EDI 855: Advantages of Purchase Order Acknowledgement

by | Oct 4, 2017

The value of the Purchase Order Acknowledgement (POA) can sometimes be overlooked. Also known as EDI document 855 or in EDIFACT (Electronic Data Interchange for Administration, Commerce and Transport), the Purchase Order Response (ORDRSP), the vendor (seller) sends a POA to the retailer (buyer) after receiving a purchase order to let them know it was received – like a return receipt on an email. However, when you really think about it, it’s a pivotal document that can be used to your advantage when taken into account with the tightening of the supply chain.

What is a Purchase Order Acknowledgement (POA)

The POA has several functions including:

  • Acknowledges receipt of a purchase order
  • Communicates the supplier’s intent to fulfill the order
  • Reports any errors on the order (including pricing and correct part numbers)
  • Indicates issues with fulfilling the order, such as insufficient quantities or items on backorder and may request changes or reject the order altogether
  • Provides retailers with delivery status information to share with end-customers in the case of direct-to-consumer drop shipments

Put simply, it tells the buyer how much of the product they can expect. For example, if the retailer requests 5,000 of an item, but the vendor only has 2,500, the purchase order acknowledgement will let the retailer know that “Hey, we got your order, but we don’t have it all. Is this smaller quantity OK?” Then the retailer can decide how to proceed – continuing with the reduced inventory, or using the knowledge from the POA to seek out a vendor that has the other 2,500 of the product you need.

If a retailer and a vendor are both on automated, integrated EDI systems, this exchange of information can all happen automatically, and without any faxing, emailing or manually entering orders into the system. Without the POA, the retailer might not know whether the vendor is going to ship the right quantity or when it will arrive. Without an automated documentation system, even with the EDI 855, the right people may not be getting the right shipment information at the right time.

The ripple effects without EDI 855

Here’s an example of what could happen if there is no EDI 855, or the POA processing isn’t automated. Let’s say you’re a retailer, and you want to order 5,000 units of a particular product, but the vendor only has 2,500 units. The vendor ships the 2,500 to you, however they don’t tell you ahead of time that they’re only sending half as much as you ordered. You just find out at the last minute, when it arrives, and now you don’t have the inventory you need at the time you asked for it. When the product is a staple or you were having a promotional sale on a unique item, this could be a very big deal as far as disappointing your customers.

Of course not having as much of the product as you want or need at the time you need it is a problem for customer satisfaction, but it’s not just a problem of inventory – it’s a paperwork and financial issue, too. Your purchase order requested 5,000, but you only received 2,500 so you’ll have to reconcile that. It can be a bigger paperwork problem if the vendor sends the rest in a different delivery, possibly multiplying your shipment costs on top of arriving too late to be of value. Then because it came in two shipments, more paperwork needs to be tracked down and reconciled, requiring more human resources and delaying the payment to the vendor. Now the vendor-retailer relationship is stressed from both sides.

The lack of purchase order acknowledgement can have another financial impact of tying up funds that could be better spent elsewhere. So in the example above, you budgeted and allocated the money for 5,000 units, but only half of it arrived. Meanwhile, if you would have known half of the order wasn’t coming, you could have re-allocated half of that budget to purchase the rest of the quantity you needed from a different supplier. Knowing your vendor didn’t have the amount of product you needed could have saved you customer satisfaction.

Same scenario, but with POA

Let’s say you’re a retailer, and you order 5,000 units of a product. The supplier sends you a POA that says, “Sorry, we only have 3,000 units. We’re shipping those out, and they’ll arrive Wednesday.”

In response, you send an amended PO that says, “Okay, forget that old PO, here’s an amended PO for 3,000 units.” Now the order quantity for both retailer and supplier match, you know you’re getting 3,000 units, but you also know you can take that remaining money allotted for that order and find another supplier to sell you the additional 2,000 units you need. All the inventory you require shows up when you expect it and your customers’ expectations are met – more satisfaction all around between the customer, retailer and supplier, basically.

Best of all, the fact that your paperwork all matches, from the PO to the POA to the invoice, is icing on the cake. It’s easy for the humans to review and match up the paperwork, and with an automated EDI solution, as long as all the processes are being followed, no human will even need to review it. Everything will match straight through, and if you have payment automation, the system will pay the bill automatically.

In the scenario above, the retailer knows what to expect and can make appropriate plans. The supplier can get paid timely. And the buyer can make arrangements to ensure they get the products they want, making them happy.

Purchase order acknowledgement business value

The POA is more than just a confirmation of “we received your information, we’ll ship it to you.” It can be valuable to suppliers and to retailers. For one thing, retailers can reconcile transaction documents faster and suppliers will be paid on time, because the invoices will match the amended PO.

It’s also a time saver. Retailers won’t spend the last minute trying to replace the units that didn’t arrive; you can still do that before your items are scheduled to hit the shelves. And, you have the money available in your budget to pay the other suppliers.

POAs can also help you with unloading trucks and managing your inventory. When you trust what to expect in the delivery, you can staff receiving personnel appropriately for the arrival of the shipment and ensure the storage or shelf space will be available. Quick unloading of trucks is also where the advanced ship notice (ASN) can also be helpful.

The nice thing about 855s is that they’ll automatically update your transactions within your EDI system. If you’re not using a POA, and are just emailing notes back and forth with your suppliers, you could end up missing that email from your supplier telling you they can only ship 2,500 units of your 5,000 unit order.

But if it’s within the EDI system, all of that information about that purchase order is contained in one location. You can set it up so you’re notified whenever you receive a POA, or if you don’t receive a POA within a certain amount of time after the PO was sent. This way, you can proactively drive compliance with your system by requiring a POA with every single order.

Not all retailers integrate the POA into their Workflow/Approval process before the information is automatically updated to the retailers PO system. It may be set up so that the POA can be reviewed by human eyes before updating if a decision is needed to be made.

Finally, retailers that practice just-in-time inventory pretty much need the POA to do that properly. You order just as many products as you need, just when you need them; a purchase order acknowledgement can help you know if you’re going to run short on an item, or if you’re in danger of receiving too many.

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Scott Bolduc

Scott Bolduc

Director of Supply Chain Strategy at SPS Commerce
Scott Bolduc is a multi-time winner of the Supply & Demand Chain Executive Pros to Know. He has worked with e-commerce retailers on their growth strategies and helped retailers transform their freight spending strategies to maximize efficiencies.
Scott Bolduc

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