Can your traditional retail model of store networks compete with Online Retailers? The short answer is YES! And the way to do this is through EDI or Electronic Data Interchange! EDI is the “Secret Weapon” Online Retailers need to exist. So what is it?
EDI or Electronic Data Interchange enables companies to exchange documents such as orders, invoices etc totally electronically. A document flows from the retailer, through an EDI provider, to the vendors’ ERP system automatically without human intervention. The EDI provider has special software that can translate an electronic file say, a Purchase Order, into a file format that the vendor’s ERP can understand.
Let’s take a look at an on-line retailer and how they use EDI. Bricks and Mortar retailers can use this exact EDI system to reduce their back-office costs and improve their customer service by getting stock to customers quicker.
Meet Bob – he runs an on line web site called Bob’s Bargains. He uses a 3PL (External Third Party Logistics Warehouse) that manages his stock. It receives stock from Bob’ suppliers and delivers stock to Bob’s customers.
Let’s follow the business document processes and see how EDI works in this scenario.
a) Inventory Report from the 3PL to Bob’s Bargains
Bob’s Bargains cannot sell anything on its website that is not in stock. So he receives from the 3PL warehouse an Inventory file every few minutes.
This inventory file is sent electronically to Bob’s EDI Provider – EDI Services (EDI-S). EDI-S use software to translate this file into the language that Bob’s computer system (ERP) can understand. EDI-S then sends this file via a secure internet protocol to Bob’s ERP system. The file is downloaded automatically into Bob’s ERP system and automatically takes off his website, any out of stock item plus places an order for out of stock lines.
b) Order raised by Bob’s Bargains for stock replenishment and sent to his Supplier
Sammy’s Sneakers – Order is entered into Bob’s ERP system from the out of stock report. His ERP system creates an output file of the order and saves this in a computer folder. EDI-S, picks up the file and translates the order into a language that Sammy’s Sneakers ERP system can understand. EDI-S then sends the file via secure internet protocol to Sammy’s ERP.
c) Sammy Sneakers sends a Sales Confirmation to Bob’s Bargains
Sammy’s ERP system creates a Sales Order Confirmation that tells Bob that Sammy can supply the goods. EDI-S picks up the file and translates this file back into the Language that Bob’s computer system can understand and sends it electronically to Bob’s ERP.
d) Sammy Sneakers sends Bob’s Bargains an ASN (Advanced Shipping Note)
Sammy’s ERP system creates an ASN which advises Bob when the goods will be delivered. The ASN is sent to EDI-S who use its software to translate the ASN into a language that Bob’s ERP System can understand. EDI-S then delivers the file to Bob’s ERP via secure internet protocol.
e) A Customer of Bob’s Bargains (Suzy Smith) orders a ‘Sweet’ pair of sneakers on line.
f) Order sent to 3PL (Warehouse)
Bob’s ERP system receives the order and creates an output file of the order. EDI-S, via its internet protocol, picks up the order and translates it into a language that the 3PL’s ERP system understands. The order (Pick List) is sent by EDI-S to the 3PL so that the warehouse can ‘Pick’ the goods. The file is uploaded into the 3PL’s ERP system electronically.
g) Pick Confirmation from 3PL
Once the warehouse ‘Picks’ the sneakers, it creates a Pick Confirmation which will advise Bob that the order is ready for dispatch. The Pick Confirmation file is sent by the 3PL to EDI-S who translates this message into the language that Bob’s ERP system can understand and then sends the file over a secure internet connection.
h) Shipping Advice to Bob’s Bargains
From the Pick Confirmation file the 3PL has created, EDI-S creates an EDI message called a Shipping Advice. This records the shipping details of Suzy Smith’s sneakers. The file is sent to Bob’s ERP system by EDI-S so that Bob’s online website can email Suzy the delivery details.
i) Suzy is Very Happy!!!
All of the above is able to happen electronically with EDI translation software!
Advantages of EDI :
- Reduced inventory Cost – The automated sales order entry leads to immediate stock level information
- Decreased Errors – caused by manual keying or manual document creation – Eliminated by EDI.
- Increased ROI – Less staff needed in back office. Re-deploy resource in ‘Value-Add’ functions
- Enhanced Visibility – All transactions can be tracked within the ERP system instantaneously, as the EDI provider processes the transactions as soon as they are received – 24/7
- Improved Operational efficiency – Improved visibility of transactions in the ERP will lead to quicker response time by management where required.
- Increased Accuracy – The EDI provider builds validation rules into its software to check all messages for accuracy before transfer to the receiving party.
- Improved cash flow – Your invoices are paid quicker as purchase orders are automatically reconciled to invoices