The ultimate success of any supply chain depends on the ability of trading partners to set and meet expectations. Ask a company how well it is doing this, and most will tell you that they are successful in their implementations. Ask a company’s customers how well they are doing this, and most will say that there are still major challenges to a smooth integration. Why the discrepancy?
The discrepancy arises from companies not fully implementing supply chain visualization and taking advantage of all the benefits it can provide. The lack of full implementation happens for two reasons: First, companies need access to trading partner data to achieve visibility, but often they are trading only 65 percent or less of their supply chain volume electronically. The second reason is that when it comes to electronic collaboration between supply chain partners, the 80/20 rule generally applies — companies are collaborating electronically with the 20 percent of suppliers who represent 80 percent of their supply chain volume. Their smaller customers are still using phone, fax and e-mail to collaborate, leading the majority of customers to believe that companies are not effectively using supply chain visibility to meet deadlines.
With supply chain visibility solutions, companies have greater access to customer order information, allowing them to more easily check the status of orders, and customer service personnel can view the full lifecycle of a purchase order (PO), allowing them to more quickly resolve customer disputes. Inbound orders benefit, too, because procurement and supply chain management can maintain order visibility once a PO is placed with suppliers, and action can be taken quickly if orders are going to be delayed.
By contrast, failure to achieve this level of visibility can have serious consequences, such as decreased profits due to excess and obsolete inventory, decreased customer satisfaction due to poor on-time delivery, and eroded market share due to competitors’ product innovation and better time to market.
To fulfill the promise of supply chain visibility, a company must have real access to trading partner data, and here is where the problem lies. Companies continue to struggle to connect electronically — i.e., sharing signals and automating business transactions and processes in a bidirectional manner — with the majority of their trading partners. This is often the result of having fewer and fewer IT resources to deal with the range of partner capabilities and the disparities in data formats, protocols and standards between external business systems. Furthermore, fierce competition and eroding margins continuously exert internal pressure to reduce costs, which leads to IT initiatives that fail to improve multi-enterprise collaboration.
The complexities and challenges of modern supply chains fuel the need for greater process integration across all trading partners, regardless of size, for planning, production, inventory, purchase-to-pay and shipment information. The ability to exchange more and richer information results in more accurate planning and better mid-course corrections to improve order-to-cash cycles. Companies also are better able to improve customer service and enhance revenue.
On-demand Networks Offer Flexibility to Improve Partner Collaboration
While traditional value-added network services have facilitated electronic data interchange (EDI) collaboration between large companies and their core partners, integrating smaller manual suppliers into these networks has often been a challenge. This challenge is most often due to a lack of technological expertise by the smaller partner or a perception that the cost outweighs the benefit.
This situation is fortunately changing as new business services make it easier to on-board small partners. On-demand networks can now send a range of business documents — purchase orders, acknowledgements, advanced ship notices, invoices and payment remittances — in EDI, XML or flat-file format with significant benefits. In fact, some companies have realized a reduction in manual processing errors by up to 90 percent within their order-to-cash process as a result of automation.