Optimizing Automation for Distributors and Manufacturers

EDI Best Practices Guide

OVERVIEW Electronic data interchange (EDI) is the most commonly used B2B

eCommerce technology. Trading partners using this computer-to-computer

exchange of business documents gain increased efficiency and customer

satisfaction.

At IDEA, we’ve helped hundreds of distributors and manufacturers over the

past two decades save millions of dollars with EDI.

EDI Best Practices GuideTo get the most value out of EDI, it’s important to assess and review your

plan regularly. It helps to have a roadmap. That’s why we’ve compiled the

most helpful EDI best practices for your team.

Use this EDI Best Practices Guide to:

■ Identify—Where are my biggest opportunities for savings and what

makes the most sense to automate?

■ Increase—How do I get the most value out of EDI?

■ Improve—What would improve our relationships and interactions with

trading partners and customers?

■ Implement—How do I implement changes and determine a budget?

TABLE OF CONTENTS EDI Best Practices Overview ............................... 2

EDI Feasibility Study ........................................... 3

Strategic EDI Audit ............................................ 4

EDI Efficiency Review .......................................... 5

EDI Metrics Tracking ........................................... 6

EDI Transaction Suites ......................................... 7

EDI Definitions .................................................... 8

EDI Summary Checklist ..................................... 10

EDI Resources ................................................... 12

IDEA Process & Next Actions ............................ 13

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EDI BEST PRACTICES

This best practice measures the value of EDI opportunity vs. the costs to determine if implementing automation makes financial sense.

Automation Feasibility

Quantify & Qualify Review supported transactions with top vendors and

customers. Discuss if it makes sense to automate.

■ Determine the number of trading partners you’ll be automating.

■ Count the number of impacted transactions with those trading partners.

■ Assign costs for manual transactions: order entry,

invoice response, and fixing errors.

Implementation & Support CostsEstimate costs for kilocharacter charges and any ERP

updates. Next, outline the support needed externally

or internally for your ERP.

The best practice for support is typically 1/3 of a full-

time employee.

Savings with Trading Partners

Number of transactions

XCost of manual transactions

XNumber of Trading Partners

= Savings

Automation OpportunitySavings from transactions

– Implementation & support costs

=Automation Opportunity

Quantify Value for Automation Opportunities and Budgeting

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EDI BEST PRACTICES

Strategic Audit | Annually

Review Pain Points, Staffing and Savings Opportunities for EDI

These best practices identify changing market demands.

Solve Problems & Find OpportunitiesIdentify areas in your organization that are time-consuming, costly or aren’t

working very well. This can include manual effort, inefficient processes or

redundancies. Gather consensus and buy-in from staff and leadership.

Staffing & VendorsAre there any areas where automation can help resolve staffing gaps or issues?

Consider consolidating your automation vendors. This can increase efficiency

and enable you to see all your EDI transactions in one place.

Trading Partners and CustomersLook at automation opportunities with your best trading partners and customers.

Document available transaction sets and the number of trading partners

available to automate. What is most requested by your trading partners?

IN-HOUSE OR OUTSOURCED EDIIf you’re considering whether to manage EDI in-house or outsource it, check out the white paper,

Determining Your eBusiness Strategy for EDI Operations at

idea4industry.com.

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EDI BEST PRACTICES

Efficiency Review | Annually

Review EDI Infrastructure and Maintenance Updates This best practice focuses on tactical aspects of managing EDI growth and maintenance.

Update EDI Contacts & Capabilities ■ Reach out to trading partners to update their EDI contact.

■ Document EDI transactions trading partners currently support. This improves relationships and enables you to see EDI opportunities for increased efficiency.

Maintenance Updates ■ In-house EDI: Plan for upgrades yearly to keep current with the latest specs and support. This makes troubleshooting and fixing issues easier. In addition, the best practice is to update your EDI system and translator every 5-10 years.

■ Outsourced EDI: Review your managed services contract and address any concerns or changes.

EDI Connection and Frequency ■ Review your EDI connection: Applicability Statement two (AS2) vs. File Transport Protocol (FTP).

■ Typically, companies often start with FTP and upgrade to AS2 if they need additional security. AS2 is preferable for sending confidential data, like bank information, as it provides superior encryption for the data file and connection.

■ Review the urgency of your transactions to determine the connection frequency. Companies often connect twice a day, typically morning and evening.

■ The key is to find a balance. Connecting too frequently can result in disrupting a large transaction; yet, waiting too long to connect can delay important price updates.

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EDI BEST PRACTICES

Metrics Tracking | Monthly Monitor Growth for Planning and Resource Management This best practice enables you to track your EDI processes and their value to your company. This detects when growth warrants an expansion of your EDI department or processing capacity.

EDI Value MetricsOn an ongoing basis, track the value of your EDI initiatives and provide a monthly update to key stakeholders.

These metrics help with budgeting, and it encourages buy-in from leaders and team members for automation. It is especially helpful when requesting additional staff or budget increases.

■ Number of invoices sent to customers via EDI vs. manually sent invoices (email, fax, mail) per month. With this monthly billing information, you can determine the dollar value of the Accounts Receivables processed through EDI. This can equate to higher cash flow efficiencies.

■ Count of inbound EDI purchase orders and number of item lines included vs. the count of manually-entered order lines. By approximating costs for manually keying in order lines, you can demonstrate the savings that could be realized by order lines being programmatically inputted via EDI.

TRANSACTION STATISTICS MONTHLYWith these statistics, you can take the pulse of your EDI processes. Plan on tracking this each month, although some will need weekly stats.

■ EDI kilocharacters by trading partner

■ Documents exchanged by trading partner

■ Count of EDI transactions by document type

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EDI BEST PRACTICES

EDI Suites for Maximum Value | Annually

Starting EDI: Supply Chain

■ 850 Purchase Order (PO)

■ 810 Invoice

Then add: ■ EDI 855 PO Acknowledgment

■ EDI 856 Advance Ship Notice (ASN)

Grow EDI Efficiencies:

Transportation

■ EDI 204 Motor Carrier Load Tender

■ EDI 210 Motor Carrier Freight Details & Invoice

Then add: ■ EDI 211 Motor Carrier Bill of Lading

■ EDI 214 Transportation Carrier Shipment Status Details

Advanced Capabilities:

Finance

■ EDI 820 Payment Order/Remittance Advice

■ EDI 823 Bank Lockbox

Then add: ■ EDI 812 Credit/Debit Adjustment

■ EDI 829 Payment Cancellation

Enhance Processes:

Communication

■ EDI 864 Text Message

■ EDI 816 Organizational Relationships

Then add: ■ EDI 824 Application Advice

■ EDI 852 Product Activity Data

Implement Complementary EDI Transactions for Increased EfficiencyThis best practice shows a progression of EDI transactions that enable you to automate different business functions and exponentially grow your efficiency.

EDI transactions are designed to work together. By grouping specific EDI transactions together, manufacturers and distributors can automate more business functions like logistics and finance. In some cases, this can save staff hundreds of hours and reduce costly errors.

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EDI BEST PRACTICES

1 2Supply ChainEDI 850 Purchase Order —This is used for repetitive ordering like stock and flow business. The EDI PO allows for autonomous movement of goods: the distributor’s Order Management system electronically sends the order to the manufacturer’s Enterprise Resource Planning (ERP) system, which then fills the order with very little human interaction.

EDI 810 Invoice —The EDI Invoice is an electronic version of a paper invoice that sellers send to buyers to request payment for products delivered. Also known as EDIFACT INVOIC and x12 810 Invoice.

EDI 855 Purchase Order Acknowledgment—Using the EDI 855, sellers communicate receipt or rejection of an order to a buyer. This document also communicates errors or changes to an order. Also known as EDIFACT ORDRSP and x12 855 Purchase Order Ack.

EDI 856 Advance Ship Notice—These notices optimize workflows for those who work in receiving docks. The EDI 856 contains the product detail information of what was tendered to the freight carrier or the supplier that fulfilled the order. The details include product shipped quantity, freight carrier name, tracking numbers, ship/deliver dates and product packaging information. Also known as ASN 856.

TransportationEDI 204 Motor Carrier Load Tender—This is used by shippers to communicate a request to a full truckload motor carrier for the movement of a shipment. It may be used for creating, updating, replacing, or canceling a shipment. Shippers may include manufacturers, distribution centers, wholesalers, or any company that is interested in having goods shipped.

EDI 210 Motor Carrier Freight Details and Invoice—This replaces paper invoices and is used by freight carriers. The EDI 210 is sent from a carrier to a shipper to request payment of freight charges. In some cases, EDI 210 invoices are sent to a third-party payment center. An individual EDI 210 is typically sent for each shipment moved by the carrier.

EDI 214 Transportation Carrier Shipment Status Message—This transaction is used by truckload and LTL carriers to inform shippers of the detailed status of their shipments. A shipper will typically require the EDI 214 based on specific events, such as carrier arrival at the pickup location, carrier departure from the pickup location, load arrival at the destination, and carrier departure from destination loading dock.

EDI 211 Motor Carrier Bill of Lading—This is an electronic version of a paper Motor Carrier Bill of Lading, transmitted from a shipper (or company controlling the shipment) to a carrier. Also known as X12 211.

EDI Transaction Set Categories & Definitions

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EDI BEST PRACTICES

Finance/BankEDI 820 Payment Order/Remittance Advice—This is an electronic transaction that can be used to initiate payments and send remittance information between trading partners.

EDI 812 Credit/Debit Adjustment—This transaction is used by buyers and sellers to either send a notification of an adjustment or billback or request an adjustment or billback. The EDI 812 is an electronic version of a credit/debit memo.

EDI 823 Lockbox—This is typically the initial EDI document that starts the order fulfillment process. The EDI 823 enables the successful transmission of the lockbox information along with the balance information from a particular bank or other lockbox service provider.

EDI 829 Payment Cancellation—This facilitates the cancellation of any electronic payment that has been transmitted previously by the originating company to its financial institution. The EDI 829 should be created before funds have been released.

CommunicationsEDI 864 Text Message—This is used by trading partners to exchange text-based information such as messages, explanations and notes. The EDI 864 message is frequently used to communicate errors or rejections of EDI documents to suppliers. After receiving an error notification or rejection, the supplier will need to correct the error and re-send the document. Also known as x12 Text Message.

EDI 816 Organizational Relationships—This is comprised of two formats. The first is for delivering location addresses. The second format is used for information about the organizational relationships between locations, such as store services by specific distribution centers or warehouses.

EDI 824 Application Advice—This is typically sent by the buyer to report the acceptance, rejection or required changes to an EDI document from a supplier. The EDI 824 contains information identifying the originating business message, such as reference numbers, dates, quantities and monetary amounts. It also provides trading partner information and technical error descriptions with free-form text-format capability.

EDI 852 Product Activity Data—This is used to electronically exchange detailed sales and inventory information between sellers and buyers. The EDI 852 helps trading partners collaborate to improve sales and inventory performance. Also known as SLSRPT or X12 852.

EDI Transaction Set Categories & Definitions

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EDI Best Practices Checklist

The IDEA Exchange team has created this valuable EDI Best Practices Guide to help you manage your EDI operations for maximum value.

As you work through the best practices, check the steps you’ve completed.

EDI Feasibility Study: When does automation makes sense? Quantify the value of automation opportunities, calculating savings and costs. Recommended: As Needed.

❏ Review the transactions supported by your top vendors and customers, looking for opportunities to automate more.

❏ Determine the number of trading partners to automate and the number of impacted transactions.

❏ Determine the cost of manual transactions.

❏ Calculate savings: Number of automated transactions X cost of manual transactions. Then, multiply that savings by the number of trading partners.

❏ Estimate costs: Additional KC charges + ERP updates to become EDI compliant + support.

❏ Calculate value of proposed EDI transactions: Total savings from trading partners (vendors + customers). Then subtract implementation & support costs.

Strategic Audit: What functions need to be automated?Gather data and outline opportunities for savings and growth. Recommended: Annually.

❏ Survey other departments to find time-consuming manual processes and other pain points. (See the Resources section for a downloadable template for this and other outreach.)

❏ Gather leadership input on needed improvements or growth.

❏ Document requests from trading partners for EDI transactions that you’re currently unable to support.

❏ Review staffing: full department or short-staffed? Can automation can help resolve staffing issues?

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EDI Best Practices Checklist

Efficiency Review: Are EDI operations streamlined and updated?Review operations, maintenance, and connection. Recommended: Annually.

❏ Send out EDI contact and transaction capability update survey.

❏ In-house EDI System: Implement system upgrades and maintenance.

❏ Outsourced EDI System: Review contract and service needs.

❏ Review connection type (FTP or AS2) to ensure it meets your requirements in compliance, security, and transaction volume.

❏ Review your volume and urgency needs. Do you need to adjust the frequency of your automated EDI connection?

Metrics Tracking: Are you tracking and providing updates? Take the pulse of your EDI processes and measure the value. Recommended: Monthly.

❏ Monitor key EDI statistics each month: KCs by trading partner, documents by trading partner, EDI transactions by document.

❏ Track the number of invoices sent by EDI vs. manually. Calculate the dollar value of accounts receivables processed through EDI, which can identify cash flow efficiencies.

❏ Count inbound item lines on EDI purchase orders compared with manually-entered order lines. Estimate costs for manual order lines. Then identify savings for order lines via EDI.

Grouping EDI Transactions: How can you get more value?Implement complementary EDI Suites to exponentially grow your efficiency. Recommended: Annually

❏ Review EDI transaction suites, definitions and progression chart. Determine what would make most sense for you to automate.

❏ Identify the trading partners that support those transaction sets.

❏ Confirm that your ERP is able to process the transaction set.

❏ If ERP is unable to process the transaction set, plan and budget ERP updates to support the additional EDI transactions.

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Additional Information ■ Determining Your eBusiness Strategy: Choosing In-house or

Outsourced EDI Solutions - White Paper

■ What is the Difference Between FTP and AS2? - Article

■ IDEA’s EDI Migration Guide - Best Practice

■ IDEA Exchange Savings Calculator

■ EDI Managed Services Calculator

Templates (Downloads) ■ Manual Processes Survey—Annual internal survey to maximize automation within your company.

■ EDI Trading Partner Questionnaire—Annual outreach for updates to trading partner’s EDI contact and transaction capabilities

ORGANIZATIONS ■ X12 develops and maintains EDI standards and XML schemas which drive business processes globally. It is chartered by the American National Standards Institute.

■ IDEA Exchange is an electronic data interchange (EDI) provider. It enables you to exchange eBusiness documents—purchase orders, invoices and advance ship notices—with your suppliers and customers faster, easier, and more securely than traditional Value-Added Networks (VANs) or paper-based methods.

EDI Resources

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IDEA is Here to HelpThe IDEA Exchange team has extensive experience in eBusiness.

It’s our mission to make it easy for you to expand EDI automation

and become more competitive.

We can handle all your EDI needs, increasing your efficiency and enabling you to see all your transactions in one place.

✔ 20+ Years of Experience in EDI

✔ Tier 1 EDI VAN Platform

✔ Translation & Mapping Expertise

✔ Industry-owned and Supported

✔ Best in Class Customer Service

✔ Distribution and Manufacturing Experience

Whatever strategy you choose, IDEA is here for you. We can help

you navigate the complex world of eBusiness for maximum results.

Next ActionsWhen you reach out to IDEA, here’s what to expect.

Outline your eBusiness Strategy ■ Determine your pain points, current situation, goals, growth, staffing, costs; consider using this white paper as a guide).

■ Schedule Discovery call with IDEA

■ Review the checklist and discuss options

Discovery ■ Consulting expertise to help you explore and navigate options

■ Additional in-depth help and analysis is available through professional services

Develop a plan ■ Recommendation for the path that makes the most sense

To schedule a discovery call with the EDI experts at IDEA Exchange, call 703-562-4600.

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Contact IDEA Todayidea4industry.com

703.562.4600info@idea4industry.com

Keep broadening the horizon. If you’re doing one EDI transaction set, you may as well utilize your EDI system. Do all the transaction sets

you can to get more value.

IDEA Exchange is reliable and competitively priced. The staff are knowlegeable.

I recommend it as a Tier 1 VAN and EDI services provider. IDEA Exchange’s experience with

distributors makes a difference.

Dave Brammer, Enterprise Applications Administrator,

Dakota Supply Group