Direct Connections And Ecommerce Are You Losing Money?

March 12th, 2021 by dayat Leave a reply »

Computer to Computer Connectivity for Order Transactions

When we talk about ‘Connectivity’ in the Business Technology world, we are referring to the ability of a computer at a buyer’s office and a computer at a seller’s office to send and receive information about products and product ordering without human intervention.

Images of box here box there, data flowing between. Some Data marked as information about the product, some data marked as information about a specific order.

Way back in the olden days (OK, some of you are still doing this), the buyer’s inventory would show that they were getting low on a Lund part. Purchasing would fill out a purchase order and send a fax to Lund to order 6 more. Someone at Lund would grab the fax and type the order into accounting software and order processing software. Then the warehouse guy or gal would gather up the stuff and put it on a truck. When the parts arrived, a receiving clerk would have to go find the paper work, match it to the shipping documents, enter it into the accounting software and inventory and put it on the shelf. But what if Lund has the product on back order while they rebuild the machine that makes them? What if someone hits the wrong number key when they’re entering the part number? What if the price has changed? The process quickly bogs down into a time-consuming and inefficient mess that we all assume is normal business procedure. The fact is, this process costs our industry billions of dollars per year.

If you’re a WD, like Keystone or a big box retailer or a chain of 1600 stores, like O’Reilly Auto Parts, you live or die by your margins. The price you buy a part for isn’t going to change much, nor is the selling price. Other costs just seem to keep on rising; insurance costs, labor costs and certainly fuel costs. The only way to maintain or improve your margin is to become more efficient. Automated order processing is one important way to reduce costs. As a matter of fact automated document transfer is a requirement of doing business with most (soon to be all) of these larger buyers. This has been an expensive hurdle for our manufacturers until recently.

That’s the stick. Here’s the carrot. Both seller and buyer reap financial and other rewards from automated order transfer.

Take a look at these benefits.

Buyer Benefits

• Lower Inventory Levels: Reductions in order processing time can result in shorter delivery cycles.

• Quick Order Acknowledgment: If a supplier can not provide the product desired, the buyer can quickly seek an alternate supplier.

• Efficient Invoice Processing: Time spent matching invoices to purchase orders and re-keying invoices into an Accounts Payable System is reduced.

Supplier Benefits

• Elimination of problems and delays caused by order entry errors:

Manual order entry can result in errors in as many as 50% of all documents. Errors in order entry mean missed ship dates, shipment of wrong items or quantity, and lower customer satisfaction.

• Personnel Reductions: There are estimates that as much as 70% of all computer output becomes computer input. With Electronic Order Processing, the supplier is relieved of the process of re-keying and verification of orders.

• Inventory Reductions: Production schedules can be tuned more closely to customer demand thereby reducing supplier inventory.

• Improved Cash Flow: Time taken out of the invoicing/payment cycle improves the cash flow of the supplier.

• Improved Customer Service: Automated order processing benefits participants on both sides of the sales equation.

• Improved Sales Tracking: Because orders are already in the system, analysis can take place in real time.

• Cost Savings: One survey estimated the cost of a manually prepared and transferred document to be about $40 and the cost of an electronic document to be only $2.10.

OK, Sounds good. How does this work, exactly?

EDI, AS2, XML, Partnership Network

EDI Most of the larger stores and chains use a document transfer protocol that originated in the late 60′s called Electronic Data Interchange or EDI. EDI (or one of thousands of EDI ‘flavors’) is the standard document transfer format. Every other version of document transfer is either a version of EDI or a way to manage EDI-like documents through other means.

AS2 AS2 is nothing more than a secure, reliable way to transfer EDI documents using the Internet instead of dedicated phone lines.

XML utilizes Extensible Markup Language to transfer EDI-like documents via a web browser interface.

Partnership Network was developed by O’Reilly Auto Parts and then made available to the entire aftermarket. It is a software package designed to transfer EDI-like documents over the Internet. Partnership Network is used by CARQUEST, CSK, O’Reilly and Advance Auto Parts as well as over forty aftermarket manufacturers. It is available through the Automotive Aftermarket Industry Association.

Because an EDI installation is expensive for a smaller business to implement and maintain, numerous EDI service providers have emerged including GCommerce, MISG, and TrueCommerce, among others. These service providers accept documents from trading partners, translate them from EDI to multiple other formats and transmit them. In other words, if a buyer who has EDI capability sends you an order, the order might be translated into a fax, an email or into an XML document and delivered to you. When you send a document back to the buyer it is then translated by the service provider into EDI and delivered to your customer.

Well, that sounds pretty good in theory, but now let’s talk to some folks with ‘skin in the game’ who are engaged in electronic document trading to see how these theoretical benefits stack up in the real world of business.

Stories from the Front Lines

Jessica Miller, Director of IT at Crane Cams said, “For us, EDI is a necessity of doing business. It’s a must-have in order to work with our biggest customers, but even if it wasn’t, cost savings from reduced errors and data entry would have driven us to it.”

“We’re a driving force for manufacturer implementation of EDI” said Cheryl Ives, EDI Director for a large mail order retailer. “There are less order errors and we need confirmation when products leave our vendor’s factories for planning purposes.”

Jim Riden, Director of IT at Hypertech said Hypertech has only implemented EDI with 3 or 4 of their biggest customers, but that reduced processing time and fewer errors is a real benefit. “I wish more of our buyers would jump on the bandwagon and accept EDI documents” he said. “It would make our lives at Hypertech a whole lot easier.”

Flowmaster’s CIO, Alan Glazier seconded Riden’s statement. “If more of our buyer’s accepted EDI documents, we’d be able to reduce order processing costs even further. I came out of another industry where we used EDI for many years. I’ll take as many additional connections as I can get. It just doesn’t make sense in this day and age to pay a bunch of data entry people to type in orders.”

It seems that as a SEMA manufacturer, you may come to electronic document trading because you’re forced to by a customer or because you want to expand your market to include large volume buyers who demand it, but lower order transaction costs may be the real ongoing advantage.

As Jerry McCabe, Senior Vice President of Business Architecture at Affinia Group, said a few years back:
“Of all the ways you could allocate your company’s resources today, I believe your best ROI will come from investments in perfecting your data and in ways to deliver your data … in that order.”

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