by Matt Springfield | March 11, 2024

What is 3PL EDI Integration? A Guide to Optimize Supply Chains

Supply chain success depends upon fast, reliable, and sophisticated communication. One defining feature of the logistics industry is the sheer magnitude of independent organizations that need to partner effectively to get things done. While many businesses require the ability to communicate externally, nowhere is this more critical than in the logistics and supply chain space.

Third-party logistics providers (3PLs) shoulder the burden of ensuring that physical goods get from where they are to where they need to be, and this process can involve coordinating with dozens or even upwards of a hundred entities. 3PLs build their profitability on the ability to efficiently solve challenges that arise in a system with so many moving parts, so they are even more sensitive than most to ensuring that business-to-business (B2B) communication is streamlined and automated.

In this blog, we will discuss how 3PL EDI integration helps realize the promise of efficient supply chain interoperation. Starting with some basic definitions, we will build concrete examples of how modern 3PL organizations can begin leveraging the benefits of EDI integration for themselves.

What is 3PL EDI integration?

Traditional approaches to B2B communication leaned on manual ad-hoc processes like email, fax, or paper documents. Sending a shipping manifest was treated like sending a memo to a colleague, and invoicing a purchase involved scanning paperwork between cups of coffee. While these approaches may still work in the short term and on a small scale for nascent businesses, the demands of modern shipping, warehousing, and processing have proven too much for tradition to handle.

EDI (Electronic Data Interchange) integration describes the process of migrating critical business communication from the domain of manual ad-hoc processes to automated computer systems. EDI has established itself as the digital standard for documents that would have previously been printed on paper: Purchase orders, invoices, shipping manifests, load tenders, and more. EDI integration enables automated computer systems to handle the preparation, validation, and transport of data. Automated software systems provide faster, more accurate, and more reliable B2B communication for modern business.

3PL EDI integration simply applies this concept to the complex web of inter-connected businesses that define 3PL trading relationships. While 3PLs may depend on more trading partners and more types of business documents than the average organization, the principles of EDI integration remain the same. Configuring an automated solution to perform B2B communication according to a sophisticated set of business logic and timing rules ensures that the flow of data is never a bottleneck in complicated supply chain processes.

How does 3PL EDI work for logistics?

At a practical level, 3PL EDI is a process of implementing software infrastructure within your organization. EDI integration software platforms provide an interface for defining what data is exchanged with what trading partners, and how that data should be generated, received, processed, stored, transformed, and validated. The work involved in adopting EDI is thus primarily overhead – once your EDI integration pipeline is appropriately configured, the automated system can manage the day-to-day and minute-to-minute without needing manual intervention.

The integration of EDI systems in 3PL operations facilitates real-time communication between business partners. This real-time data exchange ensures that all parties in the supply chain are constantly updated, enhancing transparency and enabling better decision-making. For instance, when a retailer submits a purchase order via EDI, the 3PL provider immediately receives and begins processing the order, selecting, packing, and shipping products more efficiently. This streamlined communication helps maintain inventory accuracy, improving order fulfillment rates, and reducing lead times, which ultimately leads to higher customer satisfaction and loyalty.

Moreover, the use of EDI in 3PL logistics supports scalability and global reach. As businesses grow, they face increasing order volumes and expanding market demands. EDI provides the scalability needed to handle this growth effectively, allowing companies to manage increased data volumes without compromising speed or accuracy. Additionally, since EDI standards are internationally recognized, they enable seamless communication across global supply chains, reducing barriers to market entry and facilitating international trade. By leveraging EDI technology, 3PL providers can offer more responsive, flexible, and cost-effective logistics solutions, helping businesses to thrive in today's competitive marketplace.

The benefits of 3PL EDI integration

While many of the benefits involved in 3PL EDI integration arose naturally from discussing definitions in prior sections, it can be helpful to explicitly enumerate what EDI integration offers for 3PL organizations:

1. Reduced operational costs: Integrating EDI with 3PL services minimizes the need for paper-based processes, reducing costs associated with printing, storage, and labor. By automating data entry and transactions, businesses can also cut down on costly errors and rework.
2. Enhanced accuracy and efficiency: EDI eliminates manual data entry, significantly reducing the chances of human error. This leads to more accurate order processing, billing, and inventory management, ensuring a smoother and faster logistics workflow.
3. Faster transaction processing: EDI enables the instant transmission of documents, allowing for real-time updates and quicker transaction cycles compared to traditional methods. This speed enhances responsiveness to market demands and customer needs.
4. Improved visibility and tracking: Real-time data exchange provides businesses and their 3PL partners with greater visibility into the supply chain. This allows for better tracking of shipments, inventory levels, and order statuses, facilitating proactive management and decision-making.
5. Strengthened partner relationships: By streamlining communication and increasing reliability, EDI fosters stronger relationships between businesses and their 3PL providers. This mutual efficiency can lead to more collaborative efforts and long-term partnerships.
6. Scalability for business growth: EDI systems can easily handle increased data volumes, making them ideal for businesses experiencing growth or seasonal fluctuations. This scalability ensures logistics operations can adapt without compromising performance or customer service.
7. Global compliance and reach: EDI supports various international standards, enabling compliance with global trade regulations and facilitating smoother transactions across borders. This expands a business's ability to operate and compete in international markets, broadening their customer base and supply chain capabilities.

The challenges of 3PL EDI integration

The promise of automated B2B communication comes with an expected set of challenges. EDI integration has a reputation for being a headache, and this is certainly the case for companies who look to tackle the subject without the appropriate preparation and tools. Specifically, the following problems are likely to affect a 3PL looking to adopt EDI:

1. Initial setup and integration: Implementing EDI requires a significant initial investment in technology, software, and data integration. For a 3PL organization, the cost of adopting new EDI systems and integrating them with existing infrastructure can be substantial, especially for older monolith platforms like IBM Sterling.
2. Technical complexity: The complexity of EDI standards and integration processes can be daunting. Without the right software tools to effectively mitigate the sprawling technicality of EDI processes, 3PL organizations may feel underwater attempting to manage and maintain EDI communication.
3. Data security and compliance: As EDI involves the exchange of sensitive and confidential information, 3PL organizations must ensure robust data security measures are in place. Complying with data protection regulations and technical security standards can be challenging for organizations not familiar with the topic.
4. Partner compatibility and coordination: Successful EDI implementation requires coordination with all supply chain partners to ensure compatibility and seamless data exchange. Differences in EDI capabilities and readiness among partners can lead to integration challenges, disrupting the logistics workflow.
5. Maintenance and updates: Maintaining ad-hoc EDI solutions invites the challenges of a never-ending cascade of maintenance and tweaks to stay current with technological advancements and partner updates. For 3PL organizations, this means that the scope of building an EDI solution internally may end up much larger than expected.

Types of 3PL integration

While EDI integration always involves automated exchange of critical business documents with trading partners, the specifics of EDI integration can differ depending on your needs:

1. Direct integration: This type involves a direct connection between the 3PL's EDI system and the client's EDI system. It allows for efficient real-time or near-real-time data exchange and is typically the most secure and efficient form of EDI integration. However, setup can be more complex than other approaches to integration.
2. E-commerce integration: This type focuses on connecting the 3PL's EDI system with e-commerce platforms such as Shopify, Magento, or WooCommerce. E-commerce integration ensures that order data flows seamlessly from the online store to the 3PL provider, facilitating efficient order fulfillment and inventory management.
3. ERP integration: Integrating EDI with an Enterprise Resource Planning (ERP) system streamlines operations by consolidating all business processes into a single framework. This type of integration allows for synchronized data across sales, accounting, inventory, and logistics, improving overall operational efficiency and data accuracy.
4. EDI vs API integration: While both EDI and API (Application Programming Interface) integration facilitate data exchange between systems, they operate differently. EDI is more traditional and follows strict format standards, making it suitable for bulk, standardized transactions. API integration, on the other hand, allows for more flexible, real-time data exchanges and is particularly useful for dynamic environments or where modular updates may be necessary. In the context of 3PL, companies frequently need both EDI and APIs to service a full range of trading partner requirements.

Commonly used 3PL EDI transactions

EDI documents are designed for communicating specific business information to partners. Understanding the role of EDI involves understanding specific EDI transactions and their relevance to 3PL companies:

• EDI 940 - Warehouse Shipping Advice: This document is used by a supplier or manufacturer to instruct a warehouse to ship orders to a customer. It includes details such as order information, product descriptions, shipping instructions, and carrier details. This facilitates the coordination between production, warehousing, and distribution processes.
• EDI 943 - Warehouse Stock Transfer Shipment Advice: This transaction is used when goods are shipped from one warehouse to another within the same company or to a third-party logistics provider. It includes information about the products being shipped, quantities, and shipping details. This helps in tracking inventory movements and ensuring the correct items are relocated.
• EDI 944 - Warehouse Stock Transfer Receipt Advice: This is the counterpart to the EDI 943 and is sent by the receiving warehouse to confirm the receipt of the stock transfer. It details the quantities and condition of goods received, helping to update inventory records and reconcile any discrepancies from the shipment advice.
• EDI 947 - Warehouse Inventory Adjustment Advice: This document is used to communicate adjustments in inventory levels due to factors such as damage, loss, or corrections. It ensures that the inventory records of the warehouse and the supplier remain synchronized, maintaining accurate stock levels for planning and reporting purposes.
• EDI 846 - Inventory Advice: This transaction is used to communicate inventory levels and status information between partners, such as a 3PL provider and a retailer. It provides details on available stock, helping in managing inventory replenishment, planning, and forecasting.
• EDI 856 - Advance Shipment Notification (ASN): This document is sent by the supplier to the customer before the shipment arrives, detailing the contents of the shipment, packaging configuration, carrier information, and expected delivery details. It allows the customer to prepare for receiving, unloading, and processing the goods, improving efficiency in the receiving process.

CData Arc simplifies logistics workflows

CData Arc is a software tool designed to simplify the challenges that obstruct 3PLs from leveraging the benefits of EDI integration. Arc’s visual workflow designer and no-code architecture are built to accelerate the process of migrating from manual process to automated EDI exchange. Arc provides fully end-to-end EDI integration:

• Simplified secure data transfer with partners via AS2, AS4, SFTP, OFTP, and other popular protocols
• Automatic EDI translation and drag-and-drop EDI mapping
• Streamlined back-end integration with databases, file formats, warehouses, ERPs, and other enterprise applications
• API & EDI integration all in the same B2B data hub

If you are interested in seeing how you can make the transition to EDI as painless as possible, you can begin building no-code EDI workflows immediately with a free trial of CData Arc.