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Achieve 20/20 Vision When It Comes to EDI in the OEM/Subcontractor Relationship

From EDI Expert, Glenn McPeak:

The automation of the transaction flow in the world of EDI is unclear for companies that want to automate the exchange of business documents between themselves (OEM for this discussion) and a sub-contract manufacturer, or those companies that are the subcontracting partner for others. Issues such as materials ownership, stocking, arrival notification, production scheduling, ERP system integration and the costing of the goods and service are not always well understood by EDI and ERP systems.

Often times the service provided is just one step in a manufacturing sequence that’s driven by a step in a shop order, as opposed to a purchase order or similar document. Some component materials may be provided by the sub-contractor, while others are owned by the buyer of the product and service. Lack of communication and integration of business systems between the contractor and OEM often result in scheduling conflicts, stock shortages and other supply chain execution problems.

Handling these situations in a manual environment has its challenges and high overhead given the exchange of emails, phone calls, etc. that require manual re-entry into ERP systems. Automating this critical flow via EDI or another electronic document exchange can be confusing since there are some ambiguous documents that might be used, but have their pitfalls and shortcomings as well.

One potentially obvious flow is the Purchase Order, Advance Ship Notice and Invoice process since it’s probably the most common document set in the world of EDI and is widely supported by many systems. Yet this “set” of documents doesn’t make sense in the context of the business transactions at hand – the contract manufacturing of a product that may not even exist within the ERP system since it could be an intermediate step in creation of the “real” item that is tracked in inventory. In fact, the purchase order represents the service of the contracted process and that is the financial value reflected in the purchasing system and invoice. Additionally the PO, ASN and Invoice flow does not provide visibility of flow of materials to the contractor that they don’t purchase, nor the communication of inventory deviations of customer-owned products.

There are other document sets that can also be considered, but for the sake of brevity let’s consider the set that provides the most comprehensive and cohesive documents referred to in the world of ANSI X.12 EDI – the 94X Series. These documents specifically are:

  • 940 – Warehouse Shipping Order – instruction to the contractor
  • 943 – Warehouse Shipping Order
  • 944 – Warehouse Stock Transfer Receipt Advice
  • 945 – Warehouse Shipping Advice
  • 947 – Warehouse Inventory Adjustment Advice

This transaction set is designed for Third-Party Logistic Providers (3PL’s), but has all of the necessary characteristics to meet the needs of the OEM / Contractor Relationship. The possible use of these documents is described below.

  • The 940 can be used to communicate the initiation of a production process and can communicate where to ship the goods to continue the process and can emanate from the shop order or purchase order.
  • The 945 communicates the shipment of the sub-contracted materials back to the OEM and can be used to update the shop order and possibly satisfy the Purchase Order, if desired or needed.
  • The 943 alerts the contractor that inbound goods, purchased by the OEM are to arrive so that planning put away and validation of the goods can be done.
  • The 944 can be used by the contractor to communicate the actual receipt of the goods so that those raw materials purchase orders can be “received” and inventory updated accordingly.
  • The 947 can be used to communicate the gain/loss of material due to miscues or unavoidable shrinkage.

While the use of the 94X document automation of the OEM to Contract Manufacturer is not the only possible document set to utilize in this process, it does have all of the characteristics needed to handle this information flow very effectively.

Remote Warehouse Integration, Advanced Ship Notice (ASN), Third-party Logistics, Supply Chain EDI

Glenn McPeak

Posted By: Glenn McPeak

Glenn is a supply chain expert and has over 25 Years of EDI/ERP solution consulting and ERP/EDI software product design and management. Glenn’s has managed and executed over 200 successful ERP and EDI related projects in a wide array of manufacturing and distribution oriented industries. Glenn is knowledgeable in the following ERP platforms – Microsoft Dynamics AX, Microsoft Dynamics NAV and Microsoft Dynamics GP.

Glenn holds a Bachelor of Science degree with highest honors from Babson College and numerous Microsoft Certifications, including Microsoft Certified Professional.

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