Welcome to the third blog in our series about third-party logistics management via electronic messaging/EDI! The first blog explained that outsourcing distribution to 3PLs is popular with companies that are expanding into new markets or want to focus on their core strengths and let the logistics experts manage the physical storage and distribution of their goods.

We also discussed that in 3PL automation projects, interactions can be generalized into two master file exchanges and five transaction scenarios. Part 2 delved into the master file exchanges, and this blog, the third and final blog of the series, focuses on the five transaction scenarios.

Transactions

At a high level, warehouses are simple operations. Goods arrive, goods are moved around inside the warehouse, and goods are shipped. In the “real world,” things get a little more complicated, as goods can be damaged, stolen, expired, and have other issues that require inventory adjustments. 

Another factor (for a future blog), is the value-added services 3PLs provide to repack items into different forms and partner numbers. This “conversion” of inventory is similar to production environments where components are removed from inventory and new inventory is created with no physical receipt or shipment process. However, today we’re focused on the basic 3PL process for the simple distribution of finished goods.

To understand the basic premise of the X12 document’s intent as it relates to warehousing, imagine we’re commencing a new relationship. We’ve sent the item catalog information to the warehouse, so they know the item numbers and characteristics of the items they’ll be housing. The first step in the process is to ship goods to the warehouse. In a best practice scenario, we’ll send the warehouse a notice of in-transit goods so they can plan the receiving and storage activities. In the X12 standard, the document that fits this scenario is the 943 Warehouse Stock Transfer Shipment Advice. The data in this document can have many sources, such as a planned inter-warehouse shipment, purchase order, or ship notice from a related party. Regardless, it lets the warehouse know that goods are coming with a high level of detail.

When the goods arrive, the warehouse should inspect and possibly count the goods to make sure that what was scheduled to arrive did. If the goods are coming from a vendor, it’s essential to validate invoices and payments. The document that fits this purpose in the X12 standard is the 944 Warehouse Stock Transfer Receipt Advice.

The next logical transaction in the 3PL relationship is the X12 standard’s 940 Warehouse Shipping Order, which gives the 3PL the details to integrate into their internal systems for accurate fulfillment of the shipment. 

We want to know the goods were shipped and have details on freight carrier information, freight costs, lot numbers, serial numbers, and other crucial details for accounting and inventory control purposes.

The last common transaction in the 3PL process interaction is the Inventory Adjustment Process.  Because there’s always the possibility of inventory loss through errors and obsolescence, we’ll need a means for the warehouse to communicate what’s being disposed of and why. This scenario is covered nicely in the X12 standard by the 947 Warehouse Inventory Adjustment Advice.

Achieving a finely tuned 3PL process flow can deliver significant benefits to a business that distributes goods through outsourced warehousing. The discussion today is supported by the X12 EDI standard, but that’s not a prerequisite of a successful endeavor. Other formats, such as CSVs, XML, EDIFACT, JSON, and others can also do the job – but they require careful evaluation and implementation, as they are not supported by a highly evolved standard such as the X12 standard. 

We hope you find this information useful in understanding a simplified approach to 3PL project implementation. Again, you can find part 1 here and part 2 here. If you have questions, please contact us at techblog@datamasons.com or www.datamasons.com. And be sure to subscribe to our blog so you don't miss our next post!

Welcome to our three-part series of blogs about third-party logistics management via electronic messaging/EDI. We receive many questions about 3PL from our readers, and we’re excited to share our knowledge of integrating EDI with this business practice.

Outsourcing distribution to 3PLs, also known as public warehouses or logistics service providers, is increasingly popular for companies that are expanding into new markets or simply want to focus on their core strengths by allowing logistics experts to manage the physical storage and distribution of their goods.

To make outsourced logistics seamless and cost-effective, advanced organizations implement electronic communications. Data Masons has worked on over one hundred of these projects with stakeholders who have various levels of capabilities and approach standards. We’ve learned that these projects have consistent patterns that are useful to understand when approaching this type of project.

In our experience with 3PL automation projects, interactions can be generalized into two master file exchanges and five transaction sets (also known as documents). The authors of the X12 EDI Standard clearly understood how to manage interactions with a 3PL – the documents most commonly used by 3PLs are very well-conceived and documented in the X12 EDI standard frequently used by 3PLs.

The second part of our series will continue next week, discussing master file exchanges – please join us and subscribe so you don't miss out!

Read part 2
Read part 3

Translating raw data formats to meet EDI requirements is a common function provided by EDI solution providers, but how they deliver this function varies from one vendor to another. And while you may not look at how this function is implemented as a critical component when selecting an EDI provider, it should be.

Some EDI providers rely on legacy translators such as Gentran® to manage data reformatting and mapping of EDI data. As the customer, you may think this is a good option as it sounds simple enough, but it’s actually a challenge-filled proposition for your business. By employing a separate solution to handle translation apart from integration, you’ve introduced a separate point of failure and divided responsibility for true end-to-end EDI processing which inhibits your ability to manage EDI efficiently and cost-effectively.

Once you’ve doubled the number of technology vendors supporting EDI, now you have the additional challenge of who owns what when issues arise. Instead of managing the issue with a single vendor, you have the added complication of working with two, which can delay resolution and put the accurate and timely execution of EDI at risk.

Since most translators do little more than reformat data, they invariably require extra procedures and ERP programming to make EDI work, requiring more risk, resources, and costs, to handle EDI mapping, setup and integration. In the world of EDI, partner onboarding delays can cost your company sales opportunities plus the fines associated with chargebacks. In some cases, poor EDI implementations can jeopardize trading partner relationships.

And then there’s the issues that arise when you have to design changes to your ERP that requires a host of unknowns, invasive changes that compromise upgrades, service pack installations, etc. Does it make sense to modify your most critical business application to overcome the inherent limitations of an EDI translator?

What’s the alternative to using an EDI solution with a 3rd-party translator? It’s an all-in-one EDI solution that offers all of the EDI functionality, seamless ERP integration, end-to-end automation, with a single technology solution. Coupled with Services from EDI experts that are also experts in your ERP platform – you have a recipe for an amazing ROI and simplification of your business activities. The right technology and service provider reduces risk, speeds partner onboarding, and enables you to focus on what you do best – manage your business.

When it comes time to streamline your business by optimizing EDI, choose a provider that can manage your EDI end-to-end. Use this helpful scorecard to help you evaluate integrated EDI solutions.

One example of Data Masons’ innovative technology is to provide data transmitted to you by your partners without forcing the ERP system to store and return what is extraneous data to your ERP system back to the translator. All of the inbound data is stored and available to Vantage Point EDI’s advanced mapping system to provide the needed information to the partner.

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.