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Further Confusion

While one could think that the Economy was slowly coming back, we’re stopped by indecision with our government officials again resulting in a drop in the stock market of over 500 points last Thursday. With that, many retailers will likely go back to the planning committees to discuss if they should rethink their plans for footprint expansion. If your company has had plans for store expansion and is now putting those on hold, I’ll again remind you that regardless of conditions of the Economy, everyone should always be looking at process improvements. And with that you should be considering starting or expanding trading with your partners electronically.

There continues to be discussion around the true ROI of trading EDI with partners. Some of this is about defining the true savings, and others are questioning what should actually be measure, where to start and  how do we really know if the savings are reaching the bottom line. With this article I’ll share my thoughts on these questions and concerns.

What are the true savings?
Every company has their own value of the savings that trading via EDI truly brings. You can search the Internet and find any number of websites that provide a quick ROI calculator, and other websites share ways that companies have determine an ROI. These can extend from one extreme to another, so I can understand the confusion. My observation is that if EDI did not provide an ROI, why are there thousands of retailers, distributors, and grocer’s trading EDI with tens of thousands of their partners?

The early adaptors would not have stayed with this technology and even expanded the program without being confident that there are returns to the cost of EDI. When I’ve talk on the subject I have shared that every organization should do their due diligence to determine the estimated savings within their organizations. When doing so they need to make sure they are being open minded as to where savings can be gained, but also make sure they are evaluating the cost side of the equation.

If you look at any given process where automation could be implemented, you’ll find some savings. For example, if your company is still faxing or emailing PO’s to your suppliers, switching to an electronic method will provide value. In this example, the cost of resources manually faxing or attaching pdf’s to an email is part of the savings. Some may indicate that they have automated the faxing and emailing, which makes sense, but trading electronically is not just a one sided effort.

Again using this example, sending the Fax or email as an automated process provides value to the sender, but the recipient of the information still has to print and then re-enter the information. So from a collaborative perspective this still may not be the best value for all parties. 

Of course this then brings up; how SaaS or web-browser EDI provider services would provide value if there is data entry still required. My response is that in a perfect environment, every player gets value from an automated process. However we know that this cannot always be done, so at  minimum, one side of the partnership should be able to get value. Also you need to look at the entire picture rather than just one part. If we expand the PO process to include all pieces of the order cycle; the return ASN’s, acknowledgements and Invoices for example, are other parts of that process.

What should be measured?
Certainly you can use any of those websites that I mentioned above, however the best method is to evaluate your internal processes. Many companies are familiar with “LEAN” or the “Creative Problem Solving” process so the same methods can be used here.  Whatever method you chose, I’d suggest laying out the steps involved in each part of a process and determining what the value for your organization will be when many of the steps are automated. Also include the value of having your partners automate their side of the process.

In addition, there are soft dollar saving that should be included in the evaluation. So for example, if your company is part of the E-Commerce boom, having information about your customers order if a factory is shipping from their facility instead of yours; customer satisfaction would be considered a soft dollar savings. Below is an example of a recent discussion I had with a customer on whether they should start trading the check process through EDI –

  • Determine the process steps. In my clients process, AP clerks spend 1 hour per week stuffing Vendor Checks and there were 15 AP clerks doing this. The process included matching the printed check to the printed voucher (remittance details) to any backup provided with the check with reasons for short pay, deductions etc.
  • We decided to work with their bank to manage the EFT (ACH) funds portion of the process. This started to reduce the need to print checks to all of the suppliers.
  • We decided to add the 820 Remittance Advice to EDI program. This started to reduce the need for printing the voucher portion of the process
  • The last part of the process was to manage the back-up documentation. With this they implemented a process change where they had been paying invoices short if there were discrepancies and creating notes on why to paying the invoice in full but then creating an independent deduction for the discrepancies and providing these deduction notifications to the suppliers as an 812.

When this was implemented the time spent on stuffing checks was dropped by 50% in 6 months. As a by-product of this change, it was found that many of the suppliers were integrating the remittance information into their Accounts Receivable systems (for those CFO’s that does not mean the money cleared faster J, only that the retailers account is updated more accurately and quickly), so Id’ also suggest following up with the Users and trading partners to determine of the estimated value was being realized.

How do I get started?
As mentioned above, determine the area that needs the most attention and evaluate the process/steps. Meet with the department personnel on your findings, and process changes being recommended. As part of the project, determine the systems needs, which transactions, which partners and the costs associated with each. Also determine if now is the time to move from using an In-house system to a Service. Often changes can be implemented more quickly by employing outside resources.  Work with some of your suppliers, your EDI provider, with leaders in Supply Chain, and attend EDI conferences to see how they may have set the ROI or learn how or what others have done.

There is definitely an ROI for trading EDI. Thousands of companies understand that, and are looking for partners to expand with. If you are struggling with a total cost number, don’t reinvent the wheel. Talk to others that have done this and what they found of value. I will caution you that while some companies consider providing a vendor Portal as a method of trading, the cost of implementing and maintaining one is high even thought the cost to participate is low to the partners

Lastly, when talking with my clients the topic of what happens with the resources affected by the process change, my answer is that certainly there may be a change in head count with any implementation. However most are addressing this through attrition rather than with layoffs. In most cases though, the companies re-allocate those resources elsewhere. In some cases those employees that suggest automation end up being promoted. Something to think about.


Last modified on Monday, 08 August 2011
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