One reason why the retail supply chain continues to be inefficient

Companies Automate Fewer POs Than You Think

In a recent Alert Article (How Well Does Your Company Take Orders?), Lora Cecere of AMR Research summarized three recent studies that looked at how consumer product companies handle orders.  Lora shows that while most companies have invested in B2B and can do automated order processing in this fashion, 50% of those orders are still handled manually.  While her highlight is that this manual intervention adds 36 hours elapsed time to the average time to process an order, my takeaway is more troublesome.

In response to my query, Lora indicated that her research addressed initial PO transmittal.  From research done by VCF last year (Business 4 Business: ASN and Data Accuracy Drive Higher Order Functionality and Redefinition of Retail B2B Communications), we learned that only about 40% of companies have implemented PO Change document automation.  Those that have, only do so with a small fraction of their partners.  For the most part, few change orders occur via B2B.  In fact, they are exchanged manually.  Initially this might not be so disturbing, except that the same study determined that the average PO changes 4.4 times.  Now things get interesting.

If we assume the 80/20 rule and say that 80% of transactions are done with 20% of the trading partners, we are probably safe in assuming that most leading consumer products companies are doing B2B with the top 20% of their retail customers.  But if 50% of those POs are handled manually for one reason or another, then 40% of their PO transactions are impacted by manual efforts.  But that’s just 40% of their initial POs, not all of their POs.  In fact, if they aren’t doing the PO Change document, and let’s assume they are not, then just 8% of all types of POs are handled electronically.  So companies that have automated POs but not PO Changes are really not much better off than the companies that receive automated POs and print them off.  It seems the automation payoff is found in the PO Change.

What’s the big deal?

Here’s the problem – these manual gaps are causing problems on both end of the supply chain.  The VCF study showed that retailers believe they are responsible for 15%-25% of compliance problems through acts like requesting a PO Change manually.  Why?  Because the information sometimes doesn’t get entered into the receiving system, so the receiving dock expects a shipment to match the original PO, not a changed one.  Thus, even if the supplier gets it right and ships against the latest version of the PO Change, the retailer might not accept it as an accurate shipment.  And then penalties ensue.

If 25% of compliance problems are being caused by retailers, 75% of the problems result from supplier behavior. What does that mean?  That means that those manual PO Changes are causing problems on the supply side as well.  If you are using a visibility solution that taps into B2B documents, you will never know if your shipment is accurate or not, since the PO Change is not tracked when it is handled manually.   Likewise, in a complex environment with multiple order management, shipping and logistics systems, synchronizing that manually agreed-to information across all appropriate systems is difficult.  And tracking it in a visibility system is even more difficult.

Going back to Lora’s initial comment about adding 36 hours elapsed time to order processing, if we apply this to PO Changes we can see that changes received within 1.5 days of shipment may not be reflected in that shipment…but an automated PO Change might stand a chance of processing.

The VICS Trading Partner Alignment and Compliance Committee has been looking at the causes of friction in the retail supply chain.  Bad data can be traced back to be the cause of many of the retail compliance requirements – even those that don’t specifically spell it out.  This bad data can then be linked to bad initial data and also errors picked up along the way.  Manual data entry introduces a keystroke error rate of between 2% and 5%.  The manual PO Change process is fertile ground for such errors.

If you aren’t doing PO Changes today, look into it.  This is a great place to collaborate and one that should pay big dividends.  Unfortunately, PO Changes are not easy to start doing.  The documents themselves are not tough, but there may be some integration work that needs to be done and, of course, the cultural issues will take the forefront.  There will be push back from buyers that want flexibility to the last minute and from sales reps that want to be able to negotiate additional dollars to the very end.  But fine tuning your business for this granular functionality causes problems for your ongoing supply chain efforts.  Once past the buyer and sales reps, you need to identify windows within which a change can, and will be allowed to, occur.  You will also need to come to agreement on whether or not both parties are allowed to initiate a change.  Still, it should be worth it to better manage your supply chain – especially in times where it is critical to optimize fuel usage.

The thing about being in marketing for GXS is that I get a chance to travel.  A lot.  A recent series of conferences and customer meetings kept me on the road for 4 straight weeks and 5 out of 7 – save for weekends.  And I left on Sunday and returned after midnight on Friday on some of those trips.  For those who think traveling must be glamorous, I can tell you it gets old after a while.

But for all the exhaustion caused by late night work followed by early morning meetings, there is a certain exhilaration when you can spend time working on the thorny issues that keep both executives and front line staff awake at night.  And hopefully solve a few of those problems, too!

I’ve recently met with managers at a manufacturer to discuss the challenges they are facing after entering into a new channel.  It is tough to have to implement B2B with customers for the very first time.  B2B is quite different when you are not calling the shots.  I’ve also worked with a retailer who – like many retailers – is pursuing a more robust private label program – but finding it tough to on-board technologically and geographically challenged suppliers.

In less intimate settings, I’ve presented to audiences in the high tech space in the US and Europe and also to the DIY and general merchandise space here in the US and discussed their thoughts on B2B in 2008.  The attendees at these conferences note information assurance – product data quality and transaction data quality – as one of the top two or three issues they are facing today.  I share this concern as a cross-industry, cross-enterprise and intra-enterprise challenge for almost every company.  And it is not just limited to suppliers and buyers.  When carriers change EDI maps and code tables without sharing these changes with their customers, bad things happen to shipments.  It is hard enough for companies to keep up with the changes when they do receive notice– like those received by suppliers into retail.  But having things change in mid-stream without even a whisper from a carrier?  That’s tough.

The most important thing I’m seeing, though, is that the retail supply chain is in need of the same collaborative spirit that has traditionally been found in the high tech supply chain.  The high tech space is very complex with many players coming together to make sure products can be brought to market.  They must rely on each other and they by necessity collaborate – truly collaborate – to succeed. 

High tech companies as a whole are generally looking to optimize the supply chain.  They don’t talk about collaboration as much as they just do it.  Players in the retail supply chain seem to be focused on optimizing each retailer’s operations.  Thus, the retail supply chain seems to use the word collaborate a lot, but I rarely find the execution of collaboration to align with the dictionary definition of the word like it does in high tech.  From where I sit, that ensures much greater costs in the retail supply chain than there should be.

But high tech is more and more seeing retail as the end point of their supply chain.  And retailers pursuing private label initiatives are starting to manage processes they haven’t owned before – processes that start to look like the complex pieces of the high tech space – especially when the private label solutions are for high tech products.   For these products, retailers will be relying on a highly collaborative up-stream process.  They might not recognize it and they might not appreciate it, but they should certainly examine it and learn from it. 

At the same time, the high tech space needs to brace for an unfamiliar, non-collaborative approach generally found in retail.  Compliance penalties – often unique to each retailer – will need to be identified, understood and incorporated into the supply chain practices, especially by suppliers of private label consumer electronics.  Both retailers and their suppliers will be challenged by geography; by technological sophistication; and by the logistics, tax, and trade capabilities of the countries the products originate in, pass through, and are sold in.

The challenges of global trade compliance will be the focus of the next EIDX conference to be held July 30^th and 31^st.  GXS is proud to host this event and we see it as an excellent opportunity to learn about challenges like I’ve mentioned above and to discuss best practices for dealing with them.  If you have an interest in high tech or consumer electronics and global trade, please consider participating in this highly collaborative organization’s conference.