advice
EDI 944 is typically sent by a 3PL (third-party logistics) or remote warehouses to the manufacturer. EDI 944 normally follows EDI 943 to confirm that a transfer shipment has been received.
EDI 945 – Warehouse Shipping Advice
Being one of the key transaction codes for communication with remote warehouses (the other one is EDI 944), EDI 945 lets the manufacturer know that the items have been shipped to the customer. Oftentimes, 3PLs remote warehouses send this document to manufacturers.
There are other types of manufacturing EDI transaction codes not mentioned in the article, as we aim to only take a glance at the most frequently encountered transaction sets in manufacturing.
In light of all this information, it is clear that EDI in manufacturing brings about numerous advantages, allowing a business to gain a competitive edge in today’s cutthroat market. If you are a manufacturer and looking for a way to start integrating EDI into your internal ERP system, allow us to help you. Contact SCS Solutions via the website https://www.scssolutions.io/, Linkedin, or Facebook. We are more than happy to help you get started on the fascinating journey of manufacturing EDI.