If you're still exchanging purchase orders, material releases and other transaction documents with your smaller suppliers by fax or e-mail, you're losing out on significant savings, efficiency and supply chain visibility opportunities. This is especially true for Asian suppliers, who typically are more difficult to monitor while also critical to your production environment.
For every semiconductor fabricator, mainboard manufacturer or other supplier still stuck in manual communication mode, you're paying more to process each message, risking data entry errors, delaying data availability to your ERP and other business systems, and potentially creating bottlenecks in the supply chain.
Until recently, automating transaction messaging with lower-volume component and contract manufacturers was fraught with technical, administrative and financial complications. But today, technologies such as Hub & Spoke, WebEDI, managed supplier enablement services through third-party providers, and automated supplier onboarding and management tools have removed those stumbling blocks.
Making the switch is relatively easy and inexpensive. Point-and-click partner testing and certification of electronic messages alone, for example, can save $15,000 to $20,000 in onboarding fees per partner as well as relieve the burden on your IT staff.
Sins of the Past
The traditional failure to electronically enable smaller suppliers originated with the 80/20 rule — that is, the conventional wisdom that 20 percent of suppliers generate 80 percent of your business volume — and the associated conclusion that only these Tier 1 suppliers needed to be connected to the end manufacturer's supply chain via EDI or B2B.
That left transaction processing for the other 80 percent of the supply base to be handled manually, with all the costs and mistakes that are inherent in manual data input, error resolution and duplicated paper/electronic data trails.
For years, that strategy went unchallenged because connecting these lower-volume suppliers to the EDI/B2B stream was difficult if not impossible. Most of the affected vendors lacked the financial and/or IT resources to implement and support a full-blown EDI/B2B system for electronic collaboration. Those that had sufficient resources were not willing to pay the price for a relatively small customer. This is still true today.
These factors have been complicated by staffing and budget limitations on the end manufacturer's side. One analyst calculated that onboarding a supplier via EDI or XML takes an average of 37 days and as long as a few months. Given their other responsibilities, IT departments typically lack the bandwidth to take on this kind of project.
Newer Internet-based connectivity options and automation tools for rollout services have changed the picture by eliminating the need for technical expertise at the supplier's end as well as avoiding a major time and resource commitment by the end manufacturer. Hub & Spoke solutions are essentially EDI/B2B add-on systems that require suppliers to download a small Java application — called a Spoke — rather than installing an entire EDI suite. Pre-configured and partially pre-populated transaction messages are exchanged between each Spoke and the Hub component deployed on the end manufacturer's EDI/B2B infrastructure.
In this scenario, purchase orders and other documents received from the Hub organization are automatically translated into human-readable format for easy interpretation by suppliers; advance shipping notices and other messages transmitted by suppliers are automatically integrated into the end manufacturer's transaction stream; and Value-Added Network (VAN) fees required in conventional EDI transactions are eliminated by using the Internet-based AS2 communication protocol.
Recently, this option has become even more appealing with the introduction of automated wizard-based tools enabling suppliers to self-test and certify EDI/B2B messages. These tools slash onboarding time from 10-15 work days to as little as a few hours, eliminate waits of up to three months caused by busy IT schedules, and save the end manufacturer $15,000-$20,000 per partner by relieving IT staff of testing and certification duties.
Web-based portals offer another option for electronically enabling smaller or low-volume suppliers, particularly those without their own ERP systems. The primary benefit for the supplier is that no in-house software is required at all. The only prerequisite is Internet connectivity.
In this case, suppliers typically receive an e-mail alert with a hyperlink to the portal whenever the end manufacturer generates an outbound message such as a purchase order or material release. The supplier logs in with a user ID and password, views and/or downloads the message, and uses the portal to generate responses, advance shipping notices and — when applicable — barcode-readable labels indicating the contents of the shipment. The portal also automatically passes supplier input to the end manufacturer for integration into their EDI/B2B system.
Managed supplier enablement services provide the same no-supplier-software benefit as a Web portal solution while also further reducing manual input for suppliers. In addition, this approach relieves the end manufacturer of supplier onboarding, technical support and message delivery responsibilities.
In this model, the third-party service provider hosts an electronic mailbox on behalf of the end manufacturer and provides data integration services by utilizing the data import/export capabilities of the supplier's own business application. Incoming orders are input into the supplier's IT system upon message retrieval, and outgoing shipment information and (optionally) invoices are exported from the application. Manual data entry is minimized, as are data entry errors and the need for error resolution when the supplier's and the end manufacturer's data don't match.
Regardless of the strategy, bringing smaller suppliers online pays off in multiple ways.
- First, it reduces costs by eliminating manual document-handling as well as errors caused by transferring data between incoming faxes and/or e-mails and internal business systems. Aberdeen Group, for example, has reported that companies with highly automated supplier communications pay only $13.80 for requisition-to-order compared to $25.20 for those still using primarily manual processes.
- Second, electronically enabling your suppliers improves visibility for all parties that in turn can help optimize supply chain performance. Ensuring that suppliers receive your purchase orders or material releases in near-real-time — and that you can see their responses just as quickly — goes a long way toward smoothing out any kinks as well as ensuring that you have the component inventory you need when you need it.
Other benefits range from faster exchange of business-critical information to better ERP data quality, fewer staff dedicated to supplier-related data processing, and procurement process and cost efficiencies — including increasing spend under management. In sum, it's no longer enough to connect your Tier 1 suppliers to your supply chain. Failing to automate the rest of your supply base costs both time and money. With today's technologies, there is no reason not to make the move.
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