About 15 years ago, I changed industries from healthcare to logistics. As I am an IT professional, you might think it was a jump from an antiquated, paper-based world to a high-speed, technologically advanced one. Actually, I’ve been surprised at the extent to which the exchange of supply chain data in the logistics world remains old-school or simply manual.
Manual Data Processing Inefficiency
These days, the Amazons and Walmarts are setting the new standard for speed and accuracy in distribution. So I am puzzled as to why a large portion of CPG companies, including even larger manufacturers, continue to relay orders to their 3PLs manually. That requires customer service representatives to re-key the order data into the system to manage the pick and ship process. In addition to adding labor costs, this approach invites errors.
According to Purchase Order Management Best Practices, typical error rates for manual data entry are about one error for every 300 keystrokes. For Amazon, the maximum length of an SKU identifier that can be sent is 40 alphanumeric characters (are you starting to do the math on error potential?).
Of course, these same processes can all be automated and performed in the blink of an eye by electronic systems. But automating data exchange is a significant change that must be managed well. Logistics teams that want to evolve are often stymied, either by inertia – “this is how we’ve always done it” – or lack of corporate IT resources to spearhead the project.
Manual processes also provide poor visibility into orders since a “placed order” is not truly “placed” until it is manually entered. If there is a logjam of orders that takes your associates a while to enter, orders could potentially exist for long periods of time without anyone knowing. This impacts inventory and financial reporting/forecasting and can lead to customer dissatisfaction.
EDI IS THE PREDOMINANT DATA EXCHANGE METHOD IN LOGISTICS
The most common method of electronic order processing in logistics and other industries is EDI (Electronic Data Interchange). EDI is a process by which two computer systems exchange data with one another. Let’s say that Company X wants to share purchase orders, invoices, and advance ship notices with Company Y via EDI transmission. The companies would create a standard format for their documents and set up their connection – directly (peer-to-peer), or through the internet, or a protocol such as FTP or AS2.
EDI is a faster, more efficient, more accurate method of data transfer than manual, as it almost completely removes human labor from the process. On the downside, EDI is almost 50 years old and was developed before the Internet.
EDI typically involves a lengthy set-up process that can be costly in terms of both money and resources (e.g., your IT team). It is also limiting, as every exchanged document must follow the exact format that was developed during the set-up process. Anything that does not follow the exact format will not be processed.
One downside of incorrect EDI feeds is retailer chargeback fines to suppliers. The most common cause of chargebacks, after missed delivery time, is late, unreadable, or incorrect advance shipping notices (ASNs), which are the most important EDI feeds that retailers receive.
It’s one reason many companies are implementing electronic exchange systems that are more modern and user friendly than EDI.
XML IS THE PREFERRED DATA EXCHANGE OPTION
XML is an electronic language that allows for the exchange of just about any type of file without strict format restrictions. EDI is limited because the transmission has to follow certain standards that are defined within the document type. The complications in setup occur when one side or the other uses a data element for a different purpose than defined within the standard. Conversely, XML allows for greater flexibility as there is really no “standard” that the mapping tool needs to follow. This allows for almost limitless freedom in terms of what data can be shared and with whom it can be shared. Companies can also implement XML quickly, and begin exchanging data in less time and expense.
There are many other options out there, many of them tailored to specific industries.
Implementing Electronic Supply Chain Data Exchange
Once in place, there is little work in running your electronic processing system. It basically runs itself. And, while it can take some time, money, and resources to implement, the investment pays for itself in reduced time, labor and the cost of errors – both in terms of operational costs and lost sales.
Before diving headlong in to one particular system, however, it may be in your best interest to consult a consumer packaged goods (CPG) logistics provider who has experience working with multiple systems.
At KANE, we have established a modern platform for data exchange and collaboration. However, we are flexible enough to cater to any customer data exchange preference, from manual to EDI to XML.