ideas-and-tool: Demand planning

How to perfectly execute the 2022 holiday shipping season

Posted on | by Cin7 team | Leave a Comment on How to perfectly execute the 2022 holiday shipping season

It’s no secret that the holiday season is one of the busiest times of the year for shipping and retail industries. In fact, It’s the most important time of the year for direct-to-consumer (DTC) brands. With increases in technology, ecommerce has become the driving force behind the yearly surge in sales. Shoppers spent $122 billion with online retailers alone in the past year. To keep up with the surge in demand in a short span of time, you need to have a streamlined shipping strategy and fulfillment process in place for the holidays.

These days, customers have high expectations when shopping online. They want free and fast shipping, free returns, and share-worthy unboxing moments. Businesses that are able to keep up logistically both bring in more customers and retain them better.

In this article, we will go through common challenges that DTC brands face during the holiday shipping season, and how you can streamline your shipping process for your online store’s success.

 

What is considered the holiday shipping season?

The holiday shipping season refers to the time of the year (Q4, or October through December) when order and shipment volume spikes, leading to more orders to fulfill and more returns to process. The holiday shopping season includes Black Friday, Cyber Monday, and general gift-giving that leads into Christmas.

In this period, supply chain management can get disrupted as online brands rush to keep up with demand, manage inventory, and fulfill a massive amount of orders. Shipping carriers get busier than usual and work harder to deliver packages on time.

 

When does the holiday shipping season start?

The holiday shipping season starts earlier than many people think. The shipping industry and eCommerce sales ramp up as early as October, and high demand continues until the new year. Here is an overview of major milestones and holidays that occur during the holiday shipping season.

Halloween (October 31)

Even if it’s an American holiday, Halloween is popular among consumers in Europe, too. Whether you’re selling “spooky” decorations, costumes, or other items, sales opportunities increase during this time. Many brands will try to capitalize on the holiday by running special promotions.

Thanksgiving (November 24)

Thanksgiving marks the beginning of the holiday shopping season. You have Black Friday, Cyber Monday, and Small Business Saturday all occurring over the same long weekend. That’s when holiday shoppers begin to search for the best deals and try to purchase their holiday gifts early.

Christmas (December 25)

Holiday shoppers expect to get gifts delivered before Christmas Day (or even Christmas Eve). You must take note of your carriers’ holiday cutoff dates and communicate those with customers. They want to know when they’ll have to place orders for on-time delivery.

New Year’s Day (January 1)

Although the holiday shopping season starts to slow down by this time, return volume is at an all-time high around January 1. This often requires more from customer service and logistics operations teams for smooth returns and exchanges.

Other important dates

  • Black Friday: November 25,
  • Small Business Saturday: November 26,
  • Cyber Monday: November 28,
  • Free Shipping Day*: December 14,
  • Super Saturday**: December 17.

*Participating merchants provide free shipping on all orders, with promised delivery by Christmas Eve.

**The last Saturday before Christmas is a huge shopping day for brick-and-mortar retailers.

 

Common challenges during holiday shipping season

Expected or unexpected, whenever there’s a major change in the supply chain, it can throw off inventory management, shipping, and more. That’s why it’s essential to find ways to build supply chain resilience and ensure a successful holiday shipping season — even if there are delays and disruptions. To prepare your supply chain for Q4, here are a few holiday shipping season challenges to be aware of.

Black Friday sales

One of the biggest challenges to growing eCommerce businesses is managing an increase in order volume. Obviously, this is most apparent during the holidays. Black Friday sales add even more chaos to the mix.

Partnering with the right 3PL can take fulfillment challenges off your plate and put it into the hands of experts (even if the volume increases by 1,200% in a couple of weeks). This is a great way to avoid making common holiday season mistakes.

If you decide to keep fulfillment in-house, you must prepare to hire more packers (and be ready to ask family and friends to step in as required). You should also plan your holidays around running promotions and fulfilling orders on time.

Supplier holidays and factory shutdowns

Many brands partner with multiple suppliers and manufacturers to ensure they are not at risk if a primary supplier can’t deliver during shortages or shutdowns. Whether it’s a planned shutdown like Chinese New Year, or an unplanned one like what happened during the pandemic, manufacturers can go through shutdowns at any time.

Unfortunately, this means that receiving and replenishing inventory can be significantly delayed or disrupted — which could affect your entire eCommerce supply chain. As part of your business contingency or continuity plan, partnering with various suppliers can help reduce the risk of the inventory shortage. You can even get ahead by ordering surplus inventory. This helps avoid stockouts and gives you some wiggle room for the holiday shipping season.

Inexperienced 3PLs

If you want to partner with a 3PL, make sure they have the expertise, technology, and experience to deal with the increased volume that comes with the holiday shipping season. The wrong 3PL partner can cause major disruptions in your fulfillment process and lead to mispicks, slower deliveries, and inaccurate inventory levels.

The right 3PL, on the other hand, will always offer visibility and transparency into the supply chain. That includes real-time inventory data, information on shipping and fulfillment performance, and much more.

 

How to perfectly execute the holiday shipping season

If you are curious about how you can perfect your shipping strategy during the holidays, here are a few things to try.

Break the shipping process down into smaller steps

How long does it take you to fulfill an order? If you can get accurate data on each element, you’ll be able to better answer this question. You can break things down into the following:

  • Time to pack a product,
  • Time to take out the packaging material,
  • Time to collect all items in one place,
  • Time to print shipping labels.

Once you know where every second of your time is going, you can streamline some of the processes and add some minutes back to your day. Small changes can lead to big improvements in efficiency and customer satisfaction.

Communicate effectively

Effective communication with customers is a huge part of your relationship with them. As you ship orders you should make sure they receive updates, shipping times, delivery notifications, and more. This practice keeps customers in the loop and makes them feel as though they know what’s going on with their shipment.

Give your customers multiple payment options

Allowing your customers to pay in multiple ways gives you an edge and provides your customers with the flexibility they want. Since many customers use wallet payment options, accepting payment via wallets can simplify your customers’ shopping experience.

Save time with labels

Did you know you can save a significant amount of time by printing shipping labels in bulk? You can also integrate orders with Cin7 to print your labels in seconds.

Keep an eye on your supply

Each seller predicts how many sales they will make during a holiday season. Suppose you offer 50% off on apparel. You’ll need to make sure you have adequate stock lined up to cater to urgent requirements. Print labels in advance and stock your supplies for shipping. Most importantly, make sure you don’t get stopped midway during the peak season. Purchasing supplies in bulk quantities saves you the cost and headache that comes with last minute sourcing and production.

Display a shipping rate calculator

If you don’t offer free shipping, you should provide your customers the exact cost they’ll pay while ordering any given product. You can do this by offering a shipping rate calculator. This is usually based on factors like the customer’s delivery location and is a very important part of the checkout process. In fact, 44% of customers abandon carts due to high shipping costs.

Set a free shipping threshold

Many eCommerce sellers offer free shipping during the holiday season. This can help increase sales, but it can also burden you with higher shipping costs. Instead, try the following:

  • Set a threshold order value before providing free shipping.
  • Set a countdown for free shipping.
  • Send coupon codes for free shipping.

Setting a threshold on orders may help increase your average order value and encourage customers to buy items they might not have previously. Plus, opting for lower-cost regional couriers might be a smart option, too.

Offer international shipping

Scaling your business to ship internationally could be an excellent opportunity for sellers during peak season. Even if you haven’t shipped internationally before, there is no reason why you should not ship internationally this holiday season.

Seasonal peaks are an excellent opportunity to expand your options — especially when audiences look forward to shopping outside their borders for holidays. There are many low-cost global shipping options from Cin7, so you can quickly ship with premium carriers like FedEx, Aramex, and DHL.

Partner with an experienced 3PL

Partnering with an experienced 3PL company can help make the chaotic holiday season more manageable, especially for businesses that are:

  • Transitioning fulfillment from in-house to third party,
  • Preparing to launch a new brand,
  • Looking for new inventory management options or a hybrid approach.

Fulfilling holiday demands by your own can be challenging, and leasing a warehouse can be time-consuming and expensive. The sooner you start with a 3PL, the easier the process becomes. Cin7 can help you get onboarded quickly to start preparing for the busy holiday season that’s right around the corner!

 

Conclusion

One of the best ways to improve customer satisfaction during the holiday season is by making sure your shipping is quick, organized, and transparent. If you want to build your brand, stand out from your competition, and win repeated business — shipping times is a great place to start. Cin7 can help you manage your supply chain and help you reach your goals. Our inventory management software makes the process easy, painless, and profitable. Book a demo now to get started today.

Cost of goods sold and how to calculate it

Posted on | by Cin7 team | Leave a Comment on Cost of goods sold and how to calculate it

Cost Of Goods Sold (COGS) is a common accounting term or simply called COGS when you meet with your accountant or at a corporate meeting.

If you’ve ever wondered what it is and why it is so important then this article is for you.

Let’s first understand the term cost of goods sold.

 

What is the cost of goods sold?

COGS is the value of the inventory that has been sold by a business.

It is only recognized upon sale of inventory and is reported in the financial period in which those sales occur.

The value of inventory is the total of the direct cost of the products making up that inventory, which has either been produced or purchased by a company for resale. It includes additional charges directly related to preparing products ready for sale, like packaging and delivery charges. However, it excludes indirect expenses such as sales & marketing.

Therefore, COGS equal the direct cost related to the production of or purchase of products sold.

Keep in mind that the value of inventory on hand is considered an asset until the inventory is sold.

 

Why is it important to calculate the cost of COGS?

The primary motive of starting any business is to earn a profit. A business can ensure that it earns a profit by knowing the exact income and expenses incurred to sell its products.

COGS inform a business about all the direct expenditures incurred in getting products ready for sale. Therefore, COGS are an important part of the business decision making process.

Here are some of the benefits of calculating COGS:

1.   Helps create a pricing strategy

Firstly, your selling price can be determined by knowing the total direct costs you have incurred in producing or procuring products. Once you know these costs, you will be in a better position to judge the price at which to sell products so that you can cover your indirect expenses and also earn a profit from the sale.

Knowing COGS helps you determine how much of a profit margin you can keep on the products you sell.

2.   Helps determine the total expenses incurred in selling products

Your profit and loss statement needs to list all your income and expenditures. By taking the direct costs you have spent in acquiring stock, you can arrive at the total expenses incurred by including other indirect expenses such as overhead costs like sales and marketing.

3.   Compare the market value of your product with your competitors

Determining profit margin by only considering direct costs incurred is an incomplete picture. Chances are that your prices may be higher than your competitors in the market. In such a situation, fewer customers will purchase your products and you will incur a loss. If your prices are lower than your competitors, then you can still incur a loss since your low profit margin might not cover your indirect expenses.

COGS helps you to sell your product at a competitive price, grow sales and by extension, earn profits.

Now that you know the importance of calculating COGS, let’s learn the formula to calculate COGS.

 

How to calculate COGS

Here’s the formula to derive COGS:

COGS = Beginning Inventory + Purchases made during the period – Ending Inventory

To calculate the COGS for a reporting period, start with the value of the beginning inventory. If additional inventory was added during the reporting period, be sure to add the value of any new inventory that is produced or purchased to the value of the existing stock. Now, subtract the value of  ending inventory from COGS sold for that reporting period.

Note, that this is a basic example and does not take into account items like returns, discounts, obsolete stock, and the inventory valuation method used.

 

Example of COGS

Let’s assume that company X uses the calendar year to record their inventory. The beginning inventory value was recorded on the 1st of January and the ending inventory value was recorded on 31st of December.

The beginning inventory value was $20,000. During the year, the retailer realized that the business would sell more than the inventory received earlier in the year, so additional inventory worth $7,000. was purchased. At the end of the calendar year, the ending inventory value was worth $4,000.

Now, let’s work out the COGS for the entire year by using the formula.

COGS = Beginning Inventory + Purchases made during the period – Ending inventory

COGS = $20,000. + $7,000. – $4,000.

Therefore, COGS = $23,000.

The COGS equals $23,000, as calculated. Use this formula to help with production, purchasing, and pricing decisions.

Calculating COGS can also help you to calculate your profit for a reporting period and help with decisions to ensure that indirect costs are covered.

Suppose your revenue is $75,000 in a reporting period.

Knowing the COGS, your profit will be $75,000. – $23,000. = $52,000.

 

COGS – Key business takeaways

  • The COGS formula can be used at an individual product level to help with decision making prior to producing, procuring, and selling that product.
  • The COGS for a reporting period is the total of COGS for all product sales for that reporting period. It is a vital metric that is included in your financial statements and is used to calculate your gross profit for that reporting period. Gross profit is a profitability measure that shows how well a business can cover its indirect expenses and earn a profit.
  • The value of COGS will always depend on the direct costs of the products sold and the inventory valuation method used by the business.

 

Closing remarks

A cloud-based inventory and order management system that has been designed to integrate bi-directionally with your accounting software is key to keeping a close and accurate view of sales performance. Cin7 offers access to real time inventory levels and associated financials that make it easier for product sellers to feel confident that they are earning a healthy profit margin.

To learn how Cin7 can modernize your operations, book a call with one of our experts.

 

Supply chain resilience strategy: build and measure

Posted on | by Cin7 team | Leave a Comment on Supply chain resilience strategy: build and measure

It is no secret that COVID-19 damaged the modern-day supply chain. From silicon shortage to toilet paper stockouts, the marketplace has seen it all. According to a survey from the Institute for Supply Management, 95% of the businesses had to endure operational troubles during the initial pandemic days in April 2020.

While businesses cannot prevent such disruptions, they can prepare themselves to persevere through them.

The Cin7 team has compiled a list of strategies to build a resilient supply chain for your business and help gain an edge over the competition.

 

What is supply chain resilience?

The origins of the supply chain resilience concept can be traced back to the work of C.S. Holling, an ecologist who coined the term “ecological resilience.” It refers to the ability of an ecosystem to maintain normal patterns despite being subjected to the damage arising from ecological disruptions.

Supply chain resilience is defined as an organization’s ability to recover from unexpected supply chain disruptions using its “ecosystem’s” existing capabilities, ensuring that the operations run smoothly and the customers remain satisfied.

 

Challenges and risks in building successful supply chains

The pandemic disrupted nearly every stage of an organization’s supply chain. The effect was global and prolonged.

As bad as the pandemic was and continues to be, it is just one of the many factors that disrupt the smooth functioning of the supply chain. Here are some scenarios that pose risks to the supply chain:

#1 Operational risks

Operational risks occur because of breakdowns in normal working operations. Both technical and non-technical reasons can pose this risk.

Example: Machine failure due to poor maintenance (technical) and mismanagement (non-technical). This risk can be classified as internal risk, i.e., it can be fully controlled and avoided by the organization.

#2 Financial risks

Delays from the supplier can cause delays in your production process. This type of risk emerges due to shortcomings in the suppliers’ finances and revenue.

Example: The supplier reduces the production of your raw materials due to their own financial woes or files for bankruptcy. To combat such a scenario, either extend them a line of credit or search for an alternative supplier.

#3 Legal risks

Legal risks arise when organizations are slapped with lawsuits, whether they are frivolous or not. Fighting lawsuits takes a toll on your time, money, and resources. Severe cases can also tarnish your reputation, leading to a loss in revenue and business development.

Example: If a lawsuit for an intellectual property violation is filed against your company or you are fined for breaking environmental laws, any suppliers who get trapped in either scenario can catastrophically disrupt the supply chain of your business.

#4 Geopolitical risks

Globalization has converted the entire world into a connected village, where consumers are no longer dependent on geographical boundaries to purchase items.

Producers benefit from globalization, as they are no longer restricted to sourcing their raw materials from the same region. Faster connectivity ensures that they can order from any corner of the world at a price that fits their budget.

Global connectivity also comes with its challenges. While businesses operate under the trade and commerce laws of their nation, working with partners from various countries adds various layers of complexity.

Situations like political turbulence, governmental policy changes, and war outbreaks can hinder your suppliers’ capacity to make timely delivery.

Example: The US-China trade war and Brexit are classic examples of geopolitical risks.

#5 Natural disasters

Hurricanes, earthquakes, and other natural disasters have been disrupting the supply chain for ages. Such disasters can be classified as external risks, as they are not in the control of the business. Regardless of the classification of risk, these calamities lead to port closures and cargo flight cancellations, in addition to creating capacity constraints and supply shortages.

Even climate change affects the operations of businesses. Research from the

United Nations Development Program (UNDP) suggests that rising temperatures could lead to adverse effects on the workers.

According to the UNDP, climate change’s economic impact on labor productivity could reach $2.5 trillion in global losses by 2030.

Example: In 2017, Hurricane Harvey and Irma—fueled by symptoms of climate change—hit the gulf coast in a span of two weeks. These hurricanes left a trail of physical and economic destruction, including a severe disruption to the regional supply chain.

#6 Cyberattacks

The rise of digitalization has also given rise to cyber security attacks. In fact, cyberattacks have become a leading cause of supply chain vulnerability.

The supply chain becomes a tempting target for hackers as vendors often possess sensitive data about companies or have enough access to allow for privilege escalation.

As attacks of such nature become more common, manufacturers must invest in cybersecurity proactively. This is for safeguarding them as well as their clientele’s data.

Example: Airbus is one of the world’s largest airline manufacturers, and they were subjected to a series of cyberattacks in 2018. The hackers gained access to the confidential documents containing the schematics for classified military transport planes through the attack.

 

Strategies to build a resilient supply chain

A robust supply chain resilience strategy requires two complementary supply chain pillars: resistance and recovery capacity.

Resistance capacity is the ability of a supply chain system to minimize the overall impact caused by disruption. It can be done in two ways:

  • Evasion: Entirely avoiding the factor causing disruption in the supply chain.
  • Containment: Minimizing the period between an event and the time when the supply chain starts to recover from the effects.

Recovery capacity is a supply chain’s ability to restore itself to the level prior to its disruption.

For organizations to achieve true supply chain resilience, they need to be prepared to confront obstacles before they cause any considerable damage.

There are seven distinct strategies to build strong resilience and ensure quick recovery.

#1 Creating buffers

Manufacturers should create buffers to build resilience against minor operational risks like employees calling out sick or shop floor machines breaking down. Building buffers and making them a part of your operational process reduces your dependence on the supply chain working at full capacity.

According to one survey, 21% of the supply chain experts consider maintaining buffer stock as a solid indicator of resilience. The challenge of maintaining high buffer stock can increase your carrying costs, so the optimal buffers need to be strategically planned.

#2 Optimized inventory control

If you are relying on a single warehouse for storing your inventory, consider the option to spread your inventory across different locations.

A natural disaster damaging the warehouse or a virus outbreak among warehouse employees would undoubtedly lead to fulfillment delays.

Splitting the inventory helps minimize the risk and helps expand your customer reach by reducing shipping costs and speeding the shipping time.

Another way to build resilience is to invest in technology that provides real-time visibility into your supply chain. It helps monitor your supply chain performance and identify any and all bottlenecks. Inventory management software assists you to make better inventory decisions and set up reorder points to ensure that you never run out of stock.

Investing in an integrated warehouse management system helps you with better inventory management while reducing the number of errors. Successful organizations devise strategies to manage the longer lead times and methods to counter the unexpected surge in demand, while building replenishment models to ensure that the goods are available when needed.

#3 Investing in human resources

Human resources are necessary to complete the work but having experienced supply chain managers with market knowledge helps navigate through unexpected disruptions.

Merely hiring exceptional people is not enough—the business also needs systems built and SOPs to establish production infrastructure. Your team should have personnel dedicated to fostering better supplier relationships and for commodity management.

Commodity managers monitor the market to scout for new products in demand, price changes, and the latest supply chain developments. This information helps ensure staying on top of market trends and aids in better cost management and decision making.

Helpful hint: The pandemic has been a catalyst to the remote working environment. Such work environmental changes affect the wellbeing of the workers, both physically and psychologically.

The mental well-being of the workers must not be overlooked. “Emotional resilience” is every bit as important as supply chain resilience.

#4 Having multiple supply partners

The concept of partnering with multiple suppliers for procurement is referred to as multisourcing.

One piece of famous investment advice is “Don’t put all your eggs in one basket.” Similarly, relying on a single partner for procuring materials is filled with risk, so partnering with multiple vendors will ensure that your proverbial eggs are placed in several baskets.

Multisourcing ensures that your supply chain does not get disrupted when your primary supplier fails to deliver on time, as you can source it from someone else. It also helps with incentivizing competitive pricing among suppliers so that you get the best returns.

The pandemic demonstrated that diversification is an integral part of building supply chain resilience. For example, China is lauded as one of the world’s leading raw materials suppliers but had production grind to a halt due to Covid-19. When the lockdown was imposed in 2020, manufacturers sought and partnered with different countries like Mexico and Vietnam to expand their network.

Helpful hint: While working with multiple suppliers, you should have a dedicated team for supplier relationships. The supplier relationship manager focuses on developing deeper relationships with suppliers by understanding their core strategies and approaching them with mutually beneficial opportunities. If the supplier is working on limited capacity, there is a good chance they will prioritize the business that has built better relations with them.

#5 Effective communication

Managing supply chains requires a cross-functional effort from all the departments. Businesses need to be agile and loosen the silo structure, which inhibits the flow of information.

As the trend for hybrid working increases, companies should allocate the necessary IT resources for smooth operations and orient them with the relevant tools for communication. Managing virtual teams is very different from conventional teams, so provide managers adequate training to lead them.

Helpful hint: Keep your employees and suppliers in the loop during any periods of disruption. Provide them with relevant company information to help them make informed decisions and minimize errors.

#6 Planning and forecasting

When introducing a new product to the marketplace, it takes approximately two to three years for product development, and the lead time takes approximately 25 to 40 weeks.

It means that to deliver a product during the holidays, a business must start the plan in March. However, businesses forecast demands using their historical data, yet no demand forecasting plan would have predicted that a pandemic would be declared in March, leading to lockdowns and drastically changing customer preferences.

A feasible way to combat such forecasting issues is to invest heavily in analytics and upgrade supply chain technology. A business continuity plan identifies all the potential risks, quantifies them, and then devises a plan to deal with them, while keeping the organization running concurrently.

#7 Developing ecosystem partnerships

Many eCommerce businesses lack the supply chain infrastructure to manage the inbound and outbound logistics. This is where third-party logistics (3PLs) come to the rescue.

Partnering with 3PLs can offer reduced costs, a warehousing facility, and access to a better transportation network. This can help streamline the fulfillment process and diversify the fulfillment process so that manufacturers can prioritize their core competence.

Third-party logistics partners also bring their years of experience to the table, helping you optimize your solid supply chain infrastructure and build resilience.

 

Measuring supply chain resilience

To test the efficacy of your planning, McKinsey recommends a stress test model. This model quantifies the supply chain resilience against five factors:

  • Industry attractiveness
  • Customer exposure
  • Operations exposure
  • Corporate resilience
  • Supply chain exposure

Apart from the stress test model, there are three core metrics that help in evaluating supply chain resilience.

#1 Time to survive

This metric refers to the time to resume business operations after a disruption.

For instance, the time to survive metric for some factories in China was nearly three weeks. It reflects how long it takes to establish the necessary safety measures (like offering personal protective equipment kits) and obtain clearance from the government.

In this phase, the companies need to answer some key questions around:

  • Compensating the people
  • Bringing people back to the workplace
  • Taking corrective measures to reopen their premises

In a nutshell, time to survive answers the question, “How long does it take to reopen the business?”

#2 Time to recover

Recovery time is how long it takes to return your business to the capacity it had before the disruption.

Even though the Chinese factories started to function again after the Covid-19 outbreak, they were only running at a fraction of their standard capacity. This occurred due to a lack of workers and loss of production time. It took an additional three to four months to recover.

Prepare and protect your business by examining how long it would take to get operations back in working order.

#3 Time to thrive

The time to thrive arrives after the recovery phase, but only after an evaluation of how the business confronted the crisis.

It juxtaposes the state of business before and after the crisis and determines if and how the company learned any lessons from the disruption and improved.

Regardless of what analysis emerges during this phase, businesses should be ready to pivot their offerings to match what the market demands now. For instance, many restaurants now offer home delivery or pick-up due to the consumers’ behavioral change caused by the lockdown.

Once a company determines how it has or hasn’t improved after facing the crisis, the time to thrive is not far off.

 

In summary

Businesses need to be agile and flexible enough to adapt to the changes caused by disruptions.

Building a resilient supply chain mitigates the risk and boosts operational efficiency. Companies that invest in supply chain resilience often see shorter product development cycles than those that overlook it, which can be a competitive advantage.

By partnering with Cin7, you can automate your workflow as well as get better analytics and insights about your inventory, which helps in data-driven decision making. You can also partner with the best 3PLs through our integrations.

The experts at Cin7 can help you build a resilient supply chain for your business. Book a call now to discover more!

7 considerations for EDI success

Posted on | by Cin7 team | Leave a Comment on 7 considerations for EDI success

Technology has drastically improved how we interact with the world. Transportation has evolved from animal carts to fast cars; data transmission has changed from postal letters to instant emails. With the advent of the Internet, the world has turned into a connected village.

In such a connected world, your business needs to be able to share relevant information with stakeholders like suppliers. Thanks to technology, this process can be streamlined using EDI. You can electronically share information about purchase orders, invoices, and status information with your stakeholders using EDI.

In this article, we will discuss what EDI means and what challenges you may face while using EDI for your business. Let’s get started.

 

What is EDI?

EDI stands for Electronic Data Interchange, and it facilitates the computer-to-computer data transfer between two (or more) parties. In layman’s terms, EDI is similar to a chat messenger that delivers information from your device to your friend’s device.

The parties that exchange information through EDI are EDI trading partners. EDI software allows its users to create templates so that they can standardize documents shared with EDI trading partners.

Suppose you integrate EDI with your ERP (Enterprise Resource Planning) tool or inventory management system (IMS). Once complete, your EDI can automatically fetch the necessary documents from the ERP/IMS database and send it to trading partners as required. This way, you do not have to create documents from scratch.

In the absence of EDI, businesses had to rely on the postal service, faxing, or email all of which had drawbacks. Let us understand EDI better with the help of an example.

John runs an apparel business, and he replenishes the inventory by ordering goods from David – the manufacturer. In the past, his purchase manager would draft a purchase order, print it, and then postal mail to David to reorder stock. The order would be received by David’s sales representative, who would manually enter the items being ordered along with the respective quantity into the system to finalize the sale.

The process seems lengthy and time-consuming, right? With EDI, sending information takes seconds rather than its postal counterpart – which can take days (even weeks!).

John’s purchase manager simply needs to add order information – product specification, quantity – in his EDI software, which will be automatically forwarded to David’s (manufacturer) EDI software. David can easily integrate the EDI tool with his order management system, such that an order can be directly placed when John sends a purchase request through EDI.

 

 

Credit

It is evident that EDI can streamline the purchase process which is better than doing it manually. The manual process also has room for many errors; for starters, the sales representative can enter incorrect order quantities into the system.

EDI not only saves your processing time, but it also helps in boosting the accuracy as it minimizes human error.

EDI also brings labor cost savings, as you do not need to incur the charges of printing the order details and the cost of postal handling/faxing/email the documents. Even the recipient does not need to endure the hassle of sorting and storing the physical copies for the record.

 

Common EDI challenges

Now that we are clear about the use and benefits of EDI let us also discuss the challenges faced while implementing EDI.

#1 Compatibility with trading partners

Deciding to implement an EDI system involves revamping your database. This challenge can multiply if you choose to create and administer the EDI in-house. Even after successful implementation from your end, the challenges do not end.

As EDI facilitates the transactions between trading partners in real-time, it is essential that your EDI system successfully synchronizes with their system for accurate data transfer.

Another hurdle could be that some of your suppliers may not be so keen to implement an EDI due to a lack of knowledge and hesitation about data sharing.

Apart from the stakeholders, it is also essential to train your internal staff to work with the EDI system. You do not want your purchase manager to order 1,000 items instead of 100 accidentally! The repercussions of mistakes can be huge, and thus it makes sense to fully acquaint your employees with the relevant features of the EDI.

As the stakes are high, it is advisable to consult an EDI expert rather than trying to figure things out on your own.

#2 Standardized formatting

The complexity of EDI integration can be challenging when your trading partners customize the formatting guidelines to cater to their unique needs. For instance, the invoicing transaction code is referred to as EDI 810.

Some invoice fields are common across all trading partners. However, the partner may likely add some additional EDI segments specific to their business.

In such scenarios, compatibility can be an issue that can lead to transaction errors. Here the experience and support of EDI providers become crucial as they are experienced with handling such issues.

While doing B2G (Business-to-government) transactions, your EDI should be compliant with the document formats legislated by the government. For example, Since 2020, the majority of European governments have been mandated to accept invoices electronically. Even the federal German public bodies have stopped accepting unstructured invoices – PDFs, printed documents – and only accept e-invoices.

As your business expands, it is essential to comply with government standards to avoid penalties. The standards can be region-specific – like the VDA format in the German automobile industry – or industry-wide.

These are some widely adopted standards in the EDI industry:

  • UN/EDIFACT (Electronic Data Interchange for Administration) was devised by the United Nations in 1987. It created standards for the syntax and structure of the messages to ensure that EDI is compatible with multi-industry transactions.
  • GS1 is essentially a subset of EDIFACT, and it is widely used to standardize product data. It uses GS1 identification numbers to help identify each product, location, and trading partner. The GS1 identification numbers are usually in barcode format, which can be scanned to add the physical products into the database, and movement can be tracked.

You must also ensure that your EDI can accommodate various transmission protocols such as FTP, HTTP, SFTP, and AS2. AS2 (Applicability Statement 2) has gained popularity in the retail and consumer goods industry since its adoption by Walmart. AS2 is used to transmit EDI messages quickly, safely, and cheaply!

#3 Security considerations

Despite its wide adoption across various industries, some partners may still be concerned about implementing EDI due to the nature of information sharing.

These concerns may arise from various factors such as lack of trust and risk of information leak due to security breaches. International laws can further add to the challenges by introducing legal frameworks and data protection rules.

You must ensure that the information is shared via encrypted transfer protocols. It is best to discuss your security measures with your partners, to ensure that everyone is on the same page and comfortable with your business practices.

It should be noted that the sensitivity of the information varies, like your order data may not be as sensitive as the invoices (which can contain vital billing information). You need to take extra precautions while dealing with highly sensitive data – as with healthcare customers, for example.

A value-added network (VAN) is a hosted private network that is used to offer connectivity between EDI trading partners. It acts as the gateway to sharing documents between parties – in other words; it is like a digital postal service. You need to check the security certifications of your VAN network, like ISO 27001 accreditation.

#4 Rising EDI cost

EDI helps lower your operational costs and optimizes logistics; however, you need to spend to get started. A substantial investment to purchase the necessary infrastructure – hardware and software – for EDI transactions will be required. If you decide to build an in-house EDI, you also need a dedicated IT team for its maintenance.

If your EDI implementation does not go well, it could also tarnish your reputation amongst your trading partners. Your manufacturing vendors may even penalize you for incorrect ordering as it can impact their production lines.

To lower your costs, you can outsource to a cloud-based EDI system provider. In this case, you won’t have to invest in a dedicated set-up and transactions run in the cloud, leading to cost savings.

Additionally, a provider updates the EDI automatically, so it saves you from any hassle when scaling up.

#5 Data errors

According to a study by the University of Tennessee, 60% of B2B transactions are suspended or declined due to some anomaly in the data. This makes it crucial to take necessary steps for data governance, to make the most of your EDI’s potential.

The report further suggests that 16% of the orders placed in a month contain an incorrect price and 20% of orders are for items that are either discontinued or not available in stock. Surprisingly, 8% include a duplicate purchase order.

Such situations can be dealt with by adding EDI rules that monitor transactions for variables like price differences and PO validity. This way, the system can send alerts to your team whenever a discrepancy is found.

There are times when a manufacturer needs to increase the price of a particular product. Needless to say, it is crucial to alert the buyers so that they can alter their order quantity.

For instance, the purchase manager gets a specific budget (say $100) to order a quantity of goods. Presently, the manufacturer sells each unit at $10, so the buyer can avail of ten units ($100 budget / $10).

However, if the manufacturer increases the price from $10 to $20, the purchase manager will need to reduce the quantity from ten units to five units ($100 budget / $20). But if the manufacturer does not promptly inform the buyer about the price change, it could lead to disputes and damage their relationship.

Price changes are inevitable; to solve such issues, businesses use EDI 845 – the price authorization acknowledgment document. Vendors use it to communicate price changes to resellers. EDI 845 is used primarily in the pharmaceutical industry, but manufacturers and distributors also utilize it.

As your business operations scale, so does the volume of your EDI transactions. With greater volume, it can become challenging to avoid errors or spot missing fields. Popular EDI formats such as EDIFACT were not meant for humans to comprehend, and that is why spotting errors can be tricky.

Even if you somehow manage to do that, manual error inspection is time-consuming. Thereby, automating the error detection process can help you save time and increase your profit margins.

#6 Integration with your inventory management system

EDI should be flexible to adapt to your way of doing business instead of the other way around. The technical integration should allow you to use the formats that you prefer or commonly used by your trading partners.

Many businesses already use an ERP (Enterprise Resource Planning) system or inventory management solution to gain insights into their business processes. Look for an EDI that also integrates with your existing system so that you can directly process the EDI orders.

Instead of manually pulling the documents from EDI and then feeding them into your inventory system, you can do this in real-time by integrating them together. This helps you meet increased customer expectations.

#7 Offering transparency

As the complexities of the supply chain rise, the need for transparency between trading partners is more important than ever.

The functionality of EDI has evolved over the years. What started as a means to improve the B2B transaction process has now evolved into a tool that provides better inventory management.

You can adopt some EDI transactions that provide inventory information to boost transparency. EDI 846 can provide information about inventory levels, and EDI 214 offers buyers shipping status notifications.

With the right system, you can share alerts and notifications with your trading partners. Offering transparency ensures that information is not siloed and helps everyone to be on the same page.

 

Wrapping up

We live in a period where the supply chain is constantly getting disrupted by various factors – be it pandemics or political factors. During such a period, investing in technology that can help optimize your supply chain – such as EDI – seems an obvious choice.

Implementing EDI can be beneficial as it streamlines your B2B transactions and provides much-needed transparency. Choosing the right EDI that integrates with your ERP can do wonders for your organization.

Vetting the best EDI is also vital as it contains sensitive information that can affect your business’s overall profitability.

To learn more about Cin7’s built-in EDI capabilities, request a demo.

Posted in EDI

Dock & Bay

Ben Muller might be one of the world’s most notable towel enthusiasts. He’s the co-founder of Dock & Bay, a brand with a single, noble goal: create the world’s greatest quick-dry beach towel entirely from sustainably sourced materials.  

The company’s founding idea was incredibly simple: to merge the concept of a compact, quick-dry travel towel with a nice, big, bright, colorful beach towel. Since then, they’ve had an incredible journey. It began with launching sales via Amazon and their own website, and — having barely reached the milestone of their first million in revenue — they had a lucrative layover at the Dragons’ Den, the UK’s cut-throat equivalent of Shark Tank.

“We had a nice little head-start in 2017 when we were on Dragons’ Den in the UK,” Ben says. “One of the dragons, Deborah Meaden, took us under their wing. It’s been a really good experience, to take the business from an idea into a bit of a startup.” 

The quick wins from the Dragons’ Den appearance was a huge hit of exposure to worldwide audiences via the popular TV show. “That brand awareness gave us a real head-start to moving forward as a business, as well as some goalposts to aim for, as we expanded around the world,” Ben says. “And when we took on Deborah as an investor, she made us more accountable — we weren’t just doing a little side-project anymore, we had to be professional and respectable. It was a good kick up the bum to take things seriously and do things properly.”

One of those kicks up the bum? Dock & Bay needed to get a grip on their inventory. You could perhaps say that the problem was they didn’t know where their towels were — and they needed to find out. 

Poor inventory management almost made Dock & Bay throw in the towel 

“Inventory management was the most horrible part of our existence, for the entire business,” Ben says. “It was always a challenge. In the past, our warehouse owned the source of truth for inventory, and they put their numbers into our eCommerce platform. What that meant was, essentially, we didn’t have any control over what we were selling.” 

Tired of using spreadsheets as a temporary fix, Dock & Bay team went shopping for an inventory management solution. Their main pain points were simple: inventory visibility, and an inability to do stock forecasting. “We didn’t have control over what inventory we had listed, because the systems around us seemed to be controlling what we were selling. The most we’d managed was Band-Aid fixes to our eCommerce platform.” 

The Dock & Bay team needed help, from somebody who knew how inventory management worked and what the best systems were, and could help them get their system implementation right the first time. They found exactly what they were looking for in SMB Consultants. 

SMB Consultants are Cin7 Experts. Their job is to help their clients find the best solution to grow and manage their businesses, and once that solution has been found, they work to seamlessly implement it. The foundation of their success is having a careful process that they go through with all their clients — first seeking to understand how the company is working, what the pain points are, and what changes need to be made to optimize operations. 

“We originally reached out to SMB to say ‘We’ve got a problem,’” Ben says. “We knew there were a lot of inventory management programs around — TradeGecko, DEAR Systems, Cin7, and so forth. We said, ‘We don’t know which one would be best, but in general, each of these seems to do something like what we need.’” 

Through a collaborative, in-depth scoping process, SMB helped Dock & Bay land on Cin7. 

“SMB helped us throughout,” Ben says. “The first step was to understand how we’re operating now, and SMB have a really good view of how business operates, the challenges that businesses face, and how those solutions fit into software. When we first started talking, it wasn’t just “here’s what Cin7 does and why you should use it and we’ll install it for you” — instead, they understood the business and the challenges it faced, and they could pinpoint why Cin7 was the best solution.” 

What clinched it for Cin7, Ben says, is the advanced level of integration Cin7 offers with Amazon. “It’s quite advanced compared to every other software available. All software has its own strengths and weaknesses, but Cin7 was the most well-rounded, best approach for us. SMB coached us, and their Cin7 expertise helped us understand how to implement our workflows in Cin7, and then train up our teams.” 

The towel company that always knows where their inventory is 

Dock & Bay have been with Cin7 for over a year, and a lot has changed. 

One of the main differences is that the Dock & Bay team has fantastic inventory visibility, and confidence in their data. They no longer have to manually update convoluted, unreliable spreadsheets. Reporting is reliable, and gives decision-makers access to up-to-the-minute sales and operations information. 

“The amount of data we’d have to deal with would break a spreadsheet,” Ben says. “But that’s where Cin7 comes in — we have trust in the data. And that’s the most important thing, because if you don’t trust your information, you can’t trust any reporting you try to get out of it. Cin7 gives us faith in our data, and automates the process of running reports, so we can make informed decisions.” 

Cin7 now acts as the source of truth for inventory information across all the apps and platforms that Dock & Bay make use of. Sales made on Amazon and Shopify stores all pull from availability data in Cin7, and the software also looks after the routing of products in and out of their third-party logistics (3PL) warehouses. 

Dock & Bay has five warehouses run by 3PL partners, one for each region they’re selling in — the UK, Canada, the US, Europe, and Australia. They also work with Amazon fulfillment in each of those regions, for a total of 10 warehouses across the business. On top of this, they also have different Shopify websites for either B2B or direct-to-consumer (D2C) sales for each region, in addition to third-party marketplaces like The Iconic and Nordstrom selling their products. This geographically disparate, multi-channel picture would be a near-impossible nightmare to manage, if not for Cin7. 

“Cin7 manages the inventory in all of those warehouses,” Ben says. “It knows how many open orders there are, and that gives you your available stock. Every time an order takes place on one of our sales channels, it comes to Cin7, which knows it needs to update the other sales channels and say ‘You can’t sell this item any more.’” 

Having this level of control means that Dock & Bay have been able to set up some routing rules, which simply wasn’t possible before Cin7. 

“For instance, we can prevent orders going straight to the warehouse if it’s a pre-order, or if the customer hasn’t paid or is using an alternative payment method, we can set up some rules to make sure those orders don’t go out straight away — we can put in a delay of say, two hours. Being able to control that workflow really saves us a lot of time, hassle, and ultimately costs.” 

Scaling up safely & sanely

Having Cin7 on their side has also given Dock & Bay something crucial: the ability to scale up safely. “Once a business hits a particular size”, Ben says, “a level of trust necessarily comes into the operations, as it’s impossible for any one person or team to check everything that happens. And if your system isn’t trustworthy, things can spiral out of control very quickly.” 

“You need to trust that things are happening the way you want them to, without human intervention. Cin7 gives us the ability to create rules and automations to run the business, rather than having people do all those steps,” Ben says. “Cin7 has allowed us to grow with confidence.” 

The high level of trust in their systems has been repaid with smooth operations, even over periods that typically give product companies nightmares. The Black Friday sales rush is awaited with dread anticipation by operations in the eCommerce world, with floods of consumers testing system integrity across the board. In the past, it’s been a huge bugbear for Dock & Bay. This time around, ready for anything, Ben told the support team they could call him anytime, 24/7. In the end, though, it wasn’t needed. Thanks to Cin7, Dock & Bay’s Black Friday went off without a hitch.

“In the past we had chaos, leading to weeks and weeks of issue resolution,” Ben says. “But this Black Friday we had no issues, because for the first time we had control of our data in all of our systems, and had the process down pat. I really do, 100 percent, put that down to the fact we’ve taken control of our business processes, and Cin7 is key to that.” 

Customer service is now a snap

A further benefit of the Cin7 implementation has been a sharp reduction in customer service issues. Thanks to a much clearer view of inventory and more control over stock, the classic eCommerce bugbear of overselling has been almost eliminated. 

“It’s reduced the number of customer service issues significantly,” Ben says. “Because we now own the information, and the process around it, we’re not overselling like we used to. The second thing is we now have a very valuable source of truth to look into where things may have gone wrong. In the past, we couldn’t really pinpoint where the issue was. Whereas now, we can analyze what happened in Cin7 and then identify where the issue is, and often even fix it ourselves.” 

Ben gives a typical example of the sort of trouble they’d often face before Cin7 was implemented. If the warehouse system they were previously relying on was reporting incorrect numbers, Dock & Bay had no option but to remove the product from the website altogether. Now, they can simply adjust the stock figure in Cin7 or put a hold on the item, and that will stop the product selling across all sales channels. “Now, we can solve the problem and get on with business. That’s where Cin7’s helping us.” 

Dock & Bay say that Cin7 has also saved them needing to expand the operations team. But that doesn’t mean skimping on hiring, or firing employees. Instead, they can run an efficient, high-performing, lean operation, and increase headcount in areas that will help grow the brand. 

“Because we have trust in the process and the data that’s flowing through Cin7, we don’t have to intervene very often. This means our operations team can run pretty slim, and we can invest in roles like marketing and sales that add more value to the business. We’re just much more efficient,” Ben says.  

Cin7 is Dock & Bay’s heart of gold and single source of truth

With the Cin7 implementation over a year behind them, Dock & Bay have a clear view of exactly how much being helped by a trusted Cin7 expert has benefited the company. The impact, Ben says, is absolutely huge, to the point where he says they “couldn’t have done it alone.” 

To other businesses considering implementing Cin7, Ben says that if you’re going to be using a platform that controls so much of your business, you may as well do it properly, and get a certified Cin7 expert like SMB Consultants to help. 

“SMB Consultants brought the dream to life. Having Cin7 has meant we could become more efficient, and trust the information in our systems. But we couldn’t have done that without SMB. We had to work with the right people as well as the right system to get where we are today.” 

It’s safe to say that knowing exactly where their towels are has made Dock & Bay a much better business than they were before. It might seem improbable, but having Cin7 at the heart of the company makes everything possible. 

“Cin7 is the heart of our business,” Ben says. “It controls what we sell, and where we sell it. It manages information from customers, through the warehouse, through our supply chain, into our accounting system, and all the way around our operations and support team. It touches every part of the business. We take all our trusted information from Cin7, and it’s our single source of truth.” 

“We’d be very lost and very sad without Cin7, because there’s really no way to visualize how the business could operate without it.”