84 Lumber Saws Through Costs by 20 Percent

$2 billion building materials retailer automates supplier transactions; CFO expects to deliver more cost savings soon

$2 billion building materials retailer automates supplier transactions; CFO expects to deliver more cost savings soon

Newark, CA  March 24, 2004  84 Lumber Co. said it has reduced its supplier transaction processing costs by 20 percent after implementing a supply chain integration initiative with ADX.

84 Lumber is the largest privately held retailer of building materials in the United States, with 453 stores in 34 states and annual sales of more than $2 billion.

Since 1999, the company had been using electronic data interchange (EDI) to transmit outbound purchase orders to large suppliers, but only about 40 percent of their inbound invoices were electronically transmitted. Prior to working with ADX, 84 Lumber had about 100 to 150 suppliers transacting electronically via EDI using various value added networks (VANs). The time had come, though, to take the next step and automate their accounts payable.

Rick Grimes, director of e-Commerce, said everything in the accounts payable department was paper-based. The staff printed all invoices, even those coming in via EDI, and printed reports and other documents to track and pay those invoices. The question, then, was how could the company eliminate the paperwork.

"To use a database as a driver to get those bills paid, I had to have the invoice in some electronic format," Grimes said.

84 Lumber faced two main challenges in reaching their goals.

One primary challenge was the company's legacy accounting system. Grimes said, "Our legacy system was a home-grown variety that many, many people had worked on over the years. Trying to change the flow was a big challenge."

The second challenge was getting suppliers, typically the lumberyards, millwork companies, hardware manufacturers and other suppliers of the 84 Lumber retail stores, to buy into the process and understand it. 84 Lumber had to educate its suppliers about the need for clean data so that supplier invoices submitted electronically were not rejected. Such rejections, known as "kick-outs," were a serious problem.

To reach its goals, Grimes said the company considered a number of outsourced EDI software solutions. "We didn't want to do it in-house because we didn't want to maintain the technical support staff to run the application," he explained. "We found that ADX's integration module was the most compatible for our suppliers."

Grimes went on to describe how ADX resolved the problem of kick-outs for its suppliers. "ADX gives the supplier a template that's unique to 84 Lumber. That template includes fields with drop-down lists that make the mapping process easy. When the invoice isn't kicked out, the supplier wins because they get paid faster, and we win because we get clean data. Everybody wins."

In just 18 months, 84 Lumber said it increased the percentage of suppliers connected electronically from less than 15 percent to more than 64 percent. Today, the company exchanges over 250,000 invoices and purchase orders with more than 600 suppliers annually through the ADX Network.

Additionally, ADX has helped 84 Lumber attain an overall rate of 85 percent of inbound invoices processed electronically, resulting in business process gains and improved supply chain relationships.

"As a result of going with ADX, we've already seen a 20 percent reduction in processing costs and we expect another 15 percent next year, said Dan Wallach, chief financial officer of 84 Lumber Co. "That's the kind of savings that makes me smile."

Grimes added that working with ADX has delivered hard dollar benefits for 84 Lumber, as well as streamlined supply chain processes and more efficient and integrated relationships with important suppliers. "We're looking forward to expanding our relationship with ADX and seeing an even bigger impact to our bottom line in the future," he said.