Using EDI to transmit purchase orders
Filed Under Blog
Speed and efficiency are key tools that provide competitive advantage for many businesses. Its not unsurprising then that many businesses look to automate many of their traditional paper based processes, with this extending into the sphere of purchasing and its key activity, that of exchanging information.
Whilst EDI is not a new technology, it’s been around with us since the 1960’s, it is a transaction method that offers vast improvement over administering the purchasing process manually. EDI, Electronic Data Interchange, simply relates to exchanging documents electronically. This offers opportunities to speed up the exchange of data between different companies, reduce delays and improve accuracy.
Electronic Eyes Only
If we take the example of a traditional purchase order, a requisition is raised, followed by a purchase order which is sent to the supplier, the supplier then interprets the order and transcribes into their ERP system. This process can be time consuming, costly to administer and offers various opportunities for bottlenecks to emerge causing delays to material supply.
With EDI the buying organization’s system creates an order sends it electronically, it is received by the suppliers system and placed directly into the ERP/MRP. Perhaps the most fundamental aspect of EDI is that it is no longer simply about sending a purchase order electronically ( by e-mail for example), so it will be read and transcribed by another person. The document can be created, sent, and then read, without any human input.
EDI Standards
Whilst EDI is not technology dependent, with many options to chose from. EDI does employ the use of standards. Standards relate to the format of the documents being exchanged – this ensures that documents are read correctly. Whilst some companies have created their own standards (particularly those companies that have a dominant position in the market and can dictate to their supply chain.) In other cases Industry associations have developed standards for their own industries (e.g Automotive) many of which are based on the TDCC standards (Transportation Data Coordinating Committee.)
The X12 Edi standards are becoming widely used and the de-facto standard for EDI. The administerial body for the x12 standard, the TDCC, provides a data dictionary that defines the data attributes (field names, types, formats etc) that can be used, and defines what constitutes a valid EDI message.
Benefits of EDI
There are various benefits associated with EDI and these can be both purchaser and supplier side. Some advantages include
Elimination of order entry errors
Reduced administrative overhead
Inventory reductions
Improved supplier payments process and improved Cash Flow
Improved Customer Service
Obviously the key benefit of any electronic system is speed. Greatly reducing the traditional time taken for raising and processing documents can allow organisations to focus on more value add tasks. Consider a traditional PO this would, in many companies, take several days to be raised and approved and there was always a delay when the order was sent in the post and it had to be handled by various personnel within the supplier company, all of which takes time.
The use of EDI ensures that 100% of orders are received, sent and processed appropriately. There is no longer a problem with orders being lost, falling behind the filing cabinet or simply not handled properly. Taking humans out of the process has ensured that there can be no room for human error.
A bi-product of EDI is that it can also facilitate information to be stored more efficiently. There is no longer a need to have a huge storage area for purchase orders and they no longer have to be filed, then retained for a certain period of time, instead all the information is kept electronically. So there are less staff costs and less need for resources to store the information. This ensures that Purchase Orders cost less to generate, handle and then store, which all helps to keep costs down and the system is as lean as possible.
As with any technology there is investment required and EDI should not be seen as a panacea and may not be suitable for all companies. However where the benefits outweigh the cost of the investment and the costs of the software can soon be recouped, so it soon pays for itself and can really help to revolutionise transactional procurement. It is a system that takes some time and care to implement and requires re-engineering of key business processes; but it is worth the time and effort and if all the suppliers in a supply chain are also using EDI, the time and money saved can be significant.
How to achieve world class
Filed Under Blog
How many times have you been in a meeting and heard an executive say- “we need to become world class”? Excellence is a great ethos, but what does being “world class” truly mean? Corporate buzzwords can all too often be a dangerous thing – in the wrong hands they can be a vapid and meaningless mission with no defined start or end. Consider the following two statements.
1/ We want to have a world class supply chain organisation.
2/ In 24 months we want zero defects, 100% delivery on time from our suppliers and to have reduced our inventory values by 50%
Clearly articulated, with defined deliverables coupled with a high level schedule that second statement provides something tangible. The thing is world class implies that as an organisation you excel, you are top of the pile – you are better than the next guy – but if you don’t know how good the next guy is then what hope have you got?
Surely becoming world class requires some understanding of your external market and their performance – is market understanding the first step into becoming world class?
Tiger woods and world class
Few would argue against that, despite his off the pitch issues, Tiger Woods is a great golfer with measurable career wins, earnings etc. But what about the professional at my own golf club – he hits a pretty good round and is far better than me. If I state that I want to be a world class golfer which one do I measure myself against and as importantly how do I measure?
The rules are the same in business. Understanding your position in the marketplace can only be achieved by looking at those participating within it.
Benchmarking and trade associations
One of the easiest methods to use in understanding performance is to conduct a benchmarking exercise. This can really help in determining who is performing well in your industry sector and facilitate in understanding how they do it. Benchmarking can act as a conduit in absorbing both innovation and better processes into your business but without due care may still only deliver mediocrity rather than excellence. Once again – real care has to be taken in understanding your objectives and those factors that can influence it. For example if your aspiration is to increase on time delivery to 99% it’s probably unwise to look to utilise process from a company that only achieves 50%.
Benchmarking within a competitive industry in not easy – people don’t like to divulge information that could impact their market share – many business have got round this by joining trade associations which can facilitate benchmarking and sharing best practice.
Looking further afield
Perhaps one of the most over used terms in business is “thinking out of the box” – it’s used in many circumstances where the issue requires some innovative problem solving. Helping to achieve World class performance can sometimes benefit from this approach. Many organisations seek to become world class in order that they capture some competitive advantage – but by benchmarking within their own industry in many cases they merely produce a carbon copy of what already exists producing nothing exciting for prospective customers. Researching other markets or other geographies can often facilitate innovation quicker than benchmarking within your own comfort zone. Also don’t be afraid of failure but when your organisation does fail – learn from it and improve.
Clear, concise goals with a delivery schedule
Stating that you want to become world class is one thing – to do it justice you need to transcribe that goal into your expected performance results. This may include mapping in detail your future state business. Once you understand what it is you want to achieve – setting a clear schedule of activities and setting aside appropriate resource is the only way to go.
Finally, instil performance as part of your corporate DNA. It’s no good having a performance target and then keeping it a secret – a key factor in leading a market is ensuring all of the employees know the plan and what their part is implementing it – communicate often and effectively. And once your there understand what needs to be done to sustain it – markets constantly evolve – World class today may be become average all too quickly.