What isn’t going on in your business, but you think is?  Where are you re-inventing the wheel – even though you probably have years of knowledge tucked away in another department?  What departments are not talking to one another that should? What is all this costing you, your supply chain, and your customers? 

One area is bad data.  If you are like most companies, you live with it and assign an entire team – perhaps multiple departments have entire teams – to address the results of it.  You could fix it up front, but, hey, why bother?  Just wait and address everything once the damage is done so you can truly assess the value of correcting the problem.  If you are like most companies, you experience the same problem over and over again and just resolve the resulting issues, but not the underlying problem.  Hey, good move.  That’s job security for a few people.

Another area is compliance penalties.  I know the cultured term is “expense offset” or “deduction”.  But quite frankly, let’s call it what it is.  Suppliers are PENALIZED by their retailers for poorly executing business transactions.  Shoot, suppliers are penalizing themselves as well!  Sometimes this occurs because of bad processes.  Sometimes this occurs because two people or departments refuse to talk to one another.  I consulted with a retail supplier that had revenues around $800M/year.  $300M of business was done with one customer.  They paid $10M in penalties per year to that retailer.  I asked the compliance department the cause of those penalties.  The answer?  They said that EDI was an expensive way to do business.  When asked to elaborate, they told me that every time they invoiced the customer, they were billed $500 by the customer.  Why was this?  It turns out that the retailer penalized the company if an invoice arrived before a shipment.  All the invoices arrived before the shipment because the company’s ERP created an invoice at time of shipment and the EDI system was immediately given the invoice which was then sent, with little delay, to the retailer.

The EDI team was sitting with me during this discussion and it was a revelation to them.  The compliance folks had never spoken to the EDI team.  They had assumed that the $500/invoice was just the cost of doing business and had never questioned it.  The EDI team minimized future penalties by immediately putting a 3 day hold on all invoices.  A better choice would have been to send invoices based on the receipt of a delivery notice from the carrier, but hey, the 3 day wait probably cut 80% of the early invoicing penalties and it was a quick fix.  If they have net profits of 10%, this fix probably added 10% to the bottom line. ..and a hefty bonus to one or more executive’s compensation!

This type of situation occurs in every company.  The question is how do you combat it?  How do you keep the impact to a minimum?  Or do you just live with it? 

Bell Rings.  Dog Salivates.  Food is served.

Bell Rings.  Dog Salivates.  Food is served.

Bell Rings.  Dog Salivates. 

Retailer implements “compliance requirement”.  Suppliers squirm.  Minimal necessary steps are taken for supplier to meet the new requirements.

Retailer implements “compliance requirement”.  Suppliers squirm.  Minimal necessary steps are taken for supplier to meet the new requirements.

Retailer implements “compliance requirement”.  Suppliers squirm. 

The retail supply chain is broken.  Suppliers into retail pay almost 2% of their gross sales in compliance-related deductions.  And we’ve reached the point – long ago, actually – where suppliers will not do anything for their retail customers unless there is a stick involved.  Carrots need not apply. 

The problem is that this model has encouraged most suppliers to ignore initiatives that could increase their bottom and top line – changes that would be beneficial to the supplier.  These initiatives are sometimes presented at a low level without strategic level discussions – and presented in an adversarial way via compliance requirements.  And suppliers get so many different ones from across their customer base that it is hard for them to rationalize all of these into a comprehensive program that will make sense – and profits for them.  The end result is “letter of the law” rather than “spirit of the law” adherence to retailer requests from all but the largest and/or most ingenious of suppliers.  Data synchronization becomes manual data entry into web forms or spreadsheets.  So much for machine-to-machine communications.  ASNs are sent but are built from Invoices rather than warehouse and shipping information. 

What should be a mutually beneficial relationship is often not.  Even if there is a high-level strategic agreement, that message can get lost as it trickles down to those responsible for execution on both the supply and buy sides.

Retailers want their suppliers to succeed.  Suppliers want their customers to be successful.   Can we simplify in order to make it easier to succeed?  Can we leverage more B2B transaction types and reduce the complexity in each?  Perhaps actually using standardized documents rather than documents that break standards?  Can we all focus on a subset of data for synchronization – perhaps physical specifications and price – and leave the rest for later?  Can we agree on at least a common lexicon for all terms so we aren’t all talking about the same thing in different terms?

What do you think?