The globalization of consumer packaged goods (CPG) businesses makes relying on in-house electronic data interchange (EDI) systems impractical. Suppliers are outsourcing most functions to third party logistics providers, sourcing companies, expeditors and freight forwarders who require immediate access to EDI data to manufacture and ship items correctly to their retail customers. However, reaching these partners via EDI has proved to be too cumbersome and expensive for most.
Until recently, companies needing to implement EDI had few options other than installing and managing their own in-house systems. This included conventional EDI software packages like Sterling’s GenTran or B2B integration software packages from WebMethods or Tibco. These software packages were resource-intensive and had no cost-effective way of being shared with global business partners.
With many remote factories not sustaining 24x7 Internet access, let alone able to maintain their own EDI software, sharing EDI data with their trading partners was impractical. In comparison to industrialized nations, many are still in the dark ages when it comes to technology and the resources now available to help streamline trading partner communications.
Today, however, CPG manufacturers are breaking free from the in-house EDI model, empowering business partners and optimizing processes across the retail supply chain.
EDI Challenges of International Sourcing
During the 80s and 90s, suppliers invested in in-house EDI systems. To operate and maintain EDI systems necessitated an investment in computer hardware, specialized EDI software and communications networks, such as VAN and FTP technology. This also required considerable expertise and attention to detail, both during the initial setup and routine day-to-day processing. Maintaining these systems was always a costly undertaking. This problem has become exacerbated in recent years.
The rate of change and globalization of markets today means that EDI systems are continually in flux. As suppliers outsource the production and delivery of products, they must have a way to exchange order and supply chain information seamlessly, both with the growing number of business partners and with their retail customers.
For example, retailers often demand visibility into production and shipment statuses, which require information from the supplier’s ERP systems such as SAP, Oracle or JD Edwards, and/or their shipping and packing systems to produce advance ship notices (ASNs). However, extending EDI into low-tech remote factories in Asia and other regions was cost-prohibitive with traditional EDI models, since these facilities didn’t have the finances to purchase these systems or the staff to maintain them.
Thus, they relied on fax and email for communications with the supplier. Not only did this archaic approach introduce tremendous inefficiencies, it prevented necessary visibility into that segment of the supply chain.
In addition, information within these EDI transactions needs to be filtered before being shared with business partners, such as carriers, third party logistics providers, consolidators and global sourcing companies that are performing tasks on the supplier’s behalf – a costly and often impossible task to automate.
A Kink in the Supply Chain
Eighty percent or more of a supplier’s fulfillment operations are outsourced to selected third parties. Yet until recently, the shipping and order information from EDI transactions was difficult to forward to global business partners who need this information to perform their fulfillment task. Instead, information from these EDI transactions was often printed, marked up to remove sensitive information and faxed to these entities. With this task came the cost, delays and errors typical of manual processes.
For example, the process of generating ASNs was like a game of telephone; the factory had to call the sourcing agent to convey information about items ready for shipment, and the sourcing agent would then fax or email the CPG manufacturer with this information so that the manufacturer could then send an ASN to their retail customer. Every step along the way brought delays and inaccuracies.
Likewise, factories didn’t have access to the data to print the barcode labels necessary for shipping. Instead, sourcing agents printed labels and mailed them to the factory. This task couldn’t be performed until the factory finished making the product — causing further delays. The ability to perform these tasks closer to where the task occurs eliminates days from the cycle.
Extending EDI Communications to 3rd Parties
Today, CPG manufacturers are taking advantage of B2B integration (B2Bi) services that vastly reduce the cost of EDI functionality. Instead of manufacturers having to maintain staff, software and hardware to support in-house EDI applications, they partner with B2Bi organizations that perform all conceivable EDI tasks on an outsourced basis. This new model provides the same functionality as old solutions, while enabling companies to finally share EDI data with all global supply chain partners.
With this outsourced EDI model, any business partner only needs a browser to receive the information to perform their tasks in a timely manner. Factories, sourcing companies, expeditors and third-party providers can get online for a few minutes or an hour each day to receive orders, report fulfillment tasks and create and print barcode labels. These web-based solutions support a full range of transactions, such as purchase orders, ASNs and invoices.
And instead of partners receiving cryptic EDI code as they might have from a traditional EDI system, they can view order information in the plain, straightforward language they need to perform the task at hand. B2Bi providers also offer role-based security capabilities, enabling CPG manufacturers to filter out sensitive information, such as the sticker price of items, before it is transmitted to suppliers.
Removing Days from the Fulfillment Cycle
The availability of B2Bi EDI solutions enables CPG manufacturers to gain supply chain efficiencies and visibility for the first time, regardless of where the activity takes place. This eases the exchange of information with third-party or remote factories and warehouses, eliminating unnecessary errors and time delays.
With access to a browser-based outsourced EDI solution, these remote locations can receive accurate packing and shipping instructions online based on the packing rules defined by the supplier, print and affix accurate barcode labels on-site and send a completed shipping notice on to the retailer. By enabling these tasks to be performed at the manufacturing site, instead of their offices around the world, vendors can eliminate days or weeks from their current supply chain cycles.
Moreover, connecting with these far-flung trading partners brings unprecedented visibility across the supply chain. For instance, the ability to produce ASNs at the source of production means retailers will know well in advance when various goods will arrive at the distribution center.
Today, businesses of all shapes and sizes are expanding operations and sales to all points on the globe – particularly to Asia. Suppliers range from huge multinational corporations with facilities on several different continents to tiny one-person shops located in the owner's garage. With this increasingly global business environment comes new challenges: collaborating with trading partners and customers, minimizing the cost of conducting business, and providing real-time operating capabilities.
EDI is the backbone of the automated supply chain, yet until recently, remote partners had no practical means to access the enormous amounts of data in these systems. Forward-thinking suppliers are breaking free of a constraint that has long held them back from the promise of the fully automated supply chain. Instead of relying on in-house solutions that couldn’t be extended to business partners, suppliers are utilizing outsourced EDI solutions to connect with their global trading partners like never before – and seeing a return that will continue the growth and adoption of these B2B integration services
You can reach Jim Frome and learn more about outsourced EDI by contacting SPS Commerce.