THE PANEL FOR THE SESSION, “The Truth About e-Business and Electronic Ordering,” was not surprised when only half of the attendees indicated that they place orders electronically with their supply base.
That gave the panel the opportunity to hammer home the message.
“The manual process we have today is like picking up dead fish — a huge waste of time and resources,” said John Minor, executive vice president and COO of Midwest Wheel Companies.
“If purchase orders (PO) for suppliers are phoned in, the call goes to customer service, which hand-writes or keys in the order. If the PO is faxed in, the distributor faxes customer service, which reviews the PO and keys in or hand-writes the invoice. If the fax is legible and the data is accurate, customer service will key the PO into the system and the supplier will process and ship the order. If it's not legible, the supplier wastes time in calling to verify the accuracy of the fax. We're finding that most of our suppliers do not send acknowledgement after the fax. From the suppliers' perspective, you can see the potential for error. And if there's an error, the accounts payable people get involved.
“This takes valuable time away from what you're supposed to be doing all day, which is growing your business and creating additional profits.”
The panel said that Electronic Data Interchange (EDI) — an automated process that eliminates human errors and speeds cycle times — does not correct all problems, but it provides the opportunity to focus time on fixing recurring errors through other processes.
According to the panel, the most tangible benefit of EDI is that it saves money.
On purchase orders, the electronic process costs $3.96 per order, as opposed to $9.41 for the manual process. On invoices, the savings are even larger: It costs 82 cents, as opposed to $15.15 for the manual process.
“Think about the number of invoices over the course of a month and you can imagine the return you'd get with a couple of thousand dollars of investment,” said Jim Schien, senior sales director for Karmak.
He said that to implement EDI, “you want to call the EDI supplier and talk to manufacturing suppliers, and to your people in your organization to prepare them. You need to implement this vendor by vendor. Don't start off tomorrow thinking, ‘I have 200 vendors, and I'll start with all 200.’ Take one or two of your larger vendors, start with them and get the processes in place, and then move on from there.”
The panel said that prior to the Internet, everybody called vendors for special ordering for items that were not stocked or for emergency ordering when vehicles were down. That was time-consuming from the purchasing standpoint and drained the resources of the supplier, which had to check availability and pricing. With the Internet, many suppliers have Web sites that provide not only technical information, but also the ability to place an order for a specific part. From the distributors' side, one of the challenges was reaching each supplier's Web site.
The panel said the Automotive Aftermarket Industry Association came up with Internet Parts Ordering, “a standard way for distributors and manufacturers to conduct business on special ordering via the Internet. It is an Internet portal to manufacturers' ERP system where you can actually go on the Web site, place a special order, send a query to suppliers, and get feedback on availability and pricing. You get information back, click a button, and the PO goes out. You can check order status and receive delivery confirmation.”
The benefits: it eliminates faxing, data entry and re-keying, and phone calls, improves the order/delivery cycle, reallocates resources, and improves communication between business partners.
Carl Hall, president of Datalliance, said that Vendor Managed Inventory (VMI) also is catching on.
“We're talking about having the supplier take over the re-buying function for the distributor, based on data the distributor arrives at in mutually-agreed-upon objectives,” he said. “In other words, both parties are working together to try to decide what is best in stocking, how to measure that the stock stays fresh and is rotated and moves through quickly, and make sure you give good customer service.”
The panel said a 2004 study of 21 locations, three suppliers, and four distributors showed that VMI increased turns by 22%, sales by 21%, and in stock by 98.5% while reducing purchasing time by 50%.
The VMI partner considerations:
“The supplier has to have enough volume to make it worthwhile.”
“Is this a supplier I can count on?”
“You can't work with everybody. You need to make sure you have a relationship where you can have a frank and honest discussion. VMI is not a for-everybody, to-everybody activity. You can't partner with anybody. You have to pick people who make sense for you and your business. VMI is a change in the business relationship. Both parties need to make it work.”