A Guide to Electronic Data Interchange (EDI) for 3PLs

December 7, 2023
5 min read
A Guide to Electronic Data Interchange (EDI) for 3PLs

Electronic data interchange (EDI) has replaced traditional paper-based processes with an electronic method of exchanging business documents, such as purchase orders, invoices, and shipping notices. EDI for 3PLs accelerates transaction processes, enhances accuracy, and reduces the likelihood of errors inherent in manual data entry. 

What is Electronic Data Interchange (EDI)?

Electronic data interchange (EDI) is the communication and exchange of information between businesses in a standardized format. The information directly moves from one computer application to another. 

For third-party logistics (3PL) providers, EDI provides an efficient and standardized framework for supply chain management, connecting manufacturers and retailers to logistics providers. In the retail sector, most retailers and suppliers rely on 3PL EDI to exchange shipment details with customers and other businesses.

Role of EDI in 3PL Operations

Electronic Data Interchange (EDI) plays a crucial role in various stages of the supply chain, significantly impacting the efficiency of 3PLs and their ability to serve clients effectively. By automating data exchange, reducing manual errors, and providing real-time updates, EDI ensures that 3PLs can maintain high levels of accuracy, efficiency, and client satisfaction. The seamless flow of accurate information between 3PLs, suppliers, and clients facilitated by EDI is key to building trust and reliability in the client-service provider relationship.

Here's a brief overview of the role of EDI in streamlining 3PL operations:

  • Supplier Management: EDI for 3PLs is vital in facilitating communications with suppliers. EDI capable 3PLs can swiftly exchange key documents like purchase orders (EDI 850) and order acknowledgments (EDI 855) to ensure order accuracy and timely fulfillment. This reduces the order fulfillment challenges and order fulfillment costs, it also enhances supplier relationships and allows 3PLs to provide their clients with accurate updates on supply statuses.
  • Inventory Inquiries: Through EDI, 3PLs can perform real-time inventory inquiries using inventory inquiry/advice documents (EDI 846). This provides both 3PLs and their clients with the latest information on stock levels, setting them up to better manage and plan their inventory.
  • Purchase Orders: Purchase order (EDI 850) exchange via EDI ensures that the 3PL and the client are on the same page regarding order details. Eliminating silos establishes a uniform understanding of order details, further reducing the risk of errors and delays in the supply chain.
  • Consignment Tracking: 3PL EDIs enhance consignment tracking by transmitting advanced shipment notices (EDI 856) to clients. This document provides detailed information about the shipments en route, including quantities, descriptions, and estimated delivery times, allowing for more accurate planning and customer service.
  • Inbound Logistics: In inbound logistics, 3PL EDI is used to communicate receipt advice (EDI 861) to clients or suppliers. A receipt advice confirms the receipt of goods, ensuring that both parties know the delivery status, quantities, and condition of the items received.
  • Inventory Management: EDI for 3PLs provides real-time visibility into stock levels through inventory report (EDI 846) documents for inventory management. This allows 3PLs to manage warehouse space and inventory levels effectively, providing clients with accurate and timely data necessary to plan ahead.
  • Order Fulfillment: In order fulfillment, 3PLs use EDI to transmit shipment advice (EDI 856) and order status reports (EDI 870) to clients. These documents keep clients informed about the status of their orders, from processing to shipment, ensuring transparency and reliability at every stage of the b2b fulfillment process.

Benefits of EDI for 3PLs

Since their introduction, electronic data interchange (EDI) has become the industry standard for 3PL providers. According to a survey by Statista, an estimated 94% of respondents from 3PL providers stated their company offers electronic data interchange (EDI) services. The universal language of exchanging information between 3PLs and their clients has led to both direct and indirect benefits.

Commonly Used and Standardized Format

EDI for 3PLs provides a universally accepted and standardized format for exchanging business documents. Having a standardized format ensures different systems used by various trading partners can communicate seamlessly. This translates to easier 3PL EDI integration with a wide range of clients and suppliers, leading to smoother operations and broader market access.

Speed and Agility in Operations

EDI significantly speeds up business transactions. By automating the exchange of documents like orders, invoices, and shipment notifications, EDI reduces processing times from days to minutes. This agility is a crucial competitive differentiator for EDI capable 3PLs — it enables them to respond quickly to market demands, adjust operations as needed, and reduce turnaround times in a densely contested sector.

Security of Business Data

EDI employs secure transmission protocols to ensure that sensitive business data is exchanged safely and confidentially. For EDI capable 3PL providers that communicate and exchange confidential information with multiple clients on a daily basis, this confidentiality is an essential piece of the puzzle. It helps maintain the integrity of client data, which is essential in building trust and maintaining compliance with regulatory standards.

Data Accuracy and Real-time Recordkeeping

EDI minimizes the errors typically associated with incorrect document handling or manual data entry. It significantly improves data quality by reducing the need to rework orders due to illegible handwriting or keying and re-keying errors. Accurate data is crucial in logistics for inventory management, order processing, and billing. Moreover, EDI enables real-time recordkeeping, providing up-to-date information vital for decision-making and efficient logistics operations management. 

Client Experience and Visibility

For 3PLs, EDI enhances the client experience by providing greater visibility into the logistics pipeline. Clients can track their shipments, view inventory levels, and receive accurate invoices in real-time, dramatically improving the quality of service. A culture of transparency fosters better communication, trust, and long-term relationships with clients.

Environmental Impact

Many businesses today champion environmental sustainability initiatives, and transitioning to EDI reduces the reliance on paper. This eco-friendly approach aligns with the growing global emphasis on sustainable business practices, enhancing the brand image of 3PLs and appealing to environmentally conscious clients.

Commonly used 3PL EDI transactions

3PL EDI transactions form the backbone of electronic communication in 3PL operations, ensuring efficient, accurate, and timely exchange of vital business information across the supply chain. Below is a list of commonly used 3PL EDI transactions that are crucial to the operations of third-party Logistics (3PL) providers:

Most important EDI transactions for 3PLs
Most important EDI transactions for 3PLs
  1. EDI 850 - Purchase Order: Used to communicate formal purchase orders from buyers to sellers. It contains order details like quantities, product descriptions, and shipping instructions.
  2. EDI 855 - Purchase Order Acknowledgement: Sent by sellers to confirm the receipt and acceptance of an EDI 850 Purchase Order, often including any modifications or confirmations.
  3. EDI 856 - Advance Shipment Notice (ASN): Sent by the 3PL providers to the customers after processing the respective shipments. It provides detailed information about pending deliveries, including the contents of a shipment, packaging type, tracking number, ecommerce shipping address, and carrier information.
  4. EDI 846 - Inventory Advice: Allows both sellers and buyers to exchange information regarding inventory levels and status. Sellers use it to optimize inventory management by transferring inventory between warehouses and identifying optimal shipping sources for the buyers,
  5. EDI 204 - Motor Carrier Load Tender: Generally used to offer a truckload or less-than-truckload (LTL) shipment to carriers like UPS or FedEx. It includes shipment details like pickup and delivery locations, shipment dates, and equipment requirements.
  6. EDI 214 - Transportation Carrier Shipment Status Message: Provides updates on the status of shipments, such as in-transit, delivered, or delayed, keeping 3PLs, shippers, and their clients in the loop.
  7. EDI 210 - Motor Carrier Freight Details and Invoice: Used by carriers to provide freight details and associated charges for billing purposes.
  8. EDI 940 - Warehouse Shipping Order: Used by sellers to alert 3PL warehouses to request the shipment of goods from a remote location to the buyer. It typically follows a purchase order sent to a supplier. The sellers leverage EDI 940 to generate these shipping orders and send them to suppliers as part of their inventory management warehouse process. It usually contains information like the item location, delivery date, invoice, and shipment method.
  9. EDI 943 - Warehouse Stock Transfer Shipment Advice: EDI 943 is used by sellers to notify 3PL warehouses when a shipment is about to be dispatched to them. 3PL EDI transactions can be created and received to inform buyers about the details of a shipment's dispatch from/to a location and to receive such notifications from sellers.
  10. EDI 944 - Warehouse Stock Transfer Receipt Advice: Usually issued as a follow-up to EDI 943, it’s used by warehouses to acknowledge and confirm the receipt of goods. If any defective items or incorrect products are in the shipment, EDI 944 conveys the relevant information to the sellers.
  11. EDI 945 - Warehouse Shipping Advice: EDI 945 signifies the completion of a shipment. A warehouse typically sends it to a 3PL provider and/or their clients to inform them that a shipment has been completed. It acts as an acknowledgment of processes initiated by EDI 940.
  12. EDI 947 - Warehouse Inventory Adjustment Advice: This transaction informs trading partners about changes in inventory levels for specific SKUs. Sellers and 3PL warehouses can communicate with EDI 947 and plan their subsequent shipments accordingly.

Hopstack’s WMS for 3PLs: Simplifying EDI with plug-and-play integration

A survey by Data Interchange reveals that 88% of EDI users have an enterprise resource planning (ERP) system, a materials resource planning (MRP) system, or another planning system. Hopstack empowers third-party logistics (3PL) providers with a comprehensive warehouse management and fulfillment platform designed for end-to-end management of the entire 3PL operation. This solution targets 3PLs looking to enhance scalability and productivity and effectively manage resources in the face of changing market needs.

Hopstack's WMS for 3PLs introduces an advanced EDI transaction management system within the platform. The 3PL EDI integration engine allows for the rapid onboarding of trading partners and quick adoption of new transaction sets. The platform supports all major EDI standards like ANSI ASC X12, EANCOM, UN/EDIFACT, and ODETTE. By providing EDI with plug-and-play integration, Hopstack's WMS for 3PLs significantly reduces onboarding time, enhancing operational efficiency and client service.

To learn more about how Hopstack's EDI for 3PL can streamline your warehousing and fulfillment operations, schedule a demo today. Connect with our product specialists for a personalized tour of Hopstack’s features and capabilities.

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