Order to invoice, manual vs. automated

Purchase order to invoice three-way matching is a basic transaction reconciliation process for retailers to use in approving payment to a supplier, vendor or wholesaler upon completion of an order. This accounting procedure involves:

• Buyer’s purchase order
• Seller’s purchase order acknowledgement
• Seller’s purchase order change request
• Seller’s invoice
• Inventory receiving sheets or advance ship notice delivered to the buyer’s warehouse

Without automation, a person has to collect and compare the documents manually as part of the matching process. When documents get lost in the shuffle, a retailer may end up paying for the wrong quantity, price or shipping costs. If reconciliation and the subsequent payment doesn’t happen quickly enough, the retailer can miss out on promotions and discounts for timely payments. Human error and mistakes can become costly with manual processes.

EDI is one solution that automates purchase order to invoice reconciliation. This process enables you to exchange transaction information digitally. Through EDI, all vital business documents are standardized to match each parties’ requirements so information can be exchanged electronically. Documents such as purchase orders, purchase order acknowledgments (POA), advanced ship notices (ASN) and invoices can all be sent directly from the software and tools you already use.

Three-way match simplifies the transaction reconciliation and payment processes, automatically approving all documents that match for payment while setting aside items for further review. The only time a person needs to review a transaction is if something in the documentation doesn’t match. For most retailers, 70 percent of all invoices pass the invoice matching process without any problem. This means you can shift your resources to other work that could save money, such as issues related to price, quantity or payment terms.

Why automate order to invoice reconciliation?

Automated order to invoice reconciliation can add to your bottom line without making any drastic changes. Supply chain experts have estimated that retail organizations overpay an average of $120 to $150 per purchase order on things that are preventable, such as tracking down missing paperwork, fixing inventory errors, delays due to manual receiving processes, paying flawed or downright fraudulent invoices, incorrect pricing and more.

If a retail organization sends out 100,000 purchase orders each year, that adds up to $12 to $15 million lost. EDI and automated processes may not be able to fix all money problems, but together they can drastically reduce and even eliminate issues associated with the order to payment process.

One of our retail customers told us they used to have 15 full-time employees solely dedicated to managing the company’s invoices for their stores and warehouses. After implementing order to invoice matching via EDI and automating order to invoice reconciliation, they reduced their accounts payable staff by 66 percent to just five employees. In addition to helping the company grow their business by seven percent year-over-year, EDI automation saved over half a million dollars yearly just by reducing staff.

Automated order to invoice reconciliation process is a practical solution for a repetitive, time-consuming process that’s vulnerable to human errors. It can help retailers add hundreds of thousands, or even millions, of dollars to their bottom line without making drastic changes in how they do business. Imagine what opportunities could be explored with the money that’s saved?

Discover the value in increasing automation with EDI and a full-service team of experts from SPS Commerce. We have a suite of products that enables retailers to automate processes and save time and money.

• Implementing and monitoring EDI systems, including data mapping, translation and interfaces
• Ability to analyze EDI and data integration/transformation requirements from trading partners
• Performing EDI daily support and projects, prototype data transfers using various methods including, but not limited to, EDI, SAP IDOCS, XML, AS/2, FTP, SFTP, and general network file transfers
• Expertise in business systems specific to company needs across ERP, TMS and WMS 

Perhaps a trusted EDI resource has recently left your company, or even retired. Or maybe you’ve outgrown your current staff. If so, have you considered using a full-service EDI provider instead of hiring more developers? 

A third-party EDI provider can deliver the customizability, reporting, security and integration capabilities you need. And they’ll take ownership of many day-to-day EDI operational responsibilities — so your team doesn’t have to.

Here are three reasons to choose an EDI provider rather than adding more staff:

1. Focus your IT resources on more strategic tasks

If you work with retailers, grocers or distributors, EDI is probably a requirement for exchanging electronic information with customers. While EDI is a necessary function, it’s not a core competency for most businesses. 

Here’s a question to ask yourself: does having in-house EDI capabilities improve your company’s competitive edge in the market? 

If the answer is no, why should you dedicate IT staff to supporting a function that’s not core to your business? Why not have your limited IT resources focus on something that furthers your competitive advantage?

By using a full-service EDI provider, your IT staff can be freed up to concentrate on more strategic projects.

2. Support your IT needs with less work

Let’s face it. Managing EDI systems in-house is time-consuming. Experts estimate that around 95 percent of in-house EDI software is custom-built! 

Maintaining EDI maps alone is a massive effort. A different map is needed for each document type required by each unique trading partner, and these maps are often updated multiple times a year. EDI mapping updates can easily take up the lion’s share of an EDI developer’s time. An EDI developer must test, fix and debug existing maps, as well as create new maps based on new requirements.

In addition to supporting EDI maps and map changes, EDI developers also handle a host of other operational details such as:

• Contacting business trading partners 
• Troubleshooting errors and downstream effects
• Building out EDI reporting tools
• Monitoring data and connectivity

A full-service EDI provider handles the day-to-day tasks associated with your EDI operations. This translates to a dramatic reduction in work for your team.

3. Reduce costs

It’s important to evaluate how much EDI costs to implement, including the total cost of running an in-house EDI solution. Here are some of the costs to consider:

• Staff members to operate and maintain your EDI system
• Staff members to manage trading partner changes in maps and connectivity 
• Software license and maintenance costs
• Hardware costs, such as servers, storage and backup
• VAN fees
• Chargebacks for non-compliance due to outdated maps or errors

Full-service EDI solutions include all of the technology needed to handle ongoing EDI requirements, as well as staffing resources dedicated to keeping everything running. This is often a more cost-effective option than hiring additional EDI developers.

Consider full-service EDI rather than hiring more EDI developers. Learn more about how SPS Commerce Fulfillment (EDI) can help you cost-effectively address your EDI needs, without taxing your IT resources.

How much does EDI cost to implement? We worked with Forrester to dive into the numbers. Find out how apparel supplier Peter Grimm achieved a 372 percent ROI by using SPS Fulfillment.

But as we discussed in our previous post, not just any SAP EDI integration will do if you truly want to achieve the maximum benefits that system automation has to offer.

Special considerations for SAP EDI connections

To start, it’s important to note that SAP does not work directly with EDI. SAP has its own messages called IDOCS, which are similar to EDI messages, but they have their own formats. Because of this, in order to integrate EDI into SAP, a conversion of the information must take place, whether the conversion is happening from SAP IDOC to EDI, or from EDI to SAP IDOC.

For example, when you receive a purchase order in SAP, it is translated from the EDI format into an IDOC that is then integrated into the ordering process. When issuing an invoice from SAP, an IDOC is generated that is converted into EDI format for its shipment.

It’s this issue of translation from SAP to EDI – and EDI to SAP – that often trips up many EDI providers. Transactional Remote Function Call (tRFC), the standard SAP interface for communication between SAP systems, acts almost like a firewall and determines what information gets in and out of SAP, and how it gets there. That includes data being sent to and from your trading partners.

Many EDI setups don’t play nicely with tRFC, leaving you to take care of the transmission and translation of information on your own. Depending on what systems and trading partners you want to connect with EDI and SAP, the information may need to be translated and transmitted to multiple destinations. Without the right configurations, you could end up with more work than you expected. You may even need to hire additional people, even though EDI automation is supposed to help you reduce manual processes and staffing needs.

Implementing EDI Integration for SAP

As you can imagine, integrating SAP with EDI requires an abundance of preparation and expertise before you move forward. How you integrate each system and trading partner into your EDI solution requires careful preparation for each stage of implementation, from pre-planning to final rollout.

How you plan to use EDI could impact the solution you need. Are you using EDI for all your trading partners or just a few? Which manual processes are you automating? Which documents will need to be mapped and integrated? What systems and trading partners need to be connected to accomplish those goals? How will you align all of the processes for smooth operations? Most importantly, what do you expect success to look like once your EDI solution is live?

These and other questions should be thoroughly investigated and answered before making a decision on an EDI solution. You want to make sure that the vendor you choose will be able to make your vision a reality and address whatever needs that may arise.

Full-Service EDI Integration for SAP

SPS Commerce offers a complete end-to-end EDI solution for SAP, including the ability to support tRFC transmissions and SAP IDOC formats, all within a seamless integration. We bring the proven technology and SAP experts to manage the process from implementation through ongoing, day-to-day operations.

SPS Fulfillment automates inbound and outbound communications to keep you connected with your suppliers, vendors, and third-party logistics companies. That includes communications about purchase orders, invoices, inventory updates, shipments and more.

Part of what makes the SPS EDI integration for SAP so successful is how it addresses the issue of tRFC. In order to exchange all the documents listed above, the data needs to be able to get in and out through your systems securely. We have three ways to help you accomplish this, depending on your preferences and requirements:

• Direct tRFC – SPS pushes files directly through the firewall; it becomes a direct, native connection for information to flow in and out through EDI system automation.
• On-Premise Agent – If you want to have more control over what information can get into your SAP system, an “On-Premise Agent” configuration automatically sends outbound information for you, but restricts inbound transmissions.
• SFTP – This is the ultimate level of control. SPS Fulfillment EDI accommodates a variety of FTP options for you to send and receive data.

SAP EDI integration through SPS can also help you disseminate the information received through tRFC and on-premise agents across vital departments, streamlining and improving your current business workflows for faster, more accurate and secure transactions.

SPS full-service EDI solutions are flexible, scalable, and customizable to suit your systems, your support needs, your goals for system and communication automation within your organization.

The SPS Difference

Other solutions can only do so much in their ability to transfer information and translate IDOCS to and from EDI. In most cases, you’re expected to figure out on your own how to get the information from SAP to your EDI (and vice versa). SPS can figure it out for you in order to incorporate and automate all the documents, rules and processes vital for your unique business.

The SPS EDI solution is compatible with SAP’s multiple environments. Where other EDI solutions fall short, SPS makes it easy for you to send the information you need to where you need it, whether you’re working in Test, Production or Development environments.

The SPS Fulfillment EDI solution offers a level of visibility, automation and process orchestration to your operations that’s unlike any other EDI solution out in the market. You’ll be able to get a view of what’s happening in the system and how transactions are moving along within it. EDI automation ensures that information is moving from system to system, partner to partner appropriately, according to the business rules and process requirements of your unique organization.

With role-based access, empower your staff with the information they need to perform at their best – IT personnel can log in directly and see every IDOC, every EDI transaction, while every customer service can get a view that helps them answer questions. The data from within can be used to help you make forecasts, improvements and identify issues that may not have come to your attention yet.

When errors do arise, you have help with SPS. When our system identifies errors, it sends you a notification about the problem. We can send the message directly through SAP natively, so you can know quickly what is causing the issue and address it before it becomes a bigger problem.

When you need to improve business processes and efficiency, trust SPS Commerce to help. The SPS SAP EDI solution offers support for any business document and any trading partner. Additionally, SPS Commerce is a member of the SAP PartnerEdge program and has the expertise to extend the value of your SAP investment.

Join hundreds of other companies that have ditched manual processes with the industry’s most complete EDI Integration for SAP. Contact an SPS representative today for a 10-minute consultation or a brief, personalized demo.

So you’ll be in for a big shock when your big new retail partners require you to have an EDI system before they’ll start trading with you. Either that, or without that EDI, they’ll fine you(!) 2 percent of your invoice total for noncompliance with their trading process. And since you don’t make great profits anyway, 2 percent is a big bite of what you earned.

So what is EDI? Why is it such a big deal? And who’s using it anyway?

Answer: Electronic data interchange. Depending on the size of the company, it saves thousands, potentially millions of dollars in staff resources and error prevention.

Think back to your typical ordering system: your retail partner faxes or emails a purchase order (PO). You may or may not send back a purchase order acknowledgement (POA), although they would probably like it if you did. You’ll call them if you’re going to be short on a particular item, but otherwise you try not to bother them. You send them a packing list with the order, and then invoice them when it’s all over. And they call you if there’s an error in one of the documents, and the two of you figure out where the error happened.

That whole process probably took three or four people to be involved, and took a couple hours to process, send the paperwork, and get the error resolved.

So what if you could do all of that automatically, do it with minimal human involvement, and having it all handled by a computer system so you didn’t have any errors to begin with. That’s what an EDI system does. It’s a way to electronically exchange information about a transaction between a supplier and a retailer. It breaks down a single transaction into several steps, and each step triggers another step, so it can all be handled without human intervention.

Here’s what an EDI transaction looks like.

1. The retailer sends a PO through their EDI system to yours.

2. Your EDI system sends a POA after checking the inventory available. It confirms the order or amends it based on the available inventory.

3. The confirmed order is sent to the warehouse where it’s picked, packed, and shipped. A barcode scanner scans each item as it’s packed up, and once the order is completed, it sends an Advanced Shipping Notice (ASN), which tells the retailer what they can expect and when it will arrive.

4. The order arrives at the retailer’s distribution center, where each case is scanned as it’s offloaded, thus confirming the original ASN and the packing list. That sends a confirmation back to the retailer’s EDI that everything is A-OK. You also receive a confirmation that the order has been received.

5. That triggers an automatic invoice, which is sent to the retailer.

6. Their EDI system does an automatic purchase order-to-invoice reconciliation three-way match between the PO, ASN, and packing list. If the three match, the system will automatically pay the invoice at the appropriate time. If there’s a mismatch, a human will investigate to find and fix the problem.

Now, compare that to the hand-enter-every-step process that many small suppliers and retailers are currently using. Doesn’t this sound like an easier system where everything is done in seconds by a computer, not minutes and hours by humans?

Big retailers don’t want a lot of people working on a lot of forms. They want to find efficiencies and reduce head counts to increase profits. So they want an automated system that can handle their tens and hundreds of thousands of SKUs, provide them with point-of-sale analytics, and even share those analytics with their suppliers as a way to get additional help and recommendations to increase in-store sales. So they’re turning to EDI and expecting their trading partners to do the same.

We’re also seeing some of the larger stores move to a vendor-managed inventory (VMI) system, where the vendor is telling the supplier what to order, when to order it, and where to have it shipped and placed. Imagine being in charge of what your customers buy, how much, and now often! Of course, the only way to know what to tell them is if you have access to their POS data. And the only way you’ll get that in a timely and easy-to-understand manner is if you’re on an EDI system.

Having an EDI system in place can also help you participate in more varied e-commerce fulfillment options, such as drop shipping. This is where an end user will place an order from a retailer’s website, but the order is transmitted to the supplier who actually fulfills it from their own warehouse.

This practice will often include suppliers using the retailer’s branded packaging and forms, as a way to make the suppliers part of their omnichannel marketing and sales. That’s where a retailer tries to create a unified experience for their end users — the in-store experience is like the online experience, which is like the mobile experience, all the way through to the package that gets delivered to their house a few days after they place their order. Again, this all happens with EDI.

Getting connected to an EDI system doesn’t have to be complicated. There’s an EDI solution that can integrate with all of your other systems, or you can start smaller and use a web forms solution that lets you begin sharing your product information and trading transaction information without committing fully to an EDI subscription.

Of course, you could try to build your own EDI system rather than paying a subscription rate. But you need to be able to communicate with not only every retailer you’re currently partnered with, but every new retailer you add. That means onboarding to their system in weeks and months (compared to a couple of days with an EDI subscription). That means hiring a few programmers who are constantly trying to make the system work, dealing with errors, as well as paying for all the hardware and software to make it all work.

Or you could just subscribe to an EDI system where all of that is managed for you.

As a vendor or supplier who’s new to EDI, you can choose to use it for just one retailer. That would make that retailer very happy and satisfy their demands so your new trading relationship could move forward. But what if you could use that same simple, time-saving technology for your other retailer customers? They could gain the same efficiencies, streamline their own processes, reduce their costs, and improve their relationships with their other EDI-using vendors as well.

Plus, several of your retail customers are probably already using EDI right now. If started using it, you could see the benefits of your own improved efficiencies, solved problems, and reduced errors.

If you would like to learn more about EDI, please visit the SPS Commerce website. You can also speak to one of our EDI experts and learn more about how to put this system to work for you.

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