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Importance of EDI in the Supply Chain

Fri, Aug 17, 2012 @ 01:15 PM / by Shandra Locken

EDI Supply ChainSo how important is EDI in the supply chain?  In my opinion, the supply chain would come to a screaming halt and the results would seriously affect our economy if EDI were to cease to function. The EDI supply chain starts when a Purchase Order is generated and sent to a supplier and/or manufacturer.  I can remember being a receptionist for a small after-market auto parts company when I was college and one of my jobs was to check the FAX machine for orders.  We won't say what year this was!  These orders would then be manually entered into the computer for processing.  This went on all day long.  Now...EDI has automated the supply chain to the point that FAX machines are literally collecting dust.  Does anyone use the 10-key part of their keyboard anymore? And what happened to those file storage rooms where paid invoices went to die?  There's no doubt that the words EDI & supply chain go hand in hand.

The manufacturer's role in the utilization of EDI in the supply chain, although sometimes reluctant, is only one link in the chain. The retailer, who usually calls the shots, is responsible for much of the activity as we move downstream in the chain.  Take Walmart for example, who maintains par levels of items on the shelf.  Par levels are boundary markers in inventory levels that signal replenishment is necessary.  If your par levels are set too low, you risk running out of product if you have a period when you are busier than usual.  If your par levels are set too high, you may have more money invested in stock than is necessary.  If coupled with poor rotation practices this can lead to spoilage or damage.  It is good to find a level somewhere in between.  So when a UPC is scanned at the register and a supply level drops below par, this generates a Purchase Order that is sent via EDI to the supplier.  The supplier fills the order and sends back a Ship Notice via EDI letting Walmart know when to expect the order. The shipment arrives at a Walmart distribution center with a UCC-128 bar code label attached to the container. The label is scanned, allowing the receiving dock to view the Ship Notice.  The carton is then sent to the appropriate destination in the warehouse where the needed items are picked and sent to the appropriate stores.  The shelf is then refilled when inventory arrives at the store....presumably before there is an out of stock situation.  This is how Just in Time Inventory methods should work.  Obviously, there is a lot more involved, more transactions, more steps and some EDI professionals may point out my blaring omissions, but for the purpose of this article...this is a simple example of a retailer in the supply chain.

Individual companies have certainly reaped the benefits of EDI and the automation it has allowed but what has EDI done for the supply chain from a worldwide standpoint?  EDI has managed to globally connect us in a way that was only imagined 30 years ago.  I regularly get inquiries from manufacturers all over the world who need to do EDI with a company outside of their country. Many of these companies never even speak to one another and are in opposite time zones, but they can become trading partners because of how automated the order-to-payment cycle is.  Even with EDI standards differing in various parts of the world, the supply chain keeps moving...getting products on the shelf and ultimately supporting our economies.  No matter what country you're in, that's a good thing!

Click here to download a detailed supply chain diagram!

Topics: EDI Technology, e-commerce, benefits of EDI

Shandra Locken

Written by Shandra Locken

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