If you’re still exchanging purchase orders, invoices, material releases and other transaction documents with your smaller suppliers by paper, fax or e-mail, you’re losing out on significant savings, efficiency and supply chain visibility opportunities.
Until recently, automating transaction messaging with lower-volume component and contract manufacturers was fraught with technical, administrative and financial complications. But today, technologies such as Hub & Spoke, WebEDI, managed supplier enablement services through third-party providers, and automated supplier onboarding and management tools have removed those stumbling blocks.
Sins of the Past
The traditional failure to electronically enable smaller suppliers originated with the 80/20 rule — that is, the conventional wisdom that 20 percent of suppliers generate 80 percent of your business and document volume — and the associated conclusion that only these Tier 1 suppliers needed to be connected to the end manufacturer’s supply chain via EDI or B2B.
That left transaction processing for the other 80 percent of the supply base to be handled manually, with all the costs and mistakes that are inherent in manual data input, error resolution and duplicated paper/electronic data trails.
For years, that strategy went unchallenged because connecting these lower-volume suppliers to the EDI/B2B stream was difficult if not impossible. Most of the affected suppliers lacked the financial and/or IT resources to implement and support a full-blown EDI/B2B system for electronic collaboration. Those that had sufficient resources were not willing to pay the price for a relatively small customer.
It is now possible to take advantage of all of these capabilities either on-premise behind the manufacturer’s own firewall, in the Cloud as an on-demand managed service or in a hybrid model, thus allowing any manufacturer to meet their own capex or opex plans.
Regardless of the strategy, bringing smaller suppliers online pays off in multiple ways around Sales and Operations Planning.
- First, it reduces costs by eliminating manual document-handling as well as errors caused by transferring data between incoming faxes and/or e-mails and internal business systems. Aberdeen Group, for example, has reported that companies with highly automated supplier communications pay only $13.80 for requisition-to-order compared to $25.20 for those still using primarily manual processes.
- Second, electronically enabling your suppliers improves visibility for all parties that in turn can help optimize supply chain performance. Ensuring that suppliers receive your purchase orders or material releases in near-real-time — and that you can see their responses just as quickly — goes a long way toward smoothing out any kinks as well as ensuring that you have the component inventory you need when you need it.
- The automation and optimisation of the order-to cash process also reduces the cost of financial administration and sales, improves working capital and cash management and enhances compliance capabilities.
- Other benefits range from faster exchange of business-critical information to better ERP data quality, fewer staff dedicated to supplier-related data processing, and procurement process and cost efficiencies — including increasing spend under management. In summary, it’s no longer enough to connect your Tier 1 suppliers to your supply chain.
Failing to automate the rest of your supply base costs both time and money. With today’s technologies and deployment options, there is no reason not to make the move.