One would think that we’d come far enough in our business lives to outgrow old fashioned means of sharing critical business information  While we don’t necessarily need to utilize the latest and greatest technologies, you’d think we’d at least get out of the dark ages.  Unfortunately we keep slipping back into the past.

What am I talking about?  I found that the lunacy that has taken hold in the high-tech space has oozed into retail.  Yes, my pet peeve, replacing B2B transactions with manual portals, has invaded retail.  Suppliers to the retailer in question know it well.  The retailer has eschewed common sense and asked their suppliers to manually enter ALL product data via a portal.  No option is given for uploading data.  This from a company once a leader in usage of electronic file transfers for product data.

Now, this may not be so bad if it weren’t for the fact that the data being entered includes data for apparel products.  Think about it.  All the different sizes, colors, styles, etc.  And these products are usually seasonal, so all this information is entered once for just a few orders. 

Suppliers have had to hire extensive teams just to provide the product data to this company, or that data gets provided slowly and late.  The competition must be smiling over this one.  A once proud and strong company jettisons industry leading processes and tries to compete, using a manual portal, with retailers small and large who have automated these processes in order to speed new product introduction, ensure accurate ordering, enhance the chance that orders will be fulfilled in a timely fashion, and to reduce costs.  This retailer is increasing their costs, introducing errors, minimizing their chance for accurate and timely delivery and more.  I also understand that from some suppliers they receive product up to 7 weeks after the competition – not good for products with a seasonal sales cycle.

But how and why is this happening?  Perhaps a loss of institutional knowledge is the key.  An IT team with little experience in the apparel B2B space is probably part of this company’s problem.  Loss of institutional knowledge is a problem that many companies will face – to their own detriment – as we move forward.  Mergers and acquisitions may create some of these situations, but the sense I’m getting from a few smart resources is that B2B staff members are becoming increasingly grey in their hair.  This means as people are promoted, let go, or retire, companies will be left with young, inexperienced people with no understanding of technicalities of transaction management or mapping, little knowledge of the subtleties of trading partner management, and no sense of history when it comes to the long row we’ve hoed in the EDI fields over the last 30+ years.  Taking the quick and dirty way out to put up a portal may reduce IT costs, but it increases overall business costs substantially.

An AMR analyst noted to me earlier this year that there is a lack of university and other formal educational programs focused on B2B here in the US.  There is also a dearth of reasonably available industry B2B training.  This means that folks with little experience are being handed the keys to the corporate B2B infrastructures and finding the easiest way out – building portals and then telling the suppliers to stop the antiquated electronic messaging so they can use the cool, manual web forms with a dancing mouse on them.  Ok, I made up the dancing mouse part. 

As I’ve mentioned previously in this blog, I think portals are great for trading relationships where one company is unable or unwilling to automate, but for heaven’s sake, if you can execute automated transactions, do so.  The tough thing for most inexperienced people to understand when tossed into an EDI role is that the goal of B2B is to support the best execution of the business.  Unfortunately if they fail to understand legal and operational requirements, if they get caught up in technical rather than functional needs, they can end up “executing” the operation of the business (pun intended).  Unfortunately, I know from experience that this lesson is lost on many executives as well, so the real danger comes when the bad decisions from the inexperienced in the B2B role are supported by, rather than questioned by, the members of the C-suite.

I was recently reminded of the story from the 1980s or 1990s where a software company started paying its programmers to find and fix bugs.  If I recall the story properly, the incentive program was halted rather quickly (within a week or two) after at least one programmer received a hefty bonus through purposefully creating and finding extra bugs. 

In an incident closer to home for me, I worked with a dotcom retailer that incented its merchandisers by the number of new suppliers that were brought on – not by the profitability of those relationships.  This led to infamous deals like one with a man that sold small numbers of Beanie Babies from his garage.  The dotcom merchandiser proceeded to purchase full page ads in USA Today and several newspapers in the largest US cities to sell the Beanie Babies at fantastic prices.  Unfortunately the “supplier” had about 300 Beanie Babies “in stock” and those were sold out in about an hour’s time, however the products weren’t put in an out-of-stock state on the web site for some time after that, thus disappointing many, many customers and forcing the company to find much more expensive suppliers to fulfill as many orders as possible – at a loss to the dotcom.

A more strategic impact of that merchandiser incentive program was the fact that legitimate supplier relationships were negatively impacted as well.  It would take weeks to get fully automated relationships set up with suppliers (such as the biggest brand name computer manufacturers), and just as we got our supply chain ready for significant volumes of transactions, the merchandisers would strike a deal with a competing supplier – thus earning a bonus for the merchandisers, weeks of manual transaction management for the supplier management team, and significant efforts for the supplier.  Meanwhile, the fully automated supplier was left with no promotions and limited orders, since there was no further compensation coming to the merchandiser.   And the EDI team was left to implement a new trading partner with the company seeing little value come from their efforts to implement the previous supplier.  This was an ongoing issue.

But what, you may ask, prompted me to think of these things?  Well, I’m familiar with suppliers that have compliance departments whose leaders wish to grow little fiefdoms.  They don’t want to eliminate compliance errors altogether because their team might shrink.  But I recently heard an amazing tale of incentives that stunned me.  One supplier compliance manager requires everyone in the compliance department to negotiate away each year the equivalent of their own salary.  These people are now incented to make sure as many supply chain errors as possible occur in order that they can cover their salary each year.  This means never fixing the problems identified via root-cause analysis – if such analysis is even engaged in.  Thus the problems recur so they can negotiate away some of the penalty again and again. 

So much for helping the company meet the corporate goals of stakeholder equity, customer satisfaction and operational efficiency.

This is unique in my experience.  Is it in yours? 

In my EDI career, I reported to at least four departments.  These include IS, Technology/Development, Finance and Operations.  Some of my direct managers included a CFO, a CTO, VP of Operations and IS Director.  In fact, I reported into three different departments within one company in the span of just two years.  My wife sometimes says to me “You’re weird.”  Perhaps the schizophrenic EDI life has something to do with it. 

This schizophrenia abounds in the EDI world.  Because of it, many EDI teams become the proverbial “red-headed stepchild” of their organizations.  Occasionally departments fight to have the team under their auspices.  Often they fight NOT to have it.  Sometimes the EDI team reports into one organization and has dotted line into one or more other organizations.  Having a confusing role makes it hard for the EDI team to get appropriate attention – or funding.  It also makes it hard to do their job – or even figure out what their job is.

In the early days EDI reported into senior level staff.  These days you are more often likely to find them 4 or 5 steps away.  After they stabilizes base transactions, the distance from leadership and the marginalization within the enterprise keep EDI teams from being involved in the next step.  Some might argue that maintaining the “B2B pipe” is the extent of the EDI team’s role.  However, having done all the root cause analysis and process definition, and because they so often straddle technology and functional roles, EDI teams are exactly the folks that should be leveraged for implementing refinement to EDI functionality to allow better compliance and smoother supply chain operations.  They should also be called upon to implement corporate compliance programs (which, by the way, look very similar to the types of metrics and controls EDI teams have used for years).  Instead, we’re finding companies in the high-tech space dropping EDI and other automated transactions and moving their suppliers to manual portals.  Scorecards are being implemented in retail but EDI staff is not involved when their companies undertake these initiatives.

EDI teams just don’t get any respect!  Do you?

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? 

During my techie days, I was a very late riser.  Today?  I usually get up with our dogs around 5am.  I truly believe these early risings are good for me.  They get my brain working early and I get to see the sun rise.  It lets me think about things that are best not considered in the dark of night.  Things like how companies like to re-invent the wheel with regards to B2B rather than learn from their internal experienced staff.  This leads to thinking about things like manual portals replacing machine-to-machine automation.  Why is this happening?

I have my theories.  The cheeky answer is “because it can”.  More reasonable ones might include:

1.       Executives liked the reporting they got from portals which were being used for SMB suppliers.  They asked for the same from their automated trading partners, and it was simpler to just tell the large suppliers to use the portal rather than implement similar reporting off of the B2B feeds.

2.       The need to address Sarbanes-Oxley drove the need for quick, unified reporting.  This is similar to #1, but the driver is a bit different.

3.       Companies thought “hey, wouldn’t it be cool to have one way in which we deal with all our suppliers?”

4.       Businesses forgot the reasons they moved to automated transactions like EDI in the first place – faster, more reliable, fewer errors and less costly business execution. 

To be honest, I strongly believe that portals have their place.  Trading partners that can’t or shouldn’t automate (seasonal, few transactions) for instance.  Another is for the sharing of incidental information or information that doesn’t lend itself well to traditional B2B transactions.  They are superb for such situations.  Portals have also shown the value of good reporting in the B2B space – something most EDI and IT departments just haven’t addressed when it comes to traditional automated B2B transactions.  That reporting – that visibility – is needed by the functional business units.  But it just doesn’t make sense to use manual portals for high volumes of transactions – especially if you start asking for all the usual documents – PO, Invoice, Ship Notice, Change, Forecast, etc.  That’s a lot of manual effort shoved right back into your supply chain costs.

I first learned about this most recent migration from automated to manual processes when I was working with the Electronics Industry Data Exchange Association (www.EIDX.org), part of CompTIA.  We did a survey and wrote a white paper on the subject.  If I recall correctly, those surveyed indicated that automated transactions were their preferred way of doing business, but they also indicated that they were seeing a reduction in automated transactions and increases in manual transactions across their trading partner communities.

Based on the fact that the survey went to B2B/EDI folks, it supports my personal findings that these folks are not involved in the decisions to move automated suppliers off of EDI.  They just see a decrease in transactions and learn after-the-fact that the supplier has been moved.  Or they learn from the supplier when they receive a call saying “are you guys crazy?”  But, hey, this is very similar to the disruptive “solutions” sold by Commerce One (and Ariba, too, early on???) in the late 1990s and early 2000s.  Those you integrated to the buy side but early suppliers had to replace their EDI purchase order feeds with manual portals.  When you get hundreds or thousands of orders each day, that’s a lot of warm bodies you need to add to your staff, a lot of potential errors from re-keying data and a significant chance for delays in fulfilling the order.

I spoke to the head of North American operations for a well-known high-tech brand at the time of the EIDX survey and he indicated how important he felt B2B/EDI automation was and how he wanted as much automation as possible with his suppliers.  He directed me to his point man on supply chain execution for further talks.  That gentleman told me in no uncertain terms that he didn’t want to deal with the setup, change and testing of automated suppliers and getting them up on a portal was the way his company would handle things.  His suppliers subsequently had to hire staff or outsource the relationship with this company because of new need for manual data entry.  Somewhere margins decreased and costs increased.

What an amazing disconnect between the C-level and the operational level of the business.  What a short-sighted view of supply chain management.  I wonder if this is why the company saw its position erode and its ability to meet customer demand diminish thereafter?

What do you think?  Is it crazy to swap automated processes for heavily manual ones?  Is it better to receive forecasts automatically, process them and then send an automated response or is it better to print it out, hand enter it into manufacturing systems, do an MRP run, print it out, and then hand enter it back into the portal?  Is portal reporting that valuable?  If so, why not develop and deploy similar reporting for your automated B2B instead of migrating everything to the portal?  Am I missing something here? 

I recently spoke with a retail supplier that indicated a retailer was asking them to move from EDI to a portal.  Have you experienced this too in the retail supply chain?

Merriam-Webster OnLine provides 3 definitions for integrity:

1 : firm adherence to a code of especially moral or artistic values
2 : an unimpaired condition
3 : the quality or state of being complete or undivided

The short, one-word definitions are:

1.     INCORRUPTIBILITY

2.     SOUNDNESS

3.     COMPLETENESS

For a synonym, the dictionary suggests HONESTY.

Most companies that I’ve worked with would like these terms to be reflected in their businesses.  They want a sound, complete business that is incorruptible.  They want it to function as a unified whole. They want their business to be seen as honest.  These are the things that can bring success and deliver stakeholder equity.

Yet, when it comes to supply chain automation and business-to-business transactions, many companies are not even close to exhibiting integrity.  While this may sound like a subjective pronouncement about their staff, it is really more of an objective view of their operations gleaned through nearly 25 years of work in the integration space and supported by many analysts today.  In fact, the words “integrity” and “integration” come from the same Latin root, integr- or integer, which means “entire”[1].  In some industries, B2B integration is even being replaced with manual processes that threaten the integrity of the supply chain and the entirety of their businesses.

My name is Bryan Larkin and as the strategy and marketing leader for GXS in the retail and consumer products space, I am on the alert for value chain and B2B challenges in these industries and ways in which I can help companies meet their needs.  If you don’t mind terms like “holistic”, “cross-functional”, “collaborative” and “culture” when considering your business operations, this blog should help you find both bottom and top line growth and ways in which you can reduce costs – all while keeping the focus on the ever changing needs of the consumer who’s number one issue today is product availability.

Every company has their own business drivers, their own goals and their own strategies to meet them.  Success means the application of best practices to those specific strategies in ways that are often unique to each company.  The key is finding the technology, the people and the processes that will let you do just that.

I welcome your perspectives in a thoughtful discussion on how you see the interplay of integrity and integration in your business lives.

[1] http://www.m-w.com/dictionary/integrity