Achieving the Perfect Order: Improving Supply Chain Communication

White Paper
ACHIEVING THE PERFECT ORDER Improving Supply Chain Communication

o enterprise is an island. Goods and services flow in from suppliers. Processes, knowledge and expertise are applied to create value-added offerings that are sold to customers who add further value to create other goods and services that are, in turn, Nsold to other customers and so on through to the final consumer. When you include suppliers of wares for raw material extractors, along with recyclers that turn consumer and commercial waste into new raw materials and finished goods, it is a supply chain with no beginning and no end.
Companies work hard to optimize internal efficiencies, but that does not address the entire cost structure. The supply chain also imposes considerable expenses. Historically, these costs were largely accepted as being beyond the enterprise's control. That is changing. Increasingly, businesses, governments and not-for-profit organizations realize that a seamless and efficient supply chain is a critical success factor.
This paper examines the issues of supply chain communication with an emphasis on a common paradigm, "the perfect order." The perfect order is not something tangible. It is an archetype of flawless, optimally efficient, end-to-end interactions among supply chain partners. Those interactions are iterative and two-way: Buyers place orders with suppliers; suppliers send goods, bills-of-lading and invoices to customers; and buyers send back payments. A flaw at any stage results in imperfect order completion. A delay may result in a stock-out for the business and an interruption of cash flow for the supplier. As in any endeavor, perfection is an objective that can rarely be realized, but defining the model of the perfect order allows us to identify its parameters and challenges and to work toward coming as close as possible to attaining the ultimate goal.
The Opportunity: Achieving the Benefits of the Perfect Order In this context, "order" means the full order lifecycle, encompassing a variety of supply chain interactions including the exchange of requests for quotations, quotes, purchase orders, shipping documents, invoices and payments, among others. The costs of an imperfect order can be significant. For example, a lack of supplies due to an inaccurate order can stop an assembly line. What's more, the potential effects are pervasive throughout the enterprise. Depending on the nature of the imperfection, a flaw can negatively impact production, sales, cash flow, employee productivity and customer satisfaction. Thus, improving the efficiency and accuracy of supply chain interactions by automating and sending them through electronic channels can significantly reduce costs and increase competitive advantage.
Lower costs and improved competitiveness are obviously desirable objectives for every company, but electronic supply chain interactions are no longer merely the preferred state of affairs. In many industries, they are the minimum price of entry as large businesses now insist on the use of electronic orders, shipping documents, and invoices.
- 1 - ©2007 INOVIS, INC.
Working toward improving the accuracy and efficiency of electronic interactions, with the objective of consistently delivering perfect orders, affords several significant benefits as described below:
. The work involved in resolving order inaccuracies or misunderstandings can be very labor-intensive and costly. According to data from AMR Research, it's estimated that, across all industries, 20% of all orders are in error). Various sources indicate that this varies by sector, with electronics manufacturers seeing an error rate of about 26% and consumer packaged goods and other retail suppliers suffering error rates of a staggering 62%. Industry research suggests that, beyond the human resource costs of resolving these issues, about 43% of the errors result in deductions or overpayments, with deductions accounting for nearly 10% of invoiced sales. Improving the accuracy of orders can, thus, provide a sure way to reduce costs.
. The potential for adding profit by improving accuracy in the order lifecycle doesn't end with order fulfillment. There is also significant room to reduce administrative costs by eliminating invoice errors. Research shows that suppliers typically attribute 6% of selling, general and administrative expenses to t... [download for more]