Supply sensing

EDI: Workhorse of the Extended Supply Chain

by Lora Cecere on November 19, 2013 · 3 comments

work·horse

  noun\ˈwərk-ˌhȯrs\

: a dependable person who does a lot of work

: a dependable machine or vehicle that is used to do a lot of work

EDI is the workhorse of B2B connectivity. It is not new. It is not sexy. Four decades after its creation, supply chain executives see it as slow and expensive. They are frustrated. They question the value. But it does matter and slowly, we are making progress.

In our recent research study of 89 companies, we find that EDI is used nearly six times more frequently in the connection of trading partners than portals, and eight times more frequently than the use of business networks (e.g., trading exchanges or specialized industry hubs). We also find when companies can achieve hands-free orders, order-to-shipment cycles decrease by 50% and there is greater accuracy in fulfillment. The current state of B2B connectivity is outlined in figure 1.

Most companies see EDI and the exchange of documents through established protocols as old-school processes. Many technology options have promised to make EDI outdated, but it has not happened.  Today, no company studied uses just one method for B2B connectivity.  The connectivity with trading partners is usually a mix of portal, business network and manual processes. While companies have invested in portals, trading exchanges and automated business networks, the adoption is low. The reason? Portals are one-way communication. The use of portals is too passive and companies struggle to synchronize the many changes that occur in sales and purchase order processing through this passive form of connectivity. Business networks represent 7% of B2B connectivity.

Figure 1. Current State of Trading Partner Connectivity

The value proposition for automation is compelling. The messaging is pennies and the value proposition is in dollars.  Here are some of the findings of the study:

  • Irrespective of how they are processed, over 40% of customer orders change at least once.  The use of EDI reduces errors and improves processing times.
  • Today, there are few incentives to use EDI in trading partner relationships. Despite the strong value proposition, only 6% of respondents offer order discounts to customers for using EDI for order processing.
  • The use of EDI reduces costs. Today, 30% of shipments are received without Advance Shipment Notification (ASN). Shipments without an ASN cost the average company an additional $78 per purchase order to process.

Does this match what you are seeing? Any stories to share?

For more on the results of the study, please join us on December 5th for a webinar to release the full study.  Click here to register for this sponsored webinar by GXS. I hope to see you there!

 

It was a sultry day in Philadelphia. Last week, it felt like August not May. I found myself counting the street signs to be sure that I was on track for my 8:00 a.m. client meeting.  Not being a morning person, my feet mechanically moved my body forward. I was not sure what the discussion was going to be, but I was hoping to be wide-awake by the time that I got to the corner of 18th Street to meet my client.

I have worked with this client since 2004. At that time, they planned on spreadsheets. Their goals were lofty, but their understanding of supply chain planning was hazy. In the last six years, their business has grown three-fold and become very global. In 2006, they made a decision to implement a supply chain planning solution. It was badly implemented by a system integrator. The cost was 60% more in than average; but even more unfortunate, they never got a good understanding of how to use the planning system.

The client’s question was a simple one. She asked, “What makes a mature planning organization?”  I pulled out a blank sheet paper and drew the maturity grid outlined in table 1. I would love your insights.  Is this how you would have answered the question? Did I miss anything?

Table 1: Characteristics of a Mature Planning Organization

Low Level of Maturity High Level of Maturity Characteristics:
Demand Focus on “the number.” Bias and error are selectively measured and the organization is unclear on how to improve demand processes. Clear understanding that the focus needs to be on the probability of the forecast, and that the focus needs to be outside-in based on channel data. Use of Forecast-value Add techniques to improve the accuracy of the forecast. Mapping of demand streams by demand characteristics and frequent adjustment of the demand engines to improve optimization.
Tactical Supply Manufacturing is designed and planned in isolation. Focus is on a feasible plan. Recognition of constraints and the management of floating bottlenecks. Management and planning of the entire network against a value network strategy. Integration of corporate social responsibility metrics in planning. Comprehensive view of source, make and deliver. Recognition of asset strategies in go-to-market plans.
Supply Chain Design Ad hoc design planning often focused on a function of the supply chain. Most often the focus is on transportation or logistics, but does not take into consideration the trade-offs between make, source and deliver. Frequent and systemic supply chain design. Focus is on make, source and deliver together. Design is orchestrated as part of new product launch. Clear understanding of the number of supply chains and what drives value in each. Development of a supply chain design organization with a clear   understanding of what drives value in each supply chain.
Supply Chain Planning Data Planning data is determined at the time of implementation and is seldom validated and refined.  There is no one in the organization responsible for planning master data. Organization has a clear understanding of the importance of planning   data. A database is built to track planning master data by period and adjust as parameters change. Use of third-party data for transportation lane and drayage times by day/time of week. Integration with manufacturing systems to understand actual run   times and Operating Efficiency (OEE).
Local/Global Governance Little clarity.  Local and   global teams interact on an ad hoc basis. Clear governance of global planning and local decisions. Local and global teams understand and work together to give input   into plans.
Sales & Operations   Planning (S&OP) Focus is on matching demand and supply. There is a lack of clarity on what drives value and metrics are functional. Planning data is often debated and participation in S&OP decisions is often ad hoc. The process is not balanced between the “S” and the “OP.” Focus on maximizing opportunity and mitigating risk through well-defined playbooks. Clarity on the quarterback in the organization that calls the plays in the playbooks during the month. Organization is balanced between operations (OP) and sales/marketing   (S) in decision making. Monthly design of the supply chain including form and function of   inventory and inventory placement. Visualization of supply chain options in S&OP meetings to ensure alignment. Clear understanding of the supply chain as a complex system with   executive capability to manage the trade-offs versus using a common   understanding.
Inventory Focus on the level of inventory. Inventory is often focused on as a singular metric, not as part of a complex supply chain system. Focus on the form and function of inventory based on demand and supply variability and business plans. Definition of push/pull decoupling points and the role of   postponement to improve inventory as a supply chain buffer to improve agility. Concerted plans that focus on inventory management as one part of the supply chain as a complex system. Design of cash-to-cash cycles strategically through complexity analysis, sales and procurement policies.
Manufacturing Manufacturing programs are implemented as standalone programs. Factory scheduling is either nonexistent or not tied to supply chain processes. Manufacturing trade-offs are closely aligned to network design, tactical planning, and supplier development programs.
There is balance in S&OP between sales and manufacturing.
The most mature clients are moving to digital manufacturing based on the Internet of Things (i.e. direct motor sensing, programmable logic controller inputs).
Procurement Procurement programs are implemented as standalone processes. Clear understanding of supplier development goals and close integration into the corporate social development programs. Risk management strategies integrated in network design programs. Advancements in supplier sensing are enabling early detection of failure risk.
Metrics Functional metric orientation. Little insight on cross-functional   metrics alignment. Cross-functional metrics alignment. Clarity on which metrics matter by type of supply chain. Clear understanding of how metrics tie to value-based outcomes.

 

Charting the Journey

I am currently busy writing a second book. It is named Metrics That Matter.  In preparation for the book, I have worked with Abby Mayer (Twitter ID: @indexgirl) to chart the progress of the Fortune 500 by industry segment on the Effective Frontier (the Company’s ability to balance growth, profitability, cycles and complexity) to drive year-over-year improvements.

<Writing a book is tough work.  As I roll up my sleeves to develop this manuscript, I remember just how much work Bricks Matter was….>

As I progress through the research, industry-by-industry, I think back to my work with these many companies over the last ten years as an analyst.  I remember the many discussions. The selection of planning systems and the implementations. As I work through the data, I can clearly see that excellence in supply chain planning makes a difference.  I can also see that over the course of the last decade a gap has grown between leaders and laggards. My surprise is that the gap in performance is bigger than I expected. A large element is the role of the executive team. This is the topic of my next blog post, “How do you Define a Mature Supply Chain Planning Organization? Part 2.”

So, help me out here. What did I miss?  How would you have answered the question?

Tomorrow, I board my long flight from South Africa. I had a great time at SAPICS. You can follow my tweets at the hashtag #SAPICS2013. In flight, I will be busy writing four reports for our newsletter next week. We would love your feedback on the reports and the research.

We also have a webinar next week. You can sign up for our webinar on June 13th at 1:00 p.m. to hear the results of our S&OP research from over 90 respondents.  I hope to see you there!