EDI in Logistics: How It Works and Why It's Needed

Electronic Data Interchange (EDI) significantly enhances 3PL logistics by streamlining data exchange, improving accuracy, and reducing costs. Integrating EDI with 3PL operations ensures faster, more secure, and more efficient supply chain management.

Along with searching for a reliable third-party logistics partner, companies should also take the time to understand what is EDI in logistics. Dive into the basics of EDI, how it works, and how important it is to be integrated with 3PL services in this article.

What is EDI?

Electronic Data Interchange, or EDI, is the process of exchanging standardized business documents between partners from one computer to another. By standardizing the format of exchanged documents, EDI minimizes errors, accelerates transaction times, and optimizes the overall supply chain operations. 

What is EDI in Logistics?

The EDI meaning in logistics is essentially the same. By converting paper documents into a standardized electronic format, EDI ensures that all parties involved in the supply chain are on the same page, reducing the time and costs required to process information. An applicable example is an order between our client, PepsiCo, sent to us. It has all the relevant details about that order, where it’s going when to ship it, and what carrier is going to pick it up. This is all transmitted electronically between 2 parties via EDI.

Why do we need EDI in logistics?

EDI replaces traditional paper-based communications and email communications in various industries. It is a computer-to-computer exchange, which means there is no human intervention in processing information, it’s accurate, and much more efficient.

With EDI, a buyer's purchase order goes straight to a vendor’s order management system. The latter processes it and transmits an invoice to the buyer.

What is the use of EDI in Logistics?

EDI is used in logistics to automate the exchange of critical information between supply chain partners.

With a real-time exchange of information, 3PLs and their partners can easily track shipments, manage inventory, and ensure timely deliveries. Ultimately, EDI is vital in optimizing supply chain operations and improving customer satisfaction.

The immense benefit of utilizing EDI is evident in Buske’s experience working with Fortune 100 CPG companies. EDI streamlines communication in retail logistics, which helps Buske fulfill over 350,000 retail shipments annually.

Logistics Documents Transmitted via EDI

Several documents are exchanged through EDI in logistics. Here are some common examples:

• Advance Shipping Notices (ASNs): These documents provide detailed information about upcoming shipments, including contents and estimated arrival times. An example is when we receive ASNs from Ball Corp requesting delivery. 
• Purchase Orders (POs): POs detail the items a buyer intends to purchase, including quantities and agreed prices. EDI automates the transmission of these orders to speed up the procurement process with minimal errors.
• Invoices: EDI simplifies billing by electronically transmitting invoices, that detail the goods or services provided, quantities, prices, and payment terms. In addition to speeding up the payment process, EDI improves accuracy in handling invoices.
• Inventory Updates: EDI allows real-time updates to keep all parties informed about stock levels without delay. This improves inventory management to avoid stockouts or overstock situations.

What are 3PLs in Logistics?

Logistics companies are often referred to as third-party logistics (3PL) providers. They offer services that range from receiving goods from manufacturers and warehousing to delivery to customers or end users on behalf of their partners.

It’s also essential to recognize the benefits of having competent 3PL partners. The right logistics partner can provide flexibility and scalability, allowing businesses to adjust to changing market demands and long-term success. 

In 2023, NTT Data said 71% of shippers who utilized 3PL services reported improved customer service. That’s not surprising since companies can leverage 3PLs' specialized services, expertise, and advanced technology to optimize their logistics operations. 

So, how do 3PLs work? Many Fortune 500 brands and small-cap businesses use 3PLs to outsource their logistics operations. More specifically, 3PLs manage the transportation of goods, offer warehousing solutions, and handle distribution or deliveries.

3PLs can also offer value-added services. Buske, for example, provides custom packaging solutions, kitting, and quality inspection services.

Having 3PL providers also helps reduce costs because businesses don’t have to allot larger investments to warehousing, transportation, order fulfillment, and other supply chain activities.

Benefits of EDI Integration

EDI has significant benefits in 3PL fulfillment and logistics. These advantages include:

1. Efficiency and Speed: EDI accelerates the exchange of information, reducing processing times from days to minutes. This makes a tremendous difference in logistics, where timely information can make a significant difference.
2. Improved Accuracy: By automating data entry, EDI minimizes the risk of human errors, ensuring that the information is accurate and reliable. This accuracy is essential for maintaining smooth logistics operations.
3. Cost Savings: EDI reduces operational costs by eliminating paper-based processes and minimizing manual labor. Businesses can save on printing, postage, and administrative expenses.
4. Enhanced Security: EDI transactions are more secure than traditional methods, offering encrypted data transfer and minimizing the risk of data breaches. This security is critical for protecting sensitive logistics information.
5. Real-Time Data Exchange: With EDI, 3PL providers can exchange data in real-time, providing up-to-date information on inventory levels, shipment status, and order processing. This visibility enables better decision-making and more responsive supply chain management.
6. Better Compliance and Reporting: EDI systems are designed to comply with industry standards, ensuring that all data exchanges meet legal and contractual requirements. They also facilitate detailed reporting and analytics, providing valuable insights into logistics performance.

Frequently Asked Questions

Is EDI secure?

Yes, EDI is secure. It uses encryption and secure networks to transmit data, ensuring the confidentiality and integrity of the exchanged documents. At Buske, we guarantee the security of our client’s data and information.

Can a 3PL provider integrate with my existing systems?

Yes, many 3PL providers offer integration with clients’ existing systems, including ERP and warehouse management systems (WMS), often through EDI or other electronic interfaces. Buske seamlessly integrates existing systems, and any issues are immediately addressed.

What is the difference between 3PL and 4PL?

While 3PL providers handle specific logistics functions, a 4PL (fourth-party logistics) provider manages the entire supply chain, often overseeing multiple 3PL providers to optimize the logistics process.

Choose the Right Logistics Partner

EDI and 3PLs are indispensable tools that enhance efficiency, accuracy, and overall supply chain performance. Finding a 3PL partner who understands the importance of EDI—like Buske—can make all the difference.

Contact Buske now to optimize your logistics operations with EDI and unlock the full potential of your business.