Placing orders

Think of a company that issues thousands of purchase orders a month. They’ll likely receive at least one invoice for every purchase order issued. Let’s look at the process for this simple scenario:

Buyer manually enters the purchase order in their software	Buyer sends order to supplier via email	Supplier manually enters the purchase order in their software	Supplier manually enters the invoice in their software	Supplier sends invoice to buyer via email	Buyer manually enters the invoice in their software

Some organisations have put a price on manually processing a single invoice in the ballpark of $30. Some of the costs associated are:

• Paper
• Postage
• Printing
• Filing
• Labour – This includes staff working on the processing of the transactions.
• Error checking costs – Manual processes create errors and these errors can add costs to your business in order to correct them. This isn’t just additional labour hours to correct the issue. If the wrong number of goods to be sent is incorrectly inputted, it could lead you having an under supply or over supply of goods required.

Now let’s compare this process with EDI.

Buyer enters the purchase order in their software		Purchase order appears in Supplier’s software	Supplier enters the invoice in their software		Invoice appears in Buyer’s software

As you can see from the diagram the process is reduced and streamlined because of the EDI automation. The amount of manual inputting is reduced, saving time for your account team. Connecting partners’ ERPs reduces or eliminates the need for postage, filing and printing and paper costs. This scenario is just one of the steps in the procurement process. Other messages can be exchanged to automate other steps, such as:

• Purchase Order Change – sent by buyer to supplier if the original purchase order has been changed.
• Purchase Order Acknowledgement – sent by supplier to buyer to acknowledge receipt of the order.
• Purchase Order Response – sent by supplier to buyer to notify them of any responses or changes to an order.
• Advanced Shipping Notice – sent by supplier to buyer to let them know when and how goods will be shipped.

Receiving goods

When receiving goods from suppliers, a team is needed in the warehouse ready for the order to be delivered. Using a manual procurement process, it is hard for the receiving team in the warehouse to know what will be in each package sent or how it is packaged. It is also difficult for them to know when it will be sent. Once the delivery comes in, items need to be checked off manually and inspected to ensure no goods are damaged. This is sometimes done with pen and paper on a clipboard. This information then needs to be inputted into the ERP system or sent separately to the accounts team. Costs associated are:

• Labour costs – accounts team and receiving team.
• Stationary – paper, pens, etc.
• Any errors occurred during this process.

With EDI, this process is simplified and more streamlined. Before goods are shipped by the supplier, they can send an Advance Shipping Notice (ASN) to the buyer. This details what is being sent, how it is being sent and when it is expected to arrive. The buyer can then prepare their warehouse with the right personnel and equipment to accept the goods once they arrive. This reduces labour costs and increases productivity. The supplier can also generate SSCC labels on the individual logistic units sent to the buyer (e.g. pallet, carton, container). This can be scanned by the receiving team, automatically sending the information to the buyer’s ERP.

Preparing payments

Once your goods have been received, any discrepancies are raised and need to be rectified before payment is made. This is often done using three- or four-way matching. Some of the discrepancies that may arise in the matching process are:

• Inaccurate quantities received or invoiced
• Incorrect prices
• Received (including damaged) goods.

Typically, matching requires three documents to be reviewed:

• Purchase order – confirms the order has been made
• Receiving advice – details what has been received and the condition of the goods
• Invoice – sent by the supplier requesting payment.

The accounts payable team collects and reviews each of these documents for the quantities, prices, and payment terms. This can be quite time consuming as this information can be in the form of paper documents, emails, faxes and PDFs; all stored in different places. Documents can also be lost or misplaced causing further delays to payment potentially missing discount opportunities. With EDI, the process is faster and more simplified. All required information is sent directly to your software via EDI. It can then be programmed to automatically match the information and identify discrepancies. If an issue is detected during matching it is filtered to be investigated by your accounts team. All successful matches are processed and scheduled for payment; no need for manual processing and paper-based documents, saving you money and time. Interested in implementing EDI for your business? get a free consultation from one of our EDI experts.

Looking for ways to improve processes is critical to any business, particularly in the areas of efficiency and cost reduction. Electronic Data Interchange (EDI) allows the exchange of business information directly between the software of your business and your customers and suppliers. It automates unnecessary manual processes while streamlining supply chain transactions. Companies commonly implement EDI to:

• Gain better visibility into the supply chain
• Reduce errors in exchanging paper or PDF documents
• Reduce costs
• Increase information security.

Let's have a look at these benefits in more detail.

Gain better visibility into the supply chain

With a manual purchase order and invoice, can a buyer answer questions like:

• Can the supplier fulfil my order?
• When will the goods be shipped?
• When can I expect my goods to arrive?
• What is in each package I am about to receive?

In short, no. But all of these questions can be answered through other EDI messages exchanged in near-real-time. Often companies will exchange more than just a purchase order and invoice; they’ll exchange purchase order responses (which tells a buyer if the supplier can fulfil the order), advanced shipping notices (which tells the company how the shipment is packed and when it will arrive) and more.

Reduce errors in exchanging paper or PDF documents

Traditional procurement has many manual processes that are prone to error. Human mistakes occur for a number reasons including:

• Inputting incorrect numbers or values
• Missing or skipping key steps in the process
• Transferring the wrong purchase order information

Here is an example of traditional procurement for a PO to Invoice process:

Buyer manually enters the purchase order in their software	Buyer sends order to supplier via email	Supplier manually enters the purchase order in their software	Supplier manually enters the invoice in their software	Supplier sends invoice to buyer via email	Buyer manually enters the invoice in their software

With EDI, processes are automated reducing manual errors. For example, when a buyer places a purchase order (PO), it can automatically trigger an acknowledgement to let the buyer know it’s been received, and the order can be put into the supplier’s system. Here is an example of EDI procurement for the same process as above:

Buyer enters the purchase order in their software		Purchase order appears in Supplier’s software	Supplier enters the invoice in their software		Invoice appears in Buyer’s software

When the supplier is ready to ship the order, an advanced shipping notice (ASN) can be created and sent to the retailer to advise them of delivery. This can include information like how it’s packed, when it’ll arrive, the shipping company and more. The supplier can the raise an invoice in their software, which can be sent automatically to their customer’s software. Without EDI, all these processes would require manual creation greatly increasing the risk of errors.Through the use of EDI many areas of the supply process are completed with no additional manual inputting of information. Want to learn more about EDI? Download our introduction to EDI whitepaper.

Reduce costs

In low-margin businesses, reducing costs is critical. Think of a company that issues thousands of purchase orders a month. They’ll likely receive at least one invoice for every purchase order issued. Without EDI, that’s a lot of manual handling. Some organisations have put a price on manually processing a single invoice in the ballpark of $30. You can see how it adds up! EDI vastly simplifies the supply chain process through automation. Some examples of costs reductions are:

• Manual data entry costs: EDI automates many manual data entry processes, reducing the amount of labour required.
• Transaction costs: No physical sending of documents to your partners reduces costs related to printing, postage and filing.
• Receiving and shipping related costs: By receiving shipment information from suppliers prior to delivery, you can prepare in advance for receiving goods. By streamlining the receiving process, you can achieve reductions in labour costs.
• Error correction costs: Errors in the supply chain can result in extra costs being incurred. With the elimination of manual steps in your processes, errors are reduced. If errors do occur, they can be found and corrected much faster.

Increase information security

In today’s business environment, information security is a prominent issue. Sending sensitive information through unsecure channels can add risk to your business. You could be sending these via email, post or even SMS, which can easily be sent to the wrong person or even intercepted. EDI can send this information more securely than conventional methods. Using secure message communication types such as Secure File Transfer Protocol (sFTP) or AS2 decreases your risk. EDI adds a layer of authentication to the process which is required for the information to be sent. It also limits the connection to specific partners reducing the risk of your sensitive business information being sent to the wrong recipient.

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