May 2020
Almost every manufacturing and distribution company today, work with third-party logistics providers (3PL) to organize and manage their transportation of goods. This allows companies to save on their cost of warehouse management, easily track the movement of their goods, inventory, preparation of documentation, cargo handling, and delivery to the buyer.
In this article, let us talk about 3PL and EDI (Electronic Data Interchange) since this is the key technology in logistics.
What is Third-Party Logistics?
A third-party logistics company or 3PL provider is a company that provides full logistics services: transportation, forwarding, warehousing, customs clearance, and other logistics-related activities. 3PL stands for Third Party Logistics. In other words, the term 3PL is synonymous with logistics outsourcing, which means the transfer of part or all the logistics functions, to a logistics service provider.
The Third-Party Logistics Study shows that shippers and their 3PL providers are increasingly looking to work together. Both parties confirm that the use of technology helps them to progress. According to the study, many 3PLs are already making significant investments in technology. Most of the shippers indicate that IT capabilities are a necessary element of 3PL expertise.
The table below shows the answers of the shipper and 3PL to the question: “What information technologies, systems or tools should 3PL have to successfully serve customers?”
You can see from the table above, EDI transactions such as order, shipment, inventory, advanced shipment notices, invoicing, etc. are very important in the logistics. Thus, this once again underlines the importance of EDI for 3PLs.
Why EDI Is Important For 3PL Companies?
EDI provides the best results in exchanging data with 3PL providers. This is the most reliable, secure, and economical way to share business information.
A 3PL provider for example, needs detailed information about the location of the delivery points, the date of shipment, the quantity of the goods, information on the packaging, its size, etc.
The supplier of goods needs to monitor the state of inventory, track the movement, and write-off of the goods, as well as receive information about shipments to certain outlets for a specific range.
Lack of reliable information can lead to a shortage of goods in the store, lost profits, as well as monetary and temporary losses due to erroneous deliveries, long approvals, and frequent account adjustments.
On average, every day large logistics companies must send from several hundred to thousands of documents. To process such a volume of data manually using traditional paper documents, couriers, faxes, e-mail, or telephone, is rather a difficult and costly task.
Therefore, 3PL providers and their clients use EDI to exchange all necessary information about orders, deliveries, shipments, balances, reports, etc. electronically.
To automate the process of data exchange, 3PL providers and product suppliers usually integrate EDI into their business systems. This allows business partners to eliminate intermediate steps in which they must manually enter data into the accounting or business system. EDI messages are transmitted instantly, and they exclude errors related to the human factor.
Useful reading: A must-have guide for a successful systems integration with EDI
Third-Party Logistics EDI Documents
Third-Party Logistics (3PL) providers use a variety of Electronic Data Interchange (EDI) documents to exchange information with their customers, suppliers, carriers, and other partners. Some of the commonly used EDI documents in 3PL include:
- 850 Purchase Order: This document is used to transmit a purchase order from a customer to a 3PL provider. It includes information such as item description, quantity, and price.
- 855 Purchase Order Acknowledgement: This document is used by the 3PL provider to acknowledge the receipt of a purchase order from the customer.
- 856 Advance Shipment Notice: This document is used to inform the customer of the expected delivery date and time of the shipment.
- 940 Warehouse Shipping Order: This document is used by the 3PL provider to notify the warehouse of an impending shipment.
- 945 Warehouse Shipping Advice: This document is used by the warehouse to notify the 3PL provider that the shipment has been shipped.
- 944 Warehouse Stock Transfer Receipt Advice: This document is used by the warehouse to notify the 3PL provider that a stock transfer has been received.
- 997 Functional Acknowledgment: This document is used to acknowledge the receipt of an EDI document by the recipient.
- 810 Invoice: This EDI document is used to provide the customer with an electronic invoice for services rendered, including information such as the billing period, charges, and payment due date.
These EDI documents help 3PL providers to automate their processes and improve their efficiency in handling orders, inventory, and shipments. They also help to reduce errors and improve communication between the 3PL provider and their partners.
Let us look for the most used EDI documents by 3 PL providers. These messages could be used in ANSI X12 standard (if the company is in North America), or in UN/EDIFACT standard (which is more common in Europe). However, messages in both standards perform a similar function.
Sales Report and Sales Forecast: EDI 852 / EDIFACT – SLSRPT and EDI 830 / EDIFACT- SLSFCT
Inventory data can be used in conjunction with actual sales data transmitted in SLSRPT – Sales Data Report message (EDI 852 Product Activity Data) and SLSFCT – Sales Forecast (EDI 830 Planning Schedule)
Accurate data on inventory and sales forecasting allows manufacturers to better control their production needs, and distributors to maintain the necessary stock of goods, considering the market situation.
Inventory update: EDI 846 / INVRPT
One of the most used documents for Inventory management calls EDI 846 Inventory Inquiry/Advice in ANSI X12 Standard or INVRPT – Inventory Report in EDIFACT.
Inventory report allows suppliers to control their inventory of materials and products.
The message contains information about the quantity in stock, as well as data on the receipt and withdrawal of goods for a certain period. Information about the quantity of the product and packaging can be detailed in different groups: by lot, location, expiration date, etc.
Companies use this type of messages to reduce the costs and errors associated with manual processing. INVRPT or EDI 846 is also used to inform trading partners about the availability of goods, without obliging them to make a purchase. Besides, the buyer or trading partner can request information to obtain up-to-date data on product balances.
Typical EDI Workflow with 3PL
The direct interaction between the supplier and its 3PL provider is based on a standard set of EDI messages widely used in retail.
First, the supplier transfers its nomenclature (master data) to the logistics company using the PRODAT message. The message contains basic data that rarely changes – to identify and describe products. This long-term information includes a technical and functional description of the product, but not commercial terms.
Next, goods are shipped to the warehouse, accompanied by the DESADV – Despatch advice message (or EDI 856 Advanced Ship Notice (ASN) in case partners use the ANSI X12 standard).
This message does not physically accompany the delivery but utilized to inform in advance the recipient of the contents of the shipment.
Due to Advanced Ship Notice, the logistics company will know in advance that the goods are on the way. For acceleration and convenience of reception, SSCC codes and scanners are used: the goods can be taken in pallets.
At the next stage, the warehouse sends the supplier the RECADV message – Receiving Advice (EDI 861 – Receiving Advice/Acceptance Certificate) informing about the delivered and received goods.
When the supplier company receives a request for the supply of goods from its customers, it sends an ORDERS message – Purchase (EDI 850 Purchase Order) to the 3PL operator’s warehouse.
If the EDI was fully integrated with the business system, the information immediately goes to the accounting system of 3 PL providers, bypassing outdated communications, for example, e-mail, where information may be missed or may not reach the destination.
A 3PL company forms a shipment and sends it to the right address, notifying the other side using DESADV (EDI 856).
Of course, it should be noted that different logistic projects may use other, more specialized EDI messages.
How EDI Contributes To The Success of Third-Party Logistics Providers (3PL)
Even by introducing a minimum number of EDI messages for working with orders, deliveries, and reports, the parties achieve the following benefits:
- Reducing manual entry and saving time for operators, managers, accountants, warehouse workers, drivers.
- Ability to optimize/reduce staff.
- Reduction in operating expenses.
- Fast transfer of data and documents.
- Elimination of losses and reduction of errors during data transmission.
- Reducing conflict situations and increasing the loyalty of partners.
- Security of data transmission.
- Acceleration of payments due to prompt receipt of documents by customers.
3PL-companies can generate significant additional profit by optimizing business processes and increasing work efficiency.
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