The Inventory Dilemma

Inventory is every retailer’s nightmare. Carry too much, and you are left with unwanted surpluses and margin-killing markdowns. Carry too little, and you face stock outs, missed sales, and unhappy customers who end up shopping elsewhere.

For almost two decades, the top supply chain issue in the grocery sector has been out-of-stocks. Andersen Consulting and the Coca-Cola Retailing Council conducted a study that found the average out of stock rate in a grocery store was 8.2%.  If you went to a grocery store seeking to purchase 13 items, chances are you would not find one of them. Numerous studies have been conducted since 1996 by groups such as the Food Marketing Institute (FMI) and Grocery Manufacturers of America (GMA). Surprisingly, most of these studies, although conducted at different times and different groups, all found out-of-stock to be 8%.

How Customers Respond to Out Of Stock?

In their book ‘The New Science of Retailing’ – Marshall Fisher and Ananth Raman describe the following scenarios –

Customers can respond in a variety of ways when they encounter a stock out, and how they respond determines the impact on your sales.

  • In the best case, the stock out has no impact because the customer either returns after you have re-stocked or purchase a substitute.
  • Another possibility is that you lose sales because the customer either decides they can do without the item or buy it elsewhere.
  • A third possibility is that you lose all the sales the customer planned to buy.
  • The fourth possibility is that a customer, usually after encountering repeated stock outs, abandons your company and shops elsewhere.

This is where EDI comes into the picture. For business partners (Suppliers and Buyers), EDI means better information flow, inventory management, reduced cost, accurate accounting supply chain management and order processing.

What is EDI?

According to edibasics, Electronic Data Interchange (EDI) is the computer-to-computer exchange of business documents in a standard electronic format between business partners.

Because EDI documents must be processed by computers rather than humans, a standard format must be used so that the computer will be able to read and understand the documents.

There are several EDI standards in use today, including ANSI, EDIFACT, TRADACOMS, and ebXML.  For each standard, there are many different versions, e.g., ANSI 5010 or EDIFACT version D12, Release A. When two businesses decide to exchange EDI documents, they must agree on the specific EDI standard and version.

Process Before EDI

Image 1

Image Source – www.edibasics.com

Process After EDI

Image 2

 

Image Source – www.edibasics.com

How EDI Saves Money For Your Company?

First of all, many companies will not conduct business with you unless you implement EDI. If you are not EDI-capable, you lose an opportunity, which can be very costly.

The cost of not using EDI is over 100X the cost of using EDI.

Take the case below of the number of business days to ship in 2 scenarios…

  • EDI/XML – No manual intervention – 3 days
  • EDI/XML – With minimal intervention – 7 days

EDI Benefits

EDI

  • Streamlines your business and saves you time and money
  • It eliminates data entry errors and chargebacks
  • Increases your efficiency and speed.
  • Large cost savings on labor
  • Excellent return on investments
  • Environmentally friendly by reducing paper transactions
  • Improved tracking capabilities
  • Supply Chain Management
  • Reduces stationary and postal charges

With EDI

  • Short Shipments
  • No read labels
  • Wrong items
  • Missed Shipped Dates
  • Inaccurate weight, Cubic size
  • Mismatched ASNs
  • Out of Stock Scares
  • Product recalls

Image 3

Image Source – www.edibasics.com

Few Common EDI documents

  • EDI 810 – Invoice
  • EDI 850 – Purchase Order
  • EDI 855 – Purchase Order Acknowledgment
  • EDI 856 – Advanced Shipping Notice
  • EDI UCC – 128 Labels
  • EDI 753 – Routing and Carrier Instruction
  • EDI 754 – Shipment Delivery Discrepancy Information
  • EDI 846 – Inventory Inquiry/Advice
  • EDI 852 – Product Activity Data
  • EDI 860 – Purchase Order Change
  • EDI 865

Magento is one of the best eCommerce platforms available.  According to a research powered by AheadWorks, Magento is the biggest and the most influential eCommerce platform.

Magento does not handle EDI but sometimes suppliers may insist on sending and receiving EDI transactions.

Magento EDI Solution

Magento makes it simple and affordable for companies to eliminate traditional manual processes while optimizing your supply chain for success.

 Manual Process

  1. You set up product items (price, inventory, images, brand, attributes) to sell online
  2. Customers place order through online shopping cart
  3. Order details sent to an internal system through ERP or OMS
  4. Based on re-order level, send order to Warehouse/ Supplier through email/fax orders to drop-ship supplier for fulfillment
  5. Warehouse or supplier fulfill the order and send tracking information via email or spreadsheet
  6. Order information for shipment tracking, invoicing, return, back order are typed into various systems based on email/spreadsheet from warehouse/supplier
  7. Product is shipped to customers

Magento EDI Solution

  1. Products set up in Magento to sell online with complete price and inventory synchronization
  2. Once customer places order online, order details are automatically sent to an internal system like an ERP or OMS
  3. A PO with Global Trade Identification Number (GTIN) and Global Location Number (GLN) is automatically created and sent to the supplier for processing.
  4. The supplier acknowledges the order and prepares the shipment
  5. Supplier picks/packs/ships the orders with retailer branding
  6. As soon as the products are on the way to the retailer, the supplier systems sends an electronic dispatch advice also known as Advance Shipment Notice (ASN)
  7. When the products arrive, the SSCC (Serial Shipping Container Code) is scanned and due to the EDI dispatch advice or ASN message, the received amount can be automatically added to the warehouse stock level.
  8. The supplier sends invoices and tracking information automatically via EDI to the retailer.
  9. The electronically sent invoice includes the GTIN of the delivered products, the corresponding prices, and other essential information.
  10. Received inventory and cost update from the supplier will be automatically updated in Magento. 

Part II Image

Below are some of the standardized documents that can be synched between Magento and EDI:

  • Purchase Order
  • Purchase Order Acknowledgement
  • Purchase Order Change
  • Purchase Order Change Acknowledgement
  • Functional Acknowledgement
  • Invoice
  • Advanced Ship Notice
  • Inventory Update
  • Product Activity Data
  • Request For Routing Information
  • Routing Instruction
  • Remittance Advice

EDI is not new and the quest for B2B connectivity is 4 decades old. With Magento EDI integration, the order moves from the supply chain to delivery up to the point of sale in a seamless manner benefiting the retailer in more ways than one as described above.

References

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2 Comments on "Need for Magento EDI Integration"


Guest
Bruce
2 years 9 months ago

Nice Explanation on Magento EDI Integration

admin
Admin
2 years 9 months ago

Hi Bruce,

Thanks for your appreciative comments.
Please let us know what kind of articles you are interested in.
This will help us publish relevant ones.
Thanks again.