EDI for ROI

The True Value of Electronic Document Exchange

This week I have been fortunate to begin working on a project with a very large FMCG supplier. The project is to integrate supply chain messages with their logistics suppliers. This project involves their SAP system, a number of haulier back office systems plus warehouse management systems. 

This project shows the true value of complete supply chain integration. Why? Because not only does this project revolve around business process improvement but it also shows a direct link between the supply chain and the turnover/profit of the FMCG company and its supply chain partners, the hauliers. The improvements being built in the integrations with the hauliers will reduce costs for the hauliers, for the FMCG company and the final document in the chain, the Proof of Delivery (POD), leads directly to the invoicing of the client. By having this document integrated rather than retyped the reduction in errors will reduce the need for crediting notes and queries. The improvement in the speed of receiving the POD in to the SAP system will mean the FMCG company can invoice earlier and in this size of organistion that one or two days improvement can mean a significant cash and bank interest benefit. 

The project will involve a variety of file formats, some Electronic Data Interchange (EDI) formats, some flat files and some XML. The various formats will be to suit whatever each individual supply chain partner requires. The FMCG company using SAP will have one format to suit them, each haulier will have a format to suit their system therefore minimising the amount of extra effort required by both sides of the supply chain equation. The communication protocol will also be flexible, but AS2 will be the preferred method due to security, non-repudiation and reliability. 

Because of the benefits the FMCG company has identified in the project they are implementing this project in the most professional way I have seen over the past eight years. With input from SAP users, technicians and the haulier companies to ensure the success of the project. being involved in the project will be one of the highlights of 2010 for me. 

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.  

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.