When grocery industry supply chain participants studied Electronic Data Interchange (EDI) solutions to their billing error problems, a common problem in EDI implementation was brought to light: The balance of power between partners can adversely affect the implementation’s success.
This best practices consortium included manufacturers, several brokers, and a major East Coast grocery chain. The consortium met to address the proliferation of invoicing errors due to miscommunication of pricing information for products on promotion, which benefited the retailer but created major losses for manufacturers.
An EDI solution, called UCS II (Universal Character Set), was designed to synchronize this information in the databases of all participants in the supply chain, greatly reducing the errors. However, the initiative exposed some inherent weaknesses in the supply chain. This article presents a rundown of best practices that consultants who perform EDI work for their clients should consider.
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Big dogs and little dogs
A long-standing problem, which EDI consultants often encounter, is the imbalance of power between large, cash-rich manufacturers and retailers, and their smaller, cash-strapped brokers and distributors. EDI is very costly to implement and expensive to maintain; it requires a certain minimum platform and robust in-house processes overseen by trained personnel. In the early days of EDI, the big partners addressed this problem with ease: If a smaller partner couldn’t keep up, the big partner just cut the smaller partner loose and found one that could.
It’s not that simple today. The broker’s value to retailers and manufacturers is in its ability to act as a central routing point for product ordering. The broker accesses many manufacturers and many retailers, so that any one retailer or manufacturer need only deal with a small number of brokers, rather than a large number of partners. Automating all this communication with EDI is clearly to everyone’s benefit.
But in today’s climate, brokers have consolidated: Instead of thousands of very small brokerage firms, there are now several hundred that are not so small. Jettisoning one for another due to technical inadequacy is not as easy as it once was. The brokerage houses from which a retailer may choose are all likely to have the same EDI implementation barriers.
It now falls upon retailer and manufacturer alike to undergo a change in attitude toward EDI partnerships, and the wise consultant will urge clients toward this détente. When these problems surfaced in the best practices consortium, a number of constructive solutions were put on the table, as follows.
Share the expense and the benefit with the middleman
The manufacturer is the partner that stands to benefit the most from EDI error-reduction mechanisms, and the one that won’t have such a solution if all players can’t get on board. Manufacturers should partner with brokers on the cost of implementation, with the broker paying whatever is feasible and the manufacturer taking up the slack. In addition, manufacturers should make in-house technical expertise available to the broker at no cost, with the broker paying only the travel and per diem when site visits occur. In the end, the cost to the manufacturer is negligible compared to the benefits.
Ask the EDI software supplier or VAN for a break
The software houses and value-added networks (VANs) face competition from alternative technologies, and now have to duke it out like everyone else. A buyer of EDI services can easily switch to another vendor. The solution? A large, powerful manufacturer, having an established relationship with an EDI software house and a value-added network, says to these vendors, “I have a few small partners here who need software and additional network services. Cut them a break, give them some extra technical assistance, and I’ll commit to you for another 36 months.”
Offer incentives that pay the bill
Have the manufacturer offer incentives to the broker for undertaking the burden of implementation that will pay in the end. For example, a broker that shoulders implementation and the debt of its expense would be rewarded by the manufacturer with an increased commission, with the extra points scaled to speed of implementation and performance. This incentive is enough to spur the broker to go the extra mile and incur expenses to get the job done quickly and well while offering a reward for solid results. In effect, the manufacturer is sharing the savings of error reduction by rewarding the broker with an increased commission on promotions, a loss that is easily justified.
Include the retailer
The retailer rules, somewhat unfairly, in the EDI game. Current industry initiatives in both grocery and retail that pursue the goals of UCS II tend to favor the retailer, which often benefits from pricing errors.
But there is more to successful retail competition than savings on invoicing errors. Effective promotional specials are the primary competitive mechanism between retailers—the buyer goes where the specials are. It is to the benefit of every participant in a supply chain to create an efficient mechanism for pricing, delivering, and billing items on promotion with maximum efficiency. Put simply, manufacturers are more inclined to offer such specials when they will clearly profit from them, with minimal errors bleeding off their take. A wise consultant will make this point and encourage the cooperation of the retailer in such implementations.
Bringing everyone to the bottom line
However it is approached (and the EDI consultant is in a good position to suggest these approaches), the age of cooperation is upon supply chain participants. The days of brute-force rules are over, except in international markets. Today it’s more important to be fast and efficient than to be volume-driven. Competition is now about effective cooperation. Help your client see that a little cooperation (and expense) at the start of an EDI implementation can have tremendous financial benefits when it is completed.