Structure of the article
- Why ERP and 3PL integration is even needed
- Who benefits from 3PL integration with ERP
- Different Ways of integrating platforms
- So, which approach is the better one?
- Integrating 3PL with your ERP: starting point
ERP, or Enterprise Resource Planning is a suite of software programs that are designed to work cohesively with one another to monitor and direct all major business processes and activities within the Enterprise. According to the Hubspot’s 2018 report, upon implementing a modern ERP system, 95% of all respondents reported improvements in some business processes while 49% reported improvements in absolutely all of them. These types of systems are widely used across multiple industries, from distribution, manufacturing, and transportation to medical, banking, education, retail, and others. In some specific situations, the existing ERP functionally may not cover all of the business needs, for example when a company partners with a 3PL or 3rd party logistics provider to outsource its logistical needs. In such instances, linking your ERP with the vendor’s 3PL system can significantly optimize logistical management and monitoring over remote inventory.
Why ERP and 3PL integration is even needed
Proper integration between ERP and 3PL companies and systems expands the ability of the 3PL vendor to truly become a logistical extension of the ERP client, and gives the ERP client ability to control logistical processes near real time. Tight integration allows ERP Users to see when the Inventory is being received, when orders are being picked, staged, shipped, and processed by the carrier. 3PL provider sees when the PO’s are sent out and when the inventory is about to come in. They can see Sales orders coming in the moment ERP processes it, along with all of the shipping and handling instructions.
Who benefits from 3PL integration with ERP
Usually 3PL services are utilized by companies that see their competency in another area of business, and prefer their inventory to be handled by the 3rd party logistic partner. Whether this is a fast growing startup that does not have time to rent their own warehousing footage, or an established tech giant who does not see it as its core mission to maintain vehicle fleets to deliver their own production – there are always reasons why some businesses find it difficult to handle their own logistics. Sometimes, only authorized 3PL companies can transport specific items due to government regulations, be it nuclear waste, toxic chemicals, or explosive materials. No matter the reason, when a business decides to work with a 3PL partner, yet wants to maintain a proper relationship with its own clients, providing flexible ordering, timely delivery and superior order tracking, 3PL integration with ERP becomes a must have.
According to the TEC Team, manufacturing companies are major users of ERP systems. Manufacturing companies of all sizes utilize ERP systems to plan and track production, labor, costs, maintain raw material & component levels and do a million other things that Manufacturer does. When on top of that Manufacturer decides to engage a 3PL partner, be it for JIT (Just In Time) materials & components, or to distribute the final product to their customers, they have to decide on the level of integration of the ERP and partner’s 3PL system.
Wholesale to Retail Distributors
Modern ERP systems usually include a variety of tools to handle all sorts of warehousing and inventory tracking tasks for wholesale distribution. But for those cases when the wholesale business is trying to break into retail delivery, the 3PL partner might be a way to achieve just that. Because the “last mile” delivery needs to be initiated from a local distribution center, the wholesaler often engages 3PL partners, distributes inventory from a main warehouse to regional 3PL warehouses, and directs “last mile” delivery. When 3PL integration with ERP is functionally complete – “Last mile” operations can be directed straight from ERP suite.
For eCommerce businesses, 3PL partnerships are very common. It is often the case that an eCommerce company sees its main expertise in online sales, and the logistical part of the puzzle is not where the majority of the profits are. Just as with wholesale distributors, often business sees value in graduating from simply shipping inventory from a central location via carrier to storing inventory on a regional level for immediate last mile delivery. When that happens- 3PL partnership is usually the way to go. Sometimes its a temporary solution, until the regional infrastructure is setup “in house”, but often it is a permanent upgrade, because the volume of inventory may not warrant the “in house” regional storage & delivery. When that is the case, the vendor’s 3PL platform needs to be integrated into ERP & eCommerce extension, for customer’s order management and shipment tracking.
Different Ways of integrating platforms
There are different ways of approaching integration, from Import Export over FTP to custom ODBC linkage, but we’ll be looking at two standardized ways of integrating systems. These two ways are considered industry standard, and are usually supported natively by the majority of ERP and 3PL systems. They are Electronic Data Exchange or simply EDI and Application Programming Interface, or API. We’ll only be covering these two integration models, as they are the most common. We’ll also be looking at ERP systems with at least some WMS capabilities, as it would be a requirement for such integration.
Integration with 3PL via EDI
In 1977 a group of transportation companies and government agencies got together and developed EDI methodology as a way to standardize electronic data exchange between business entities. In the early 80th, Ford, General Motors, and other large companies started mandating EDI from their vendors, essentially pushing EDI downstream, to smaller and smaller businesses. In the late 80th, another form of EDI called DEX was even implemented as an electronic data exchange with vending machines, further democratizing this technology and standards. Each EDI document has its own well defined format. For example:
- EDI 846 – Inventory Inquiry
- EDI 850 – Purchase Order
- EDI 856 – Advance Ship Notice
- EDI 940 – Warehouse Shipping Order
- EDI 945 – Warehouse Shipping Notice
If you decide to utilize EDI for integrating 3PL and ERP, you just need to make sure that your EDI documents are formatted according to each corresponding standard.
Examples Using EDI for Integration
Let’s imagine that your internet store receives an order from the client. Your ERP forms a Sales Order, generates Shipment Request and sends EDI 940 (Warehouse Shipping Order) to the 3PL partner’s system. Based on the EDI 940 your logistic partner will complete pick, pack, and ship operation, and as inventory leaves the warehouse you’ll receive back EDI 945 (Warehouse Shipping Confirmation)
Benefits of the EDI method of integration
- Much faster turn-around than faxing around paper requests and responses
- Does not involve manual data entry on both ends of the communication link
- Immediate data processing no matter how big or or small your request or response is. 3 line items will be processed nearly as fast as 300.
- At any point, if 3PL or ERP systems of record are replaced- as long as the new system also supports the same EDI standards you should be up and running.
Drawbacks of the EDI approach
- You have to maintain server connection to your EDI Data Warehousing provider
- You have to carefully certify your EDI compliance, as any EDI implementation mistakes will be more costly to fix after Go-live
- Developing custom EDI solutions or even utilizing off-the-shelf ERP plug-in can be costly.
- There will be small per-document charge from EDI Warehousing provider
- In recent years number of developers that work with EDI is shrinking due to a growing popularity of API approach
Integration with 3PL via API
API is a way for different programs and platforms to interact with each other without the need of specific standards. Each system has its own set of API’s, their published specification and usage examples. API’s encourage 3rd parties to integrate with the software, broadening its appeal amongst competing systems. Integration via APIs allow instantaneous communications between 2 systems directly via the cloud, without the need of an intermediate 3rd party like an EDI Data Warehousing company. As long as both parties (both servers) are online – the document exchange is instantaneous.
Examples using API’s for the integration
Benefits of the API approach
- API Integration gives both systems an immediate access to each other
- API integration does not require any other certification except those that are agreed upon by two parties
- >Nowadays, development for APIs is quite common and therefore more affordable
- Avoids the need for Data Warehousing provider in the middle, thus saving on “per document” charges
- Any modern platform or suite of business programs out there already has API’s for data exchange ready and published
Drawbacks of the API method
Although API as a concept is shiny and new (or relatively new…) , it does have its drawbacks.
- API’s are not standardized and are unique to each system. Change ERP or 3PL – and you have to adjust integration on another end
- Because of the lack of standardization, if working with 2 different 3PL providers, you’ll have to possibly develop your API integration twice, and so on.
- Because of no “man in the middle”, for communication, both servers have to be online / in the cloud.
So, which approach is the better one?
API is a modern take on electronic document exchange between businesses. API works equally well for any business, whether small retail shop, regional distributor, global shipping carrier, or international distribution chain. Many 3rd party providers actually develop standard API connectors to their own middle tier system in order to become their own quasie Data Warehousing provider between you and your partner. EDI is a concervative approach, a system that is guarded by a rigid set of standards. Nowadays, it is again, mostly still used by truly big integrational conglomerates and mandated by them to be used by their vendors and service providers. For some of these partners changing to something new is simply too expensive of a proposition to undertake. Down the middle approach would be to engage 3rd party services like Cleo or other similar providers that can simplify your development or even breach API & EDI approaches. Adds flexibility to your implementation but can have additional usage costs associated with its use.
A clear difference between API and EDI
|Time to integrate||3-7 Days||Up to Several Mounth|
|Speed of data exchange||Instantaneous||Minutes|
|Skillest||Wide Pool of Experts||Niche Skillest|
Integrating 3PL with your ERP: starting point
It is best to start thinking about 3PL integration at the very point when you’re identifying which 3PL partner to work with. Yes, it’s not always possible, as sometimes there is only one 3PL provider that can possibly fulfil logistical needs of the business, or maybe the relationship between business entities has already been established for a while. In either case, you need to sit down with your 3PL vendor and discuss their openness to integrating the two systems. For a more in-depth dive into ERP integration with other systems please see our post titled “All that you need to know about integrating ERP with other software.”
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#1 List services the 3PL partner will provide
Start with just an outline. 3PL will receive raw materials for JIT Inventory, deliver JIT to the manufacturing warehouse, store finished goods, and ship finished goods to an end-user. Based on how simple or how extensive this list is – so will become your integration project.
#2 Identify information that will be exchanged with 3PL system
Utilizing the list of 3PL services you can start putting together
- ERPs PO triggers 3PL PO for the Purchase Receipt in the near future;
- 3PLs Receiver post will trigger ERPs PO receipt creation;
- ERPs Transfer Order (in) triggers raw material shipment to an internal warehouse location;
- ERPs Transfer Order (out) triggers finished goods to be received in the 3PL warehouse location;
- ERPs Sales Order approval triggers Picking, Packing, and Shipping to the end user;
- 3PL’s shipping triggers ERP’s shipment generation & client’s ASN or shipment notification email;
This list becomes a basis for your project plan, points on which to base your development, QA, and UAT milestones.
#3 Define integration method
Many 3PL providers have already dealt with this type of project with their other clients, and have done these integrations before. Discuss which route to take on this integration: EDI, API, or some other standard or approach; Also discuss if there be man in the middle: if it’s EDI- which Data Warehouse will be used (or if you’ll go via FTP type of solution); if its API -will you be using some 3rd party cloud based m idle man like Cloras, for example…
#4 Find the right Integrator
When looking at the credentials for your integration partner, it is important to pick someone with plenty of experience. Do not just look at the experience with customizations of your specific ERP, but also with integration projects of this kind, merging logistical systems together. This paragraph, of course, is a shameless plug of our own expertise. FiduciaSoft has been established by founders that worked in the area of ERP, Warehouse Management, Manufacturing, Field Service and Route Accounting for nearly 2 decades. Since 2015, FiduciaSoft delivers ERP customizations and 3rd party platform integrations to our clients, as can be seen in our portfolio.