In many businesses, EDI processing is like the circulatory system in the human body, and the ERP system is the heart of the business. In other words, EDI is important! Many industries have leveraged EDI’s impact on efficiency to scale operations in a manner and cost structure that would be impossible without it. The ability to automate repetitive office tasks to integrated EDI is transformational.
Many enterprises rank their suppliers using a scorecard model that rewards better performing suppliers and punishes those that are difficult to do business with. Unsurprisingly, EDI is a significant factor on supplier scorecards, since mistakes and delays can hamper the ability to execute business.
A good example of how a supplier can undermine a customer is Advanced Ship Notices (ASN). ASN’s tell the recipient what they will be receiving, and often in significant detail, so that the receiving of the goods can be handled through a simple scanning process. Distribution centers often operate at high rates of speed, and ASN-related mistakes can cause costly operating inefficiencies and overtime. Imagine a truck arrives with one supplier’s goods. When a proper and timely ASN is received, the work of the warehouse team is quite simple – scan and put away or “crossdock” the goods to the final destination(s).
Now imagine a second supplier’s truck arrives, but the ASN has not been received by the warehouse. The scans will not work as there is no information to receive the goods and they have to be moved to another location or rejected and sent back to the supplier. This is an ugly situation that costs money, renders valuable shelf space empty, and results in lost sales.
Additionally, the supplier with the late ASN will be penalized on their scorecard, which in turn opens the door to competitors and reduces the supplier’s sales.
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There are a lot of other factors by which vendor performance can be quantified over time, and they are driven by rules outlined in vendor agreements. These rules are for the benefit of both parties so that the business activities mesh more smoothly. Rules communicate expectations, e.g: Orders are to be acknowledged within 4 hours, a ship notice should arrive before the shipment, shipment notices must be sent when the truck leaves the facility, and invoices should arrive within 24 hours of the shipment.
Such specific rules enable a good application to identify when these rules are not being met and generate escalations to the responsible parties at the supplier so that corrective action can be taken before the scorecard is impacted.
For companies that want to implement a scorecard system of their own, the first step is to set the rules and benchmarks for excellence in the supplier base. The rules can govern everything from timeliness and accuracy, to product quality.
For example, an organization that requires vendors to perform drop ship activities could look at the time to ship by analyzing the days between sending a PO and receiving the ASN and Proof of Delivery. Analyzing such information helps to determine which vendors are conforming to estimated ship times provided to customers – an important KPI that reflects the consumer’s experience.
After investing the time and effort into implementing a fully integrated EDI system, gaining this extra insight into the performance of your vendors will be beneficial. A vendor scorecard program makes it possible to proactively manage trends early on and help identify which suppliers are delivering the best value versus least cost.
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