Automate to Reduce Your Supply Chain Costs

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Written by Michael Martz

Published on Wednesday, 06 February 2013

The supply chain is a huge component of most businesses, and therefore a prime target for cost reduction efforts. There are lots of ways to reduce costs, from beating suppliers over the head for price concessions to engaging 3PLs to handle fulfillment processes. Because the supply chain is so broad and has so many components, the possibilities are endless.

One approach to reducing supply chain costs that’s often overlooked is the automation of manual processes. Those of us from ‘the EDI side’ recognize that businesses often choose to electronically transmit orders to suppliers, receive Advance Ship Notices (ASN), and accept electronic invoices. Those electronic documents eliminate huge amounts of non-value-added manual labor, and if you’ve already taken that path you’re moving in the right direction. But should you stop there?

Despite the robust EDI program powering your purchase-to-pay (P2P) process, I’ll bet you still have lots of hands involved in making the process flow. Some of them may be essential, but others could potentially be shifted to more valuable work with a little automation. For example, you may have people following up on invoice errors, expediting shipments past their expected ship date, and faxing purchase orders to some subset of your supplier base. Here are questions to help identify pinch points that could benefit from additional automation:

 

• Are you ‘100% electronic’ on your key transactions? Many companies used the 80/20 rule when implementing their EDI program and didn’t worry about compliance from smaller suppliers. Manually handling their transactions can take a disproportionate amount of man-hours. Likewise, you may have entire segments of your supplier base, for example drop-shippers or indirect MRO suppliers, who are still being handled via fax and paper. Create a project to shoot for 100% supplier participation.

 

• Are there other EDI transactions that can improve processes like expediting? If you implement a transaction, for example the 855 PO Acknowledgment, and put the onus on the supplier to provide an accurate ship date and to transmit updates when that date changes, you can likely get by with fewer expediters.

 

• Are errors on inbound transactions sucking up resources? An obvious approach for this problem is to identify the error types and use the capabilities of your technical staff and translator (if you do on-premises EDI) or your technology partner to automate the identification of the errors and notification of the offending suppliers. Nothing can be less cost-effective than having people on your payroll correcting the mistakes of your partners.

I’m not minimizing the amount of work involved in the above approach: it’s a lot! But the benefits are tough to ignore and well worth the effort. If you’re trying to squeeze cost from your supply chain, the magic recipe is:

 

1. Aim for 100% participation in your EDI program by your suppliers
2. Increase the automation of steps in your P2P process
3. Reduce the number of errors you touch

You may even find it's even easier than squeezing price concessions from your suppliers!