Every dollar counts when you are running a business. This shouldn’t come as a new or surprising concept, but given the myriad solutions retailers have at their disposal today, it might be unexpected to learn that technology bottlenecks could be costing retailers millions of dollars when it comes to efficient enterprise business integration.
Case in point, it’s often the situation that suppliers and wholesalers offer retailers early payment discounts; if retailers can meet certain payment deadlines, they will receive discounts on their purchases. For example, under the terms 5/10 net 30, retailers may deduct 5% of the amount owed if the supplier is paid within 10 days instead of the normal 30 days. In other words, found money — and who doesn’t like the sound of that?
While this all may seem great in theory, here is the problem: retailers are dealing with both small and large suppliers, various levels of technology and countless invoicing methods. In other words, it’s complicated.
Electronic data interchange (EDI) has long been the traditional standard for removing the “language barrier” that exists between different businesses so that documents can move between companies digitally. EDI software allows organizations to create, view and exchange business transactions, such as invoices and purchase orders, using a standard data format.
However, every retailer, wholesaler and supplier does not use EDI software. Each player in the ecosystem is servicing a disparate trading partner network with varying technical and business requirements. If a business partner does not support EDI, then a huge volume of documents are not going to be able to run through the EDI software interface.
To get these documents into a usable format, businesses must contract with a value-added network (VAN), use manual processes, or write custom scripts. In each scenario, documents are flowing through entirely different processes for EDI and non-EDI business partners, significantly complicating matters and adding unexpected costs.
Another challenge for retailers in managing their partner networks: the data received from partners needs to be put into backend applications, and doing so manually makes the entire process time-consuming and error-prone.
For example, if a wholesale partner sends an invoice, the data on that invoice will need to be input into an ERP in order to be processed. Manual input errors are a significant problem, and the volume of data that has to go through this manual process will quickly become unmanageable.
Retailers may be significantly underestimating the amount of bad data their organizations receive. While automating the exchange of data between retailers and suppliers or wholesalers does greatly reduce errors, they do still occur — and even EDI software cannot automate exception handling. In fact, 3% or more of EDI transmissions can contain errors.
If the exception handling is not automated, then every instance of bad data needs to be corrected manually. At 60 dollars per error to correct, the costs can rack up quickly. Automated exception handling — let’s say a purchase order is opened with a wholesaler is off by one number — will immediately alert the relevant stakeholders so that the error can be corrected and resubmitted into the system.
Taking advantage of early payment discounts may seem like a no brainer at first glance. However, once the complexities of partner trading networks are examined more closely, it becomes easy to see how critical efficient integration solutions are to ensuring retailers can meet payment deadlines in order to receive discounts.
Too often, retailers are adding unnecessary cost and risk when developing strategies for connecting with their suppliers. The result unintentionally leads to failure to meet the early payment discount terms that the finance team worked to negotiate, and can unnecessarily take money out of the retailer’s pocket.
This article was originally published on Retail TouchPoints on December 28, 2015.
For further reading, check out:
Everything Is Going Fine With EDI Mapping And Then Along Comes Walmart