Higher Stock Control Begins with Correct Provider Information
Each year, retailers and distributors reflect on what went well and what they want to improve the upcoming year and beyond. Virtually all buying organizations I talk to have one thing in common: they don’t have the accurate supplier data needed for effective management of their orders.
The lack of information leads to a host of problems that cost buying organizations time and money, such as ordering excess safety stock and hiring unnecessary staff. However, despite these issues, most organizations don’t even realize they have a problem or that a better inventory management process can solve it.
Cost savings, inventory visibility & more
For example, I recently worked with a $10+ billion distributor with the potential for saving $30 million per year by getting data from more of their suppliers as well as exchanging more complete data with suppliers already sharing information. In addition to reducing hard costs, accurate supplier data could lead to significant soft dollar savings in inventory management, warehouse management and other areas of the business.
Yet in our initial discussions, the distributor’s supply chain team felt everything was running smoothly. They weren’t aware that working with suppliers to send critical supply chain information like purchase order acknowledgments, advance ship notices and warehouse EDI transactions could benefit them.
Here are some of the challenges they faced and how accurate supplier data could help.
Limited shipment data creates challenges in the warehouse
This distributor didn’t have a clear picture of what goods were coming into their distribution centers or when. In addition to not knowing what would be included in a shipment, they also didn’t know when an item would not be shipped on time or would be back-ordered.
Suppliers’ use of advance ship notices (ASNs) was inconsistent. Although the ASN typically matched the physical receipt, deliveries often represented partial orders, which flagged nearly every shipment as incomplete and created a need for further audit. Conducting frequent audits and breaking down boxes was time-consuming, slowing down the process of getting goods ready for sale.
More consistent data from suppliers, such as ASNs and warehouse EDI transactions, would have significant benefits such as:
- More effective planning for supplier deliveries in the warehouse
- Reduced need for audits
- More proactive planning and expedited ordering to meet demand when shipments would be late or incomplete
Poor order visibility leads to issues for the inventory management team
Order changes are common for all retailers and distributors, and this distributor was no exception. Whenever there was a change to an order, the team would fax, call or email suppliers. This required a staff of 25 people, spending 2 hours a day handling changes.
Requiring suppliers to electronically acknowledge orders and changes would allow this distributor to:
- Manage orders more proactively
- Improve inventory visibility and reduce safety stock
- Use open-to-buy dollars more effectively
Accounts payable relies on manual P.O-to-invoice process
A significant portion of this distributor’s invoices was entered manually, requiring two full-time staff members to manage the process. In addition, all credits were managed manually.
Because suppliers received electronic invoices but did not send other types of data electronically such as purchase order acknowledgments, it was impossible to automatically reconcile orders, shipments, and payments through three-way matching.
By automating this data exchange, the organization could:
- Reduce invoice processing costs and staffing needed for reconciliation
- Reduce data entry errors
- Process invoices faster to take advantage of payment discounts
Small changes with suppliers result in big savings
Partnering with suppliers to automate the order cycle can save companies $120-$150 per order. For this distributor, a fully optimized supply chain has the potential to improve its operating profits by 5 percent: a total of $30 million annually. But the benefits of getting more consistent, accurate and timely supplier data go well beyond hard dollar savings.