Most businesses are affected by hidden costs in procurement, distribution, order processing, sales and finance. Organisations can benefit from a careful review of their business processes, and implementing message integration within their supply chain.
Most businesses don’t earn revenue by processing data, but do spend a large amount of their hard earned revenue in manually processing data. If you were to look at ‘most businesses’ there would be costs hidden in procurement, distribution, order processing, sales and finance. In the following paragraphs you will see just some of the hidden costs found by one of our clients, and the systems then built and implemented to avoid and mitigate these costs.
Our client is a multinational company and the UK is their second biggest market. As with most major organisations, parts of the supply chain are outsourced. Each outsourced organisation has its own systems and processes that are considered ‘best of breed’, which had a lot to do with why they had been chosen as outsourced partners for our client. In our client’s case, two of the operations outsourced are: the warehousing of finished goods, and the transportation of those finished goods to the customers, who are retailers and distributors of various sizes.
Our client uses SAP R3 as their ERP of choice and so when implementing SAP they had a number of options for the integration of the outsourced operations within their legacy systems.
The first choice was to provide access to their SAP system for their warehouse and logistics partners. The partners, or the client, could then deploy human resources to ensure the data on all the various systems were kept up to date. This would present some training burdens as each outsourced company’s staff members would need training. An additional on-going cost was also identified at this time due to outsourced contract workers only being retained for a limited time, therefore subsequent re-training may be required in the future.
[ms-protect-content id=”9932″]The second option would be to implement separate specialised systems for the logistics and warehouse functions attached to the SAP system. This was, indeed, how our client worked with some of the outsource partners prior to the SAP implementation. Obviously the same burdens arise in terms of training as per the SAP solutions above.
However, when analysis of the data flows is undertaken, together with analysis of the business processes, a number of other concerns arise…
Any form of double data entry can lead to errors transcribing from one system to another, inevitably causing additional costs associated with non- or incorrect deliveries, correction of errors and ultimately dissatisfied customers.
Major retailers in the UK have terms that include very tight delivery schedules; this means that instructions to the warehouse to pick stock, and to the logistics providers to deliver the goods, are both time critical. Any delay can cause late deliveries and poorly optimised loads for the logistics providers.
Further risks of increased costs arise around load planning. The logistics companies plan the way deliveries are loaded on to their vehicles. The objective is to achieve optimum loading of each vehicle, the target load being 26 pallets per vehicle. Each vehicle that is not optimally filled is an additional cost both financially and in terms of sustainability. With manual data entry systems, the time taken to enter data and transcribe it from the haulier’s system to the client’s system leads to artificial time limits for when data is required to be entered. In the case of our client’s systems, this was 4pm on the day prior to despatch. Furthermore, once a load plan was entered it could not be adjusted, even if it could have meant achieving a maximum fill of the vehicle, simply because a delivery request arrived at the logistics company, minutes after the load plan was transcribed. This is obviously a flaw in the process, which leads to additional costs for the client.
Once commissioned by the client it was imperative to clearly identify all the data flows between the client, the warehouses and the logistics companies. This showed that twenty six distinct messages were exchanged between the parties involved, many of which were required by more than one party. For example, the load plans produced by the logistics companies are needed by both the client and the warehouses.
We then identified areas where, by removing the human transcription of data, we could improve the business process. One such area was to optimise the load planning process. By using the integration of messages, we have been able to allow the logistics companies to plan their loads in iterations. This process allows the logistics companies to gradually build loads, sharing them with both the client and the warehouses within seconds and with no double data entry requirement. Ultimately the warehouse staff will begin to pick the stock for the load and at that point the logistics company needs to know that they can no longer change the plan. For this we invented a message called the ‘Pick Start’, which is sent back to each logistics company’s system and marks the load plan on their system so that it cannot be adjusted. This one new process has allowed the logistics companies more time to plan their loads, leading to significantly improved load fill, so lowering costs and the number of vehicles required to deliver our client’s products to their customers.
The most significant benefits that were gained by integrating the systems between the client, their warehouse and their logistics partners however did not become apparent until the system had been in place and fully operational for a period of time. When we examined the data processed in a year for this system we found that over 2.2 million documents had been processed. That is 2.2 million pieces of information, the majority of which, without integration, would have had to be double entered between the various partners’ systems. Even if we say only 50% of those documents would need rekeying, based on a minimal cost of €0.75 to enter each document (€0.75 is a very conservative figure) the savings shared by all parties are €825,000. Assuming you had some superhuman staff to manually enter each document and you halved the €825,000, it is still a significant cost for a business to absorb.
The project has achieved significant savings by harnessing a message-based integration between the organisations concerned. Benefits, including the optimisation of vehicle fill and increased customer satisfaction, were identified during the design process. However, the significant savings in costs of data entry were only quantified after the real data began to flow. At that point, the true hidden costs of manually exchanging documents within a supply chain became clear.
It makes you wonder just how many other organisations could gain from a careful review of their business processes and then implementing message integration within their supply chain. Do you think this may include you and your business?
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About the Author
Richard Ward is Head of Client Liaison at First B2B. He has 20 years experience in the world of EDI. First B2B is a UK business specialising in Business Process Integration. As A Service throughout Europe. Established in 2001, First B2B clients range from small to large businesses including companies such as MARS UK plc, AGI World, Antalis and Walter GB. First B2B is also the major technology partner for COINS-etc the largest construction document exchange in the UK and the partner of choice for eBECS Limited, Prophet Plc and Lakeview Limited.
