EDI in Fulfillment and Supply Chain Operations
Electronic Data Interchange, also known as EDI, is a process in which different businesses communicate with each other trading business documents. EDI is crucial in running a business with any type of fulfillment operation where large quantities of orders are being placed daily.
There are several crucial functions of EDI in fulfillment operations. These document types are what I dealt with directly in supply chain and fulfillment operation in the ecommerce industry.
One of the most important parts of running any sales or fulfillment business is having the correct available inventory. An EDI 846 file is an inventory file a company would receive from their distributors that shows the inventory for their products they are allowing you to sell. This is a great way to prevent anyone from having to manually update inventory based off your sales. The frequency in which an 846 file is sent is dependent on the business. In any high volume sales or distribution business you will want to receive inventory files at least a few times per day, if not hourly. This way you are maximizing potential sales while minimizing the chance of oversells and back orders.
Now of course, you do not only need inventory to sell products, you also need costs. So the next EDI document I will mention is the EDI 832 file, also known as the catalog. This file is sent and shows the cost or price of each item a distributor is providing. Since costs change less than inventory, this file can be sent less frequently. However one file a day is recommended. This will help prevent mismatched costs on orders and potential losses.
Now we are going to get into the EDI exchange in terms of actual orders. Most high volume businesses don’t have time or resources to manually take orders and send them over to the distributors. EDI exchange plays a huge benefit here, allowing it to be automated with the EDI 850 document. An EDI 850 is essentially a PO placed with your distributor electronically. So when an order is placed through your website, your system will automatically send an EDI 850 purchase order to your distributor or product source. This allows many orders to be placed with your distributor with no manual work, which really benefits high volume businesses.
Next I want to discuss order acknowledgement. We all know that businesses are not perfect and that there are unavoidable errors sometimes. So even though your distributor may be showing available inventory, you never want to assume that all your orders have been accepted by your distributor or supplier. This is where the EDI 855 document will come into play. An 855 is a purchase order acknowledgement your distributor should send you for each 850 purchase order you place with them. The 855 order acknowledgement is the distributor’s system saying electronically to your system that the order has been received. The distributor should acknowledge this order as accepted or rejected. If accepted, everything worked out fine for this order. If the distributor has to reject the order, there are several ways you can have your system handle these issues which I will discuss in another post.
There are two essential EDI documents for supply chain and fulfillment processes. The next one in the flow of operations is the EDI 856 which is a shipment notification. This is very important for any business because it is the notification a distributor sends that states the order has shipped, and it typically states the freight carrier and tracking number. At this time your distributor or supplier’s work is done. They received your PO, accepted it and shipped it out. After the EDI 856 comes in, they will typically send an EDI 810 which is simply them invoicing your business for the product and shipping costs. This brings the order to an end typically and is the basic EDI flow in fulfillment.