3PL Integration Guide: How Does 3PL EDI Integration Work?

3PL integration is becoming increasingly essential for companies as business becomes more digitized while the adoption of these solutions moves faster than ever. In this blog, we’ll cover 3PL integration, how it works, the challenges, available solutions, and more.

• What Is 3PL Integration?
• What Are the Benefits of 3PL Integration?
• Challenges of 3PL Integration
• Different Types of 3PL Integration Options
• 3PL EDI Integration
• Common Transaction Codes in 3PL Integration
• Benefits of Integrating With a Single 3PL
• Best Practices for Successful 3PL Integrations
• What Is the Ideal Solution for Integrating Multiple 3PLs?

What is Third-Party Logistics (3PLs)?

3PLs offer logistics services and support some or all aspects of a business’s shipping operations—managing all aspects of moving goods from manufacturers and distributors to the end customer. Services that a 3PL may provide include:
●  Transportation
●  Warehousing
●  Materials procurement
●  Inventory management
●  Customs brokerage
●  Freight audit
●  Payment
●  Picking and packing
●  Shipment tracking

For these reasons, a 3PL is usually integrated within a company’s warehouse management and transportation operations for a comprehensive delivery workflow.

What Is 3PL Integration?

3PL integration is when a business integrates its digital ecosystem with a 3PL to automate and accelerate communication and processing times between the two entities. 

3PL integration solutions are excellent for improving the efficiency of communication between your business and 3PLs, TMS/WMS applications, and eCommerce fulfillment services. They provide real-time visibility into inventory across warehouses and business processes, helping products to be delivered quickly.  

What Are the Benefits of 3PL Integration?

So why are companies investing in 3PL integration? Some of the main benefits of 3PL integration include conducting business in real-time with APIs, improved customer satisfaction, and cutting 3PL operational costs. 

1) Do Business in Real-Time With APIs

Using API integration, your business can operate faster and more efficiently. This is because APIs process orders and transactions in real-time, meaning as soon as an order, message, or transaction is received, processing begins. This differs from other integration methods, such as EDI or MFT, which tend to perform batch processing, meaning files are processed all together (in a batch) at specified times. 

3PL integration with APIs also ushers in more benefits which we cover below.

Real-Time Visibility

3PL integration with APIs grants users greater end-to-end visibility in real time. This is especially helpful when an issue or error occurs. With 3PL integration using APIs, users can drill down into each transaction and pinpoint where and why an issue is occurring. This helps users jump right into fixing the issue before it mushrooms and impacts the supply chain at large. 

Real-time visibility provided by 3PL integration with APIs enables businesses to:
●  Centralize API visibility across REST-based integrations
●  Tie together the steps of a real-time API-based data flows
●  Drill down to access operation logs, SLAs, payloads, and integration activity status

Real-Time Scheduling

Scheduling with 3PLs is easier than ever with API integration. This is because your business and a 3PL can communicate in real-time to find the best dates/times to schedule services, instead of conversing back and forth for days to determine what times are available and work best for each entity.

Real-Time Updates & Inventory

With API integration between your business and a 3PL, your business can receive real-time updates from the 3PL on your shipment, such as the location of the truck that's out for delivery, or when a shipment is expected to be delivered to a retailer. 
These types of updates also apply to inventory levels. For example, if a 3PL is responsible for your business’s warehousing, your company can receive real-time alerts so you know when inventory is running low and when it needs to be replenished.

2) Improved Customer Satisfaction

In business, maintaining customer satisfaction is critical. Since 3PL integration improves efficiency, customer satisfaction also improves because customers receive their orders faster. Additionally, communication is more responsive and accurate, leading to fewer order errors and seamless processing. 

3) Cutting 3PL Operational Costs

Cut operational costs with 3PL integration using APIs by replacing manual labor with automation. Automate processes such as order-to-cash, procure-to-pay, and load tender-to-invoice. Additionally, you can reskill your current team members to work on other pressing assignments that cannot be automated. 

Challenges of 3PL Integration

According to a study by Global Industry Analysts Inc., the global 3PL market is projected to reach $1.3 trillion by 2026, driving the need for businesses to adapt and meet evolving customer expectations. However, legacy technology and outdated practices will hinder this progress. Below are the 13 integration challenges that 3PL companies will likely encounter in the upcoming years:

1) Integration and Interoperability
Connecting with customers and supply chain partners demands robust integration capabilities amidst diverse systems and technologies.

2) Data Management and Analytics
Efficiently handling and analyzing large volumes of supply chain data to make informed decisions and ensure customer satisfaction.

3) Real-Time Visibility and Tracking
Meeting customer expectations for accurate order and shipment tracking, enabling easy changes in warehousing and delivery.

4) Automation and Digitization
Automating processes and optimizing operations with advanced software solutions, but facing challenges in finding IT specialists with industry expertise.

5) Managing Inventory
Effectively tracking and managing products across multiple locations, requiring user-friendly software accessible to diverse employees.

6) Ensuring Security
Protecting sensitive data from cyberattacks through robust security measures aligned with information risk management standards.

7) Maintaining Compliance
Adhering to evolving regulations across countries, necessitating ongoing verification of secure and compliant IT systems.

8) Dealing With Outdated Technology
Overcoming inefficiencies caused by legacy systems that hinder innovation and industry advancements.

9) Rising Costs
Balancing IT budgets while selecting suitable technologies, often relying on external IT consultants for cost-effective solutions.

10) Scalability 
Adapting IT systems to support growing consumer demand and expanding operations requires expertise and resources.

11) Talent Shortage
Navigating the highly competitive job market for IT professionals and leveraging automation technology to reduce reliance on manual work.

12) AI/ML Technology
Tailoring artificial intelligence and machine learning solutions to individual needs often requires dedicated software architects and engineers.

13) Environmental Concerns
Addressing carbon footprint challenges by seeking ways to reduce emissions in transportation, despite limitations in alternative options.

These challenges present opportunities for efficiency, reliability, and security improvements. 3PL leaders must prioritize data security and exceptional customer service to thrive in the industry.

Different Types of 3PL Integration Options

There are multiple different ways of integrating your business with a 3PL. Which integrations you set up between your business and a 3PL depends on a variety of factors, such as what industry your business is in (e.g. manufacturing, retail), what your specific needs are, and what goals you’re aiming to achieve. 

1) Direct Integration With 3PL
Direct integration with a 3PL allows companies to modernize, digitize, and automate their processes so that communication and transactions are sent promptly—therefore, increasing processing efficiency.

2) eCommerce Integration With 3PL
Integration between an eCommerce store and a 3PL allows companies to create more intuitive and efficient order processing. It also helps businesses grow since they are then able to sell their products at more locations—specifically, eCommerce retailers that require EDI/API/B2B integration.

Shopping Cart
Integrating a warehouse management system (WMS) with eCommerce stores helps 3PLs respond to order requests near-instantaneously, reducing the amount of time it takes to accept a new order. Additionally, by integrating a WMS with an eCommerce platform, customers should only be allowed to add items to their cart which are in stock, preventing them from purchasing out-of-stock items. 

Order Management
By connecting an order management system with an eCommerce platform, the system can effectively gather data from multiple sources. This integration proves highly beneficial for retailers seeking to seamlessly add, retrieve, or synchronize information from their online stores.

3) Inventory Management
Inventory management involves monitoring and maintaining your company’s stock of products. Integrating with a 3PL provides your company with up-to-date inventory levels so you know when each product needs to be restocked. 

4) Shipping and Delivery Methods
By leveraging shipping and delivery APIs, the shipping process becomes easier for customers since they will be accessing the most accurate information when it comes to predicted delivery dates/times and shipping costs. 

5) Parcel Delivery Tracking
Delivery APIs keep both you and any customers involved in the ordering process updated on a shipment's location during delivery. Additionally, they help provide recipients with an estimated delivery time, thus keeping customers more informed and satisfied. 

6) ERP Integration With 3PL
ERPs help companies manage day-to-day business operations. Integrating an ERP with a 3PL will heighten visibility into things such as inventory arrival and the picking and processing of orders.

7) EDI vs. API Integration With 3PL
EDI and API integration are two of the most popular methods of connecting with 3PLs.

3PL EDI Integration

Essentially, 3PL EDI Integration is the automation of data exchange between 3rd-party logistics providers and partners using electronic messages for smoother, more efficient logistics operations. EDI integration enables automated communication between your systems and your 3PL’s systems. EDI uses batch processing to communicate, meaning files are processed together at specified times.

Using robust EDI integration, logistics and 3PL operations can yield greater results across the entire EDI-enabled supply chain.

Upon receiving an order from an online store, the ERP creates a sales order. Subsequently, a warehouse shipping order (EDI 940) is sent to the 3PL. The 3PL then picks, packs, and ships the order. This is followed by a warehouse shipping confirmation (EDI 945) being sent from the 3PL back to the ERP.

Pros of EDI Integration With 3PL
● Transactions are processed faster since requests and responses are sent in real time
● No manual data entry or human intervention is required for two entities to communicate 

Cons of EDI Integration With 3PL
● Must be integrated with a business’ EDI data warehousing provider
● Off-the-shelf ERP solutions and developing custom EDI solutions can be expensive

3PL API Integration
API integration enables automated communication between your systems and your 3PL’s systems. However, unlike EDI which uses batch processing, APIs process information and real-time—meaning communication happens near-instantaneously. 

Pros of API Integration With 3PL
● Real-time communication and updates (no batch processing)
● End-to-end visibility, especially when connecting to visibility providers like project44 and FourKites

Cons of API Integration With 3PL
● There is no standardization with APIs, so integration requirements vary from system to system
● You need to set up an API integration with each 3PL provider your business wants to work and communicate with

Common Transaction Codes in 3PL Integration

In the context of 3PL (Third-Party Logistics) EDI (Electronic Data Interchange) integration, various logistics EDI transactions are commonly used to facilitate communication and data exchange between 3PL providers and their trading partners. Here are some of the most common EDI transactions related to 3PL integration:

Learn more about 3PL transactions:

• 204 Motor Carrier Load Tender: Shipment request from shipper to 3PL.
• 210 Motor Carrier Freight Invoice: Invoice for services from 3PL to shipper.
• 214 Transportation Carrier Shipment Status: Shipment status updates from 3PL to shipper.
• 753 Request for Routing Instructions: Shipper requests shipping guidance from 3PL.
• 754 Routing Instructions: 3PL provides shipping instructions to shipper.
• 856 Advance Ship Notice (ASN): Shipment details from 3PL to receiver.
• 940 Warehouse Shipping Order: Shipment notice from 3PL to warehouse.
• 943 Warehouse Stock Transfer Shipment Advice: Stock transfer details from 3PL.
• 944 Warehouse Stock Transfer Receipt Advice: Confirmation of stock transfer receipt.
• 945 Warehouse Shipping Advice: Shipment notice from 3PL to customer.

Benefits of Integrating With a Single 3PL

Companies often work with multiple 3PLs in an attempt to get the best rates possible. However, there are benefits of working with a single 3PL, including: 

1) Integrated 3PL Partnership
When a supplier works with multiple 3PLs, this is seen as a supplier-vendor relationship where the supplier is seeking services from a vendor to fill their needs. When a supplier works with one, singular 3PL, this is considered a partnership where both parties work collaboratively to reach mutual success. 

2) Lighter Data Management Workload
When working with one 3PL, there are fewer integrations required. This also means that data only has to be shared between your systems and one 3PL. This streamlines data sharing and collection.

3) Freight Consolidation Opportunities
Freight consolidation programs are when a 3PL combines several shipments that are going to the same geographical region, into a single load. Freight consolidation often results in lower costs, simplified tracking, more accurate delivery windows, less environmental pollution, and more. 

4) Less Risk of Damage and Loss
If a supplier works with one 3PL, the 3PL is more likely to make the supplier a priority account. Thus, passing on lower fees, better services, and greater shipping care.

Best Practices for Successful 3PL Integrations

Integrating with 3PLs effectively requires careful planning. Here are key best practices:

Clear Objectives:
Clearly defining integration goals and outcomes is essential. Understand what you aim to achieve through integration, whether it's streamlined order processing, improved inventory management, or enhanced customer communication. Well-defined objectives guide the integration process, ensuring that the chosen strategies align with your business needs.

Standardized Formats:
Using industry-standard EDI formats ensures compatibility between systems. This practice minimizes EDI data issues and errors during information exchange. Standardized formats, such as ANSI X12 or EDIFACT, promote seamless communication by providing a consistent structure for data across all parties involved in the integration. This can be attained using an EDI interface that has data transformation and integration capabilities. Selecting an EDI provider with modern EDI tools for efficient data and order processing will enhance 3PL partnerships.

Real-time Updates:
Real-time status updates are crucial for maintaining visibility into the movement of goods and order processing. Timely information on shipment tracking, inventory levels, and order fulfillment allows you to make informed decisions and provide accurate information to customers. This real-time responsiveness improves customer satisfaction and operational efficiency.

Security Measures:
Implementing robust security measures safeguards sensitive information during integration. Encryption, secure communication protocols (such as AS2 or SFTP), and access controls prevent unauthorized access and data breaches. By prioritizing data security, you ensure the protection of customer data, business-sensitive information, and confidential operations.  Be sure the integration solution provides a dedicated testing environment for trial runs and certification.

Collaboration:
Open communication and collaboration with your 3PL partners are vital for successful integration. Establish clear lines of communication, share expectations, and maintain a collaborative mindset throughout the integration process. Regular updates, feedback loops, and joint problem-solving enhance the integration's effectiveness and promote a strong, productive partnership.

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Best Practices When Integrated with Your 3PL(s)

While it can be highly beneficial to integrate with a single 3PL, that is not always the best option nor is it always feasible. Below are some best practices to consider when integrating with multiple 3PLs.

Set Up Integrations With Each 3PL
Create integrations with each 3PL so you can automate communication and collect/share data in real-time.

Have a Customizable Partner/Data Dashboard
Customize your dashboard so you can easily and quickly view relevant data pertaining to each 3PL.

Evaluate Individual Performance
Analyze the data of each 3PL. Monitor ongoing performance to influence decision-making.

When Should You Consider a 4PL?

A 4PL is a logistics manager that coordinates and optimizes entire supply chains, working with various 3PLs and technologies to improve efficiency and reduce costs. While a 3PL performs order fulfillment (i.e., warehousing, picking and packing, shipping) for a supplier, a 4PL takes on even greater supply chain responsibilities for a supplier. The responsibilities of a 4PL include logistics, fulfillment, transportation, and technology.

It may make sense for a supplier to use a 4PL if the supplier can't effectively manage the business relationships, communication, and integrations it has with its multiple 3PLs.

What Is the Ideal Solution for Integrating Multiple 3PLs?

One of the leading solutions on the market for integrating multiple 3PLs into your digital ecosystem is Cleo Integration Cloud (CIC). CIC connects your business with virtually any 3PL and trading partner via our flexible platform that performs both data movement and transformations, while also supporting 20+ protocols.

Cleo Integration Cloud: The proven EDI solution for critical 3PL integrations.

Many brand manufacturers who use outdated EDI systems have either created their own custom integration setups managed by in-house EDI experts or have opted for managed service providers. This can make it all the more difficult for manufacturers to smooth their 3PL integrations. However, maintaining this complex network of integrations is both intricate and costly. Additionally, as your business grows, scaling becomes a significant challenge. By integrating with Cleo, you eliminate the need to stress over individual point-to-point integrations. Cleo serves as a central integration point between your ERP or main system and your 3PL. A single connection to our platform grants you access to a pre-existing network of 3PLs and partners, streamlining all your EDI connections into one central hub. Enabling your business to:

1. Comply with 3PL integration requirements with the complete format, syntax, and protocol depth
2. Communicate with 3PLs using our extensive API and EDI translation capabilities
3. Scale your business using business process automation
4. Onboard 3PLs in as little as a few hours using our prebuilt connectors, accelerators, and customizable templates
5. Update trading partners in real time during every step of the shipping process
6. Integrate your back-office systems (ERP, TMS, WMS) with 3PL systems so real-time data is shared seamlessly between both parties, such as inventory levels
7. Create customizable dashboards for each user, so they only see the data they care about
8. Gain deep transparency and the ability to drill down into any transaction, process, or integration 
9. Rapidly resolve errors with our intuitive, user-friendly design
10. Set up notifications for SLAs that are in danger of being violated
11. Tap into our 24/7 managed services team that has more than 900+ years of combined integration experience—helping you with everything from onboarding and issue resolution, to map changes and integration requests.

Take control of your 3PL integrations and accelerate growth by
harnessing the power of Cleo Integration Cloud today.

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If you have questions about what was covered in this blog or about Cleo’s products and services, contact us at sales@cleo.com or +1.815.282.7695. Additionally, explore some of our educational resources through our resource library.

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