EDI for ROI

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.

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.  

Unconnected with EDI

This is slightly off topic but....

Business has a role to play in the community that it exists in. I was thinking about this on the train back from an Institute of Directors course today. It is not really a responsibility in a legal sense although of course there are rules regarding the environment, HSE etc., but it comes from the fact that if a business exists in a community then it should do what it can to help the community. After all that may well be where its next employee is drawn from.

As with most companies we give a certain amount to charities, one for example that provides information packs to local schools on drug awareness.

However one community involvement that we started last year and have continued this year is our sponsorship of a local juniors cricket club, Grindleford. The juniors season has just ended and it has been terrific to see children from age 7 to 14 enjoying the sport of cricket. There is a huge amount of effort put in by members of the club, in their own time, to provide the children with the opportunity to both train, and take part in competitions.

What has been really pleasing this year is that the number of children involved has grown so that now over 35 children are benefiting from the health and social benefits that team sport brings. The do not just come from the village but from miles around.

Given the UK's preoccupation with “out of control youth”, seeing the enjoyment 12 weeks of cricket training and matches has given, just by offering the children something to enjoy on a regular basis, has been superb. If more companies invested in such schemes we may help alleviate the problem of bored kids, just help give the kids something to do. Not all of them will turn in to the next Freddie Flintoff but they all enjoy it and the cost per head is negligible.

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. 

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?".

ISO 9001 -- The route to a profitable company

We have recently been going through the process of achieving ISO 9000 accreditation for our Software as a Service EDI/EIPP offering. It has been a fascinating process. I had always believed that one of the secrets of a successful outsourcing or SaaS offering is to reduce the number of support calls to a minimum. I know this is a statement of the blindingly obvious but you would be amazed the tales we hear from customers moving to our service from other offerings.
When we started out on the route to ISO 9001 accreditation I thought it would have some benefit in terms of seeing where we were making mistakes, correcting them and of course there is the marketing benefit, but mainly in making sure that we continued to provide a quality service for our customers. I believe we are the only SaaS EDI or EIPP provider to be accredited for ISO 9001.

But the more I, with the help of our ISO 9001 consultant, got in to the depths of understanding ISO 9001 it became clear that whilst ISO 9001 does highlight the quality of whatever systems are being measured, the major benefit is the application of the continuous improvement principle.

We have been accredited for our data mapping processes and our systems and support processes for the provision of EDI data mapping, translation and transportation. In my next blog I will discuss the application of process to data mapping and translation, but today I want to concentrate on support.

When I look at a lot of our competitors, especially in the SaaS EDI or EIPP space, I notice that whilst the are bigger than us in terms of turnover, they are typically making huge losses. Some have accumulated losses of over 26 million and yet they still have turnover that is substantially less than their costs.

Looking at it even closer you can see that whilst they increase turnover they are increasing staff, and staff costs, much faster. To me this leads to the conclusion that whatever systems and support they have are not efficient enough. And that is one of the major benefits of the ISO9001 process.

What we have found is that every time we have have a support call/system issue the ISO process of continuous improvement has helped us to eradicate that error/issue for the future. It does not mean that we never get errors but analysis shows use that over 85% of all support calls/issue we received are outside of our service. They are either errors with the data sent to us or the comms of the sender or the recipient.

By concentrating on the ISO 9001 continuous improvement process we are able to keep our support costs to a minimum, we are able to handle millions of transactions per annum with a much smaller team than any of our competitors and we are able to keep improving the experience for our customers and their trading partners.

ISO 9001 does not make you infallible, but it helps you to learn from each mistake and improve your business and profitability.

I did have a cheeky thought though, should I go to the bigger players making all the losses and offer that we do the product, service and support for them, there will of course be an element of cost for them ;-). We could then show them how to make money instead of burning it. Just a thought....

Is worrying about customer service wrong??

I have a friend and occasional wise sage of business who says we provide Customer Service that is too good. This got me to thinking, is it possible to provide customer service that is too good?? Can it be that by constantly trying to go "above and beyond" for our customers we are not helping them to help themselves?? My friend has built up and sold three successful software businesses so his thoughts need consideration.

I know that for me personally I value customer service very highly. I am one of those people that will not tip if the service in a restaurant has not been as I believe it should be. I get infuriated when left hanging by some outsourced call centre, whatever the location, or I get to talk to some disembodied voice that I can tell does not give a damn about my account. And I get even more annoyed if I think we have let a customer down. But is this going too far?

In our job we get the "privilege" of working with some of the largest names in IT and IT consultancy and it always astounds us that the level of service they provide to their customers is sometimes shockingly bad. But by dint of the fact that they are a "Big Name" they get away with it. Don't get me wrong, we make mistakes occasionally as we are human, but we always have an in depth enquiry afterwards to try to ensure it does not happen again. But these larger organisations don't seem to have the same fear of poor customer service that we do. I can tell you absolute horror stories of call centres and voice-mail systems.

If their server goes down they get round to fixing it, in time. They then tell everybody else to rush to resend the messages they didn't receive or lost. The other day I was called to a meeting by a customer. The meeting was to explain what we were doing about all the server outages that we have experienced in the last two weeks, not our outages but the big expensive consultancy firms outages. This big consultancy firm was offering no explanation or apology, just a warning that our customers messages were delayed and they should stop this happening. But it was the big consultancy firms servers that were the problem!!! They should know how to stop the problem, fix your damn servers. But we are the ones being asked what we are doing to stop the outages. Go figure.

But I still think that you cannot provide customer service that is too good. Yes I try to ensure we over specify servers and back-ups and comms. But I still fret that we have not got enough, that we might let a customer down. We try to ensure we won't, put systems in to try to prevent it, but I still worry.

And I am glad I do, and we do as a company, because I would like to think that if I was a customer I would be happy to, metaphorically, pay that 20% gratuity for good service. Because I would like to think that our customers are treated as I would like to be treated. It cannot be wrong to strive to be the best, to try to do the best for someone paying you to do a job.

Getting two systems to talk is easy isn't it?

We had a simple request from one of our clients the other week, "Please provide us with a simple document that describes the transformation of our data to the recipients data". So we did it, sent it and found out that the document was too complicated. Back to the drawing board.

Three revisions later and I think we have it. For a one line purchase order from one company to another for completely integrated EDI (XML actually in this case) it took a 25 page document. This appears ridiculous because if I send a PO by Fax or email to a human, a one line PO will only take them 5 minutes to enter on to a system so it can't be that complicated can it.

Well it can be. You see the human brain is brilliant. It can scan a document and translate it in to the correct form for entry in to a computer system very quickly, sometime there are errors as we have all seen when we have ordered items but received something else, but on the whole the human brain is superb.

But when you try to get one computer to talk to another it is a lot more difficult. Computers tend to be a bit thick. If you provide the correct data in the correct format they cope very well and can process purchase orders far more accurately and faster than any human, hence EDI. But computers have no intuition. Therefore if you send it something it is not expecting it just won't know what to do. And guess what, most suppliers computers run different systems to their customers and so they don't use the same data formats.

So for most of our customers we do some form of transformation, from simple transformations like implied decimals to explicit decimals, to splitting some vital piece of information from a larger piece of information, to complete lookup tables that translate one product code (e.g. The buyers Code for a product) in to three other codes.

The 25 page document has not been entirely wasted though. The customer concerned has at least two other suppliers that they require the same documentation for. Unfortunately they both use different data formats from each other and from the first supplier, so we will only be able to reuse 60% of the documentation. Standards are great, everyone should have one, and everyone does (their own).

Slow Down, your processing our data too fast!!

A client rang me this week with what I believe to be a first in terms of customer requests for us. His problem was that we were processing the EDI invoices TOO FAST. I guess sometimes speed isn't everything.

This was however a genuine business problem as follows. The sender of the invoice issues the invoice upon dispatch of the goods, not an uncommon practice. Both parties are linked via our FREE AS2 service. When the invoice is issued it is placed in the AS2 outbox, received by our service, translated and sent via AS2 to the recipient. The whole process takes less than 1 minute from the time the invoice is issued, to the time it is received by the recipient. The recipient then loads the invoice in to their system (all automated) and it is immediately rejected because the goods have not been received by the warehouse. Hardly surprising because the goods have just left the loading bay at the supplier and still have hours of road time before they will arrive.

It's good to be able to have a laugh at work and the client and I found this quite amusing (maybe we're just a bit sad), but it is worth noting that no matter how efficient and fast we make the technology it still has to take the actual business practice in to account.

There are many resolutions to the problem. The first would be for the invoice issuer to delay sending the invoice until the following day. The second would be for us, as the central hub service, to stall the invoices until the following day. This was the option that was taken as our systems were easier to configure than any one Else's. The recipient could delay processing invoices until the following day as another option.

However the best solution would be for the invoice to be raised not upon dispatch, but upon receipt of an electronic Goods receipt Note (GRN), sent by the recipient of the goods when they are received in to the warehouse. This would be electronic trading haven, you could even make the invoice match the GRN, so that there would be no chance of the invoice being refused by the recipient. There is a flaw in this process though. If the recipients systems and/or the senders systems cannot process a GRN they will have to alter their ERP systems, which has a cost. It might be possible to cost justify but it is a major change of business process and proper thought must be put to the business/profit advantage to be gained. Too many times we see technologists come up with a great technology solution to a problem without thought to the true business benefit.

For these customers the simple solution worked best. We have other customers using the GRN process and they have established a huge cost reduction by doing this. Luckily with SaaS it is easy for one system to accommodate both customers, so both customers get the electronic trading that their business justifies.