EDI for ROI

GXS and Inovis to merge...

Hot of the press an announcement that GXS and Inovis are to merge. Following hot on the tail of the BT EDI*NET closure announcement it may be big news in the Electronic Data Interchange (EDI) world but not that surprising. 

The traditional EDI market is dying, replaced by internet based transactions using non EDI Value Added Network (VAN) communications methods such as AS2, FTP(S) or even HTTP(S). These communications methods SHOULD be cheaper (Not always the case unfortunately), faster and more reliable. Indeed we have been involved with a household brand replacing the GXS EDI VAN with a secure FTP comms process. The results of a one month, 4500 document trial was that the Internet based FTP service was more reliable than the VAN and the time the files arrived at the trading partners showed that the configuration improved the speed the documents were delivered by approximately 10 minutes. 10 minutes may not appear to be much but in this case for a given document type (Delivery Notes) that is the difference between the document being present in the system when the goods arrive and not being present, which saves both the recipient and the sender of the data a lot of manual effort. We have now moved to all documents being exchanged via the Internet based process, saving time, money and frustrations from VAN failures.

Further issues arise for traditional EDI suppliers from new kids on the block such a Electronic Invoice Presentment and Payment (EIPP). A number of vendors claim this capability and it may be that for the most part this is a case of "The Emperor has No Clothes" but the marketing is good. These vendors claim that EIPP is "better" than EIPP, easier and more cost effective. However suppliers still need to produce the invoice in some data format, send it (often in a  different way to other EIPP vendors) and the costs are often more per document than for traditional EDI.  And to add to the issues each EIPP vendor uses a different pricing structure and the actually act as gate keepers to the customer rather than facilitators (If you want to send this customer invoices then you must do so through us and pay us is a typical refrain). 

If you think about EIPP it is less than 50% of a full procurement and the benefits to the recipient, and certainly to the sender, are therefore greatly reduced. If you want to gain the full benefits of an integrated supply chain then EIPP just does not cut it. Look at the business model, the customers pays and the supplier pays. The supplier does not have a choice but to pay. Why? is it because the customer cannot be charged the full price because the ROI would not stack up?

Finally there is the question of what is the value added proposition for an EDI VAN. It used to be security but you can now get the same levels of security from internet based technologies as outlined above. A few decades ago customers did not mind having to invest in IT resource to create a funny format document and send it by an unusual comms method, but now they want to have a provider that delivers a true value added service, where their IT department can do the minimum required but they can communicate with all their customers and suppliers. For a proposition that provides a real ROI, which customers need in this day and age, the Supply Chain Integrator has to provide open communications methods, value added services such as receipting, master data maintenance, on-line matching and other services.  Services that should mean for the customer (recipient) they receive nothing but valid documents for their system, and for the supplier (sender) any documents that fail are reported instantly, so allowing them to respond today, not in several days when/if the recipient reports it to them. So providing an all round improvement in the Supply Chain.  

VAT Change Shows the True Value of Outsourced EDI

In the UK our Darling Chancellor of the Exchequer announced with one weeks notice a change to the standard rate of Value Added Tax (A more complicated form of GST for the US audience). This is not the place to debate if such a fiscal adjustment was correct, but as is typical of most politicians his grasp of the realities of business is a little wanting.

The change should be relatively simple, just change the VAT coding in your system so that the Standard Rate is 15% as from midnight on 1st December 2008. However as with any tax change the practicalities are a little different. The basic rule is straightforward, if the Tax Point Date (The Date at which the Tax is calculated) is after midnight on 1st December 2008 then the rate of tax to be applied is 15%, before that date and time it is 17.5%. But note that this is NOT the date at which the invoice is sent or received, it is the date at which the taxable service/sale took place. Therefore, according the the rules you can send or receive an invoice up until 14th December 2008, that has a tax point date of 30th November 2008.

It is also worth noting that for credit notes the rule is that, no matter when the credit note is raised, if the credit is for a product or service charged at 17.5% then the credit note most refund VAT at 17.5%.

Now most ERP systems can cope quite easily with this change, especially when they are processing paper invoices, because a human being can make a choice as to what rate of VAT to apply (15% or 17.5%), however for electronic invoices it is more difficult because somehow you have to be able to marry the correct tax code from the sender to the correct tax code for the recipient. And of course there are many different ways and codes companies can and have implemented.

But here is the great advantage of an Outsourced EDI solution. One of the old fashioned on site EDI solutions sent me a copy of a four page document on changing their systems which your IT team had to do, and this assumed that the change you made were in line with those of your trading partners.

Our customers, and I assume the customers of other Outsourced EDI providers, had a much easier task. Firstly we asked our customers what they intended to do (add a new VAT code, stay with one VAT codes etc), then we asked the trading partners (where required) what they intended to do and finally if any changes were required, the support team at First B2B Limited dealt with it.

So here is one of the main advantages of Outsourced EDI, at least with First B2B Limited, we helped our customers take the pain out of Mr Darling's little tax change for them, and their trading partners.

The Market for Integrated Electronic Document Exchange

We attended and sponsored the 7th Finance and Accounting Shared Services and Transformation conference this week. Our intention was to both present our message about electronic document exchange to a wider audience and to learn more about the market for Electronic Document Exchange, companies experience of it and what successes companies had observed.

This was an eye opening experience. I guess I believe too much of the marketing hype. The messages we received were that, whilst some companies are dipping their toe in to receiving electronic invoices, very few are actually using electronic document exchange to drive through long term improvement to business process. One reason for this is the EIPP (Electronic Invoice Presentation and Payment) movements focus on invoice only. The only driver for this appears to be reducing headcount in accounts payable rather than looking at the entire procure to pay process. This is a huge opportunity missed.

For example we have been the technology partner for COINS etc, the largest electronic trading exchange for the construction industry in the UK, for 6 years. Whilst we have some very good technology and services, equally important has been the drive of COINS, in their ERP system, to look at the entire business process and help construction companies not just reduce the cost of typing in an invoice but also to show how changes to business processes can greatly improve procure to pay for all parties in the transaction  for the long term.

Likewise outside of construction we have worked with organisations in Logistics, such as GM², that have changed their business processes to offer a greater level of service to their customers. The NAAFI in the uk have evolved new business processes using electronic document exchange that greatly improves there purchasing and streamlines the process for their suppliers.

One of the messages from the conference is that EIPP, because of its limited focus, has done few favours for long term benefits for its customers. Such a limited focus will lead to short term cost reductions but for the long term you need to look to the full process.

 

Real Return on Investment from IT projects

In my previous post I mentioned that I had been working on literature identifying the benefits gained from Outsourced EDI, EIPP, SaaS EDI, Shared Service EDI or whatever the current buzz phrase is. We wanted some facts we could use to both understand how companies benefit from the use of EDI and to be able to clearley show how other companies could gain from their experience.

One thing that came out of the investigation was a clear Return on Investment (ROI) from fully integrated electronic exchange of documents. I had read a Stanford University study some time earlier that said ROI of 250% was not impossible from the use of outsourced EDI but I wanted to find out for myself.

In particular I wanted to make sure that we were achieving that sort of ROI for our customers, and if so how were they identifying the value, was it based on measurable facts or a feeling.

We asked our customers to identify what savings they had made using activity based costing, then to do the reverse and estimate the cost of replacing EDI with manual effort, and finally we asked them to estimate the costs of implementing there existing EDI connections internally. These are all measurable items. We also asked them what kind of business process improvements they had found, over and above the savings on manual data entry.

Some of the case studies can be found at www.firstb2b.net

The outcome; well not surprisingly for such an august body Stanford University were correct. We have seen customers quoting ROI of over 200%, of service level improvements for their customers and of substantial cost savings.

Our target now is to add even more benefits for our clients, based on what they think they can gain further from Shared Service EDI.  

Some meetings just add excitement to business

Not really on EDI this one, but it is about business.

I have got to say I am not a great one for meetings. I like them to be brief, to the point and to have an outcome. I find, if not carefully controlled, a lot of business meetings are not like that, they are long winded, meander and there is no follow up; but you do get nice biscuits and coffee.

Today was different. I had a meeting with one of our non executive directors, one of two I class as a mentor. The agenda was mainly focused around marketing and product development, which should amount to one and the same. I have been shut away in a darkened room recently working on marketing materials, product direction and adding more value to the EDI experience for our customers.

I have been working sometimes in isolation, sometimes with colleagues and sometimes with external organisations such as customers and software developers. It has been an eye opening experience. Sometimes you can just get too close to the workings and never get your head up to look around you. This gave me a chance to look around.

What has come out of this is several pieces of literature around how companies benefit from Outsourced EDI, looking at trends such as EIPP and information on business process improvements from EDI. We have also developed specifications for several enhancements for our outsourced EDI solution aimed entirely at adding value for our clients and their trading partners.

So, having done all this work I took it to my mentor, the non executive director I mentioned above. Some people just have a clarity of vision. Yes he has many years experience in software companies and has been very successful in his own right, but I am still impressed how he can take an idea, grasp it and take it to the next level.

I came out of that meeting buzzing. We had taken the work of myself, my colleagues and outside companies, improved it, set a path for the next stage of developing the ideas and defined a clear set of next actions. If you are running a business and looking to grow that business then I can really recommend either non execs or mentors. 

There was only one downside; All the actions are allocated to me. I have no idea how that happened. I think I still have some things to learn.

The Seed of Truth for EDI.

EDI is only as good as the quality of the data. This appears to be overlooked in a lot of rather simplistic approaches to EIPP. Hence, if the only transaction is an invoice then the accuracy relies on the supplier having first translated the customer's order requirements in to their own ERP system correctly. In turn the accuracy of the purchase order is reliant upon the customers having the correct pricing and product codes in their back office system.

 

In discussion with a customer the other day they explained how they take the issue of getting the supplier data correct so seriously that they have a department that has sole responsibility for this. They sell over 30,000 different products and this is just about a full time job.

 

Together with ourselves this is a target for EDI. We are working with the clients and the suppliers to make the adoption of the suppliers products and prices automatic. The savings to the customer are self evident, but the suppliers will benefit by receiving accurate purchase orders, preferably electronically.

 

This accuracy will benefit all parties. We call the starting point of the accuracy “The Seed”. The closer “The Seed” is to the start of the process, the better the entire process. The more benefit for all.

Expanding the use of EDI to increase profits in uncertain times

Our Sales Director and I had a meeting yesterday with a client that has used our service for over six years. The purpose of the meeting was two fold. Firstly the client has intimated that they want to increase the number of trading partners they exchange Electronic Documents with and secondly we just wanted to understand how their business was going in these trying times.

Great news, their business is doing just fine. Yes, they will see some downturn because they are suppliers to the construction industry, but they had anticipated it and already had a plan to keep costs under control and had a strategy that offers more than just material supply.

The reason they wanted to meet with us, and our first reason for the meeting, was the expansion of EDI. They see this as a major cost saving and have identified the next set of suppliers they wish to bring on board. Our clients estimate of savings so far are in the region of £57,000.00 per annum. They believe that by adding the extra suppliers, plus more customers sending them orders electronically thy can increase these savings to £250,000.00.

The rally nice thing about this client's view though is that when considering the suppliers, they want the suppliers to see major benefits as well. So they want to encourage suppliers to receive electronic purchase orders so that the costs of doing business with our client are improved. Too many organisations just concentrate on the benefits to themselves, our client reckons that the supply chain is an integrated entity and so benefits for their suppliers benefit our client, which in turn benefits their clients.Everyone wins, perfect EDI.

Sometimes I just love what we do

Sometimes you just love your job and in my case it is when a customer says we have helped them gain more benefit for their business.

Last week a customer called. EDI is essential to their business and to be without it these days would be impossible without increasing staffing levels. The customer was implementing a new ERP system and had been unable to test properly the EDI functionality that is essential to their business for order processing and cash-flow. We had understood, and done everything in our power to ensure that customers orders were received efficiently and that the invoicing of customers was not overly impacted by the change in ERP.

Was the process smooth. No, but I guess very few ERP implementation are, especially one of this size.

Was it uncomfortable for us, yes. Late nights, implementations and retests with no notice, message changes to be made in a hurry. Rush testing and retesting. Changing goalposts.

But what was great was that our people really did put in a big effort as a team to get the customer though it. And what made it really worth while was the customer ringing up "just to say thanks, your team did a great job and helped us with when we didn't help you."

We are not in a business, like restaurants, where good service is rewarded with a gratuity, but that one sentence is better than any tip. 

Underestimate the impact of EDI and you will have problems

Last month I was involved in two very different conference calls with clients and their trading partners that highlights a successful and unsuccessful approach to implementing truly integrated EDI.

It struck me that one of the major issues the unsuccessful approach had was that they had totally underestimated the impact integrated EDI would have on their trading partners business processes and systems. Remember, EDI involves at least two parties, if both parties cannot process the data automatically then what you have is a fax.

In this case the party sending the purchase order had not realised how much manual effort the recipient put in to processing their orders because the data was inconsistent. For example, the delivery point required was never codified and so the same delivery address could appear on an order (Paper based) in several different formats, sometime complete, sometimes not. In the end a human being can "infer" the meaning and in this case 95% of the time they got it right. However, the sender of the data had decided to use an XML format for the message which did not impose any data requirements upon the sender. Needless to say they did not see need to change the data from that being sent on the Paper PO. The result was that as soon as the PO hit the recipients system it failed to process because the computer system did not know where to deliver the goods. The orders could still be processed but all would require manual intervention. We then had to have a one hour conference call to explain to the technical people at the senders software house why this data was essential.

The second conference call was totally different. The two parties exchanging information discussed minimum requirements for their individual systems, these were specified, added to business rules at the hub, just to be on the safe side, and test data exchanged. Some further rounds of testing took place in the week that followed, testing various scenarios, but all passed because of the upfront cooperation.

The result is that, despite the second instance above starting one week after the first, the second instance have now moved to LIVE message exchange. The first instance are still ironing out the wrinkles, but may go live next week.

I am not saying that every implementation of EDI needs the upfront level of detail shown in the second example but it must be worth your time to do this with your biggest trading partners. You will get a bigger and faster ROI if you do.

Now is the time to invest in EDI.

Credit Crunch, layoffs, financial doom and gloom. Personally I try to avoid the 24 hour news feeds. Problem is they have to have something to say and good news rarely sells new papers or draws people to web sites.

I am not saying that a downturn hasn't arrived in the western economies, it obviously has, but I like to look to solutions rather than just accepting the end is neigh. Any economic downturn is an opportunity to look at existing business processes and just ask the question "Why do we do it like that?". It is amazing how often the answer is "Because we have always done it that way".

One place to look is at the exchange of business documents with your trading partners and can it be done electronically. EDI has been around for decades, yet still a lot of companies have not invested in fully integrated EDI, it is astonishing. Investing in EDI will not add millions of GBP, Euro or USD to you bottom line, but some of the savings can be eye opening.

A small example is one of our customers. We performed a simple activity based costing exercise with them. Based upon a single trading relationship with one of their major suppliers, their own estimate given the time taken to enter a single line invoice in to their system, the volume of invoices received and the cost of the people to enter the invoices was that they had saved over £30,000.00 per annum. Now this excluded any more difficult to quantify savings such as improved accuracy, reduced invoice queries etc. They also send the supplier a purchase order and given that the supplier fully integrates the purchase orders then they can expect similar savings, so everyone wins. Integrated EDI makes sense.

What was even better for the customer though, was that they do not require EDI specialists in house, so they savings are real savings, no hidden costs. The customer pays for a service which First B2B provide for a price. After paying First B2B, they make the savings outlined above. Further, because of the use of AS2 and no EDI Vans, there are no transaction costs.

Other customers have similar experiences and even though some of them may be seeing reduced volume because of the downturn they know that EDI gives them a further advantage. That is when the downturn is over they will not have to ramp up staffing to cope with increased activity, the system takes care of it.

Not only does integrated EDI reduce costs now, but it puts you in a better position for when the recovery starts.  But the start has to be "Why do we do it like that?".