In working to reduce the 40,000 paper invoices it receives from its supply base every month, Owens Corning has learned that the three most important elements of automating data exchange with suppliers are process, process and process.
[From Supply & Demand Chain Executive, June/July 2004] When you are a $5 billion company working with about 17,000 different suppliers, you are bound to receive a few hardcopy invoices every month, but that does not make it any easier to swallow the cost of processing that steady flow of paper. In fact, as far as James Hawkins is concerned, the business case for eliminating most of those paper invoices by automating data exchange with suppliers is pretty straightforward: taking paper out of the transaction helps reduce a company's non-value-added costs.
Hawkins is e-sourcing process leader with Toledo, Ohio-based Owens Corning — a manufacturer of a variety of composites and building materials — and he is quick to point out the costs associated with the traditional accounts payable paper chase, as well as the potential benefit of reducing the number of invoices that a company receives from its suppliers. "We were processing somewhere in the area of 40,000 invoices [per month] at somewhere around $4 a pop," he recalls. "If you cut that in half, then you've wiped out 20,000 invoices at $4 a piece." Assuming that the cost of automating those invoices is less than the $80,000 in savings per month, Hawkins concludes, "this must be a good idea."
Narrowing the List of Targeted Suppliers
The first step in this process, of course, was deciding with whom the company should transact via EDI. After reviewing transaction histories for its supply base, the company used two criteria to narrow down the list of suppliers with which it wanted to connect via EDI. First, Owens Corning identified the top suppliers based on the number of transactions that the company did with each supplier, verifying that the transactions were regular in nature and represented an ongoing relationship with the company.
Then they checked that each of the targeted suppliers represented at least $50,000 in business annually with Owens Corning. The result of this process was an initial list of several hundred suppliers that the company would target, representing a variety of services and indirect and direct materials.
The next challenge, naturally enough, was figuring out exactly how to set up that EDI connection. The crux of this challenge was that not all the company's targeted suppliers were set up to do EDI. And, given a cost of as much as $75,000 to $150,000 to establish EDI capabilities, any number of the suppliers were likely to balk at the necessary investment just to do EDI with Owens Corning.
Fortunately, several solution providers have stepped forward in recent years to offer B2B connectivity services that let large corporations exchange EDI messages with their non-EDI-enabled suppliers through transaction networks and translation services. Owens Corning looked at several of these providers before settling on Advanced Data Exchange (ADX), an outsourced EDI and XML translation service based in Newark, Calif. According to Hawkins, the choice fell to ADX because the provider had experience with, and was able to handle, the full range of documents that Owens Corning wanted to exchange with its suppliers.
The Cell-phone Plan
Founded some six years ago, ADX operates a network that links large enterprises with their suppliers to exchange documents. The large enterprises can send, for instance, a purchase order intended for a supplier in EDI to ADX, which translates the document into a format that the supplier is capable of receiving. ADX then either sends the file directly into the supplier's back-end systems or allows the supplier to receive and respond to the document using a Web browser interface based on an e-mail paradigm.