How would you respond to the question “Have you integrated your supply chain?” Very few companies would answer “No.” Most would state “We do EDI or RosettaNet or SPEC2000….” But what does that really mean? Many companies that engage in B2B e-Commerce limit their usage to only a subset of their trading partners. For example, transactions with direct materials suppliers in North America are automated, but suppliers in Europe and Asia use e-mail for data exchange. Other companies limit the scope of business processes that are managed electronically. For example, some companies share Purchase Orders (POs) and ship notices via EDI, but invoices and remittances are still paper-based. The result is what I call the “semi-automated” supply chain.
Such nuances in the utilization of B2B e-Commerce technologies are not well understood by senior level IT or supply chain managers. Many presume that if the business is using EDI (or other B2B technologies) that the universal scope of business partners and business transactions have been deployed. Consequently, many senior managers are not aware of the benefits to be gained from further integration of their supply chain community.
Let’s Hope the Purchase Order Doesn’t Change
One of the most problematic examples of the semi-automated supply chain can be found in the retail industry. While most retailers and suppliers can exchange POs and the subsequent PO acknowledgements electronically, few have automated the PO change process. A 2007 study from the Vendor Compliance Federation found that retailers changed orders an average of 4.4 times during the lifecycle of a PO. However, according to analysis GXS has performed on Trading Grid transaction volumes and discussions with industry leaders, there are very few retailers and suppliers which use the ANSI X12 860 transaction for PO Changes. Instead, the communication occurs over e-mail or phone. A June 2008 article by Lora Cecere, formerly of AMR Research, stated that 50% of orders received electronically via B2B are still handled manually after receipt.
Often a PO change is triggered by a buyer at a retailer updating a forecast for a particular item or set of items. The buyer picks up the phone to call the sales representative or customer service representative at the supplier to discuss the change to the forecast and the associated goods on-order. The supplier confirms ability to change dates, quantities, locations or aspects of the orders. Once confirmed the phone conversation ends but the issues are just beginning. The buyer at the retailer may or may not update the order quantity in the procurement system. The supplier may or may not update the order in the ERP systems. In other cases, the order is updated within internal systems, but there is no synchronization of order change data via EDI. The lack of EDI exchange is often due to the fact that either the buyer or supplier’s systems are not designed to send/receive PO change documents.
The lack of synchronization means that there is a high probability that either the retailer’s or the supplier’s systems do not contain accurate data. When the goods arrive to the retailer’s warehouse, the advanced shipment notice will not match the PO data in the Warehouse Management System (WMS). In some cases, the supplier may have shipped correctly, but due to the information inconsistencies an exception scenario occurs. Similar challenges occur when the invoice for the goods arrives to the accounts payable organization. The invoice may not match the purchase order or warehouse receipt information. The exception scenarios trigger a dispute resolution process between retailer and supplier which consumes valuable time and delays payment.
Read Bryan Larkin’s post on the Great Myth of PO Automation for more details on PO Changes or Download VCF-GXS Study on the Perfect ASN B4B.
Other Examples of Semi-Automated Supply Chains
Unsynchronized Purchase Order (PO) changes are just one of many examples of the types of semi-automated supply chain processes in existence today. Other common examples of semi-automated processes include:
- Sending POs electronically, but not requiring a PO acknowledgement from the supplier
- Product item attribute data synchronized electronically, but price (cost) and promotions (deals) data is not
- POs are sent electronically, but the corresponding supplier invoices are still sent via e-mail or post
- Invoices are electronic, but the payment is sent via check and the remittance advice via post
Another key challenge is the lack of consistency in supply chain integration across operating companies, geographic regions and purchasing categories. For example:
-
Regional Differences – A multi-national consumer products brand operating in 5 European countries has different levels of supply chain integration in each. Within the UK 10 EDI transactions are used. But in other countries there is less automation – France (8 transactions); Germany (8 transactions); Belgium (4 transactions) and Italy (3 transactions).
-
Purchasing Categories – A multi-national automotive OEM has different levels of supply chain integration for production versus aftermarket parts. Interactions with production suppliers are highly automated. However, integration with aftermarket parts suppliers is less standardized. Additionally, procure-to-pay activities for indirect materials suppliers are largely paper-based beyond the PO.
More thoughts in my next post.
2 Responses to “The Semi-Automated Supply Chain”
[...] Supply Chains – Many companies that engage in B2B e-Commerce limit their usage to only a subset of their trading par… For example, transactions with direct materials suppliers in North America are automated, but [...]
Hi Steve, thank you for a very interesting article.
It seems that today, the semi-automated systems are just not enough.
In order to lead, a good manager should use lean tools in the organization, so that lead times are known and predictable. To have an effective business proceed, all should cooperate in an in an open visibility network. Like the good examples in this article,, the Semi-Automated Supply Chains are missing the fine edge of the fully automated supply chain. The luck of synchronization is preventing JIT inventory for example and necessarily create waste . Real Time Visibility between OSS, CANBAN end MES, would shorter the TIP time, eliminate time trap and make the capacity constraint more flexible and thus increase the VA (Value Add) time and reduce/eliminate the NVA time.