Detailed Whitepaper: Moving toward the perfect order by automating your procure to pay process

Moving toward the Perfect Order by automating your Procure To Pay Process A deep dive in to the Procure To Pay Processes and the automation thereof

Q Data USA, Inc. You Innovation and Support Company for Organizations that Leverage SAP Solutions

© 2014 Q Data USA, Inc. All rights reserved

Author: Kevin Wilson

www.qdatausa.com 2 Moving toward the Perfect Order by automating your Procure To Pay Process A deep dive in to the Procure To Pay Processes and the automation thereof

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TECHNICAL WHITEPAPER CONTENT

© 2014 Q Data USA Inc. All rights reserved.

The maturity of your supply chain can be measured in the following 4 categories:

• Supply Chain Execution – The “Work”

- How well are you matching supply with demand?

- How “real” are your supply and demand forecasts?

- Is your master data and system driving the execution of the process?

- Are all the tasks in the process being performed in a timely fashion by the correct people?

• People and Organization – the “People”

- Is your organization streamlined to handle exceptions to the process?

- Are your people educated in the process?

- Are the users analytical or custodian in focus?

- Is change management conducted efficiently in your organization?

• System Integration, Performance and

Management – the “System”

- How well are your systems working? Are they integrated with each other?

- Is there one source of truth in your process?

- Is the process automated as far as possible?

- How many manual touches are made?

- Is the solution mobile enabled?

- Can you access your data while not wired in?

- Does the solution support your business process?

• Monitoring and Exception Management – Visibility

– the “Reporting / Information”

- How well are you or your partners performing?

- Are you improving?

- Are you addressing issues in a timely fashion?

- Can you measure success and failure?

- How are you notifying users of exceptions?

WHAT IS SUPPLY CHAIN MATURITY – A DIFFERENT TAKE ON IT…

INTRODUCTION

Work

How well are you matching supply with demand?

How “real” are your supply and demand forecasts?

Is your master data and system driving the execution of the process?

Are all the tasks in the process being performed in a timely fashion by the correct people?

Is the system doing most the work?

People

How well are you or your partners performing? Are you improving?

Are you addressing issues in a timely fashion?

Can you measure success and failure?

How are people doing their work? In the system?

Are your people empowered in their day to day responsibilities?

System

How well are your systems working? Are they integrated with each other?

Is there one source of truth in your process?

Is the process automated as far as possible? How many manual touches are made in your process?

Is the solution mobile enabled? Is the system process aligned with your business process?

Reporting, Information

Is your organization streamlined to handle the exceptions to the process or are they maintaining the process?

Are people educated in the process?

Is change management conducted efficiently in your organization?

Are KPIs in place? Can you measure success or failure?

Are you comfortable with your answers to these questions?

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Time To Insight

The Perfect Order

What goals are we trying to achieve when we strive toward improving the maturity level of our Supply Chain process?

1. Since the Supply Chain is typically part of the “cost” side of the customer transaction equation the company would financially benefit from a reduction in the cost to execute the Supply Chain.

2. The increased pressure to lower Supply Chain costs should not result in a lowering of service levels to the customer. I.e. improved customer service levels need to be achieved in the process of reducing the Supply Chain costs.

3. The ability to react faster to exceptions in the supply chain in order to catch imbalances to the supply vs. demand.

4. Complete end-to-end Visibility to the status of the supply chain process to all key stakeholders. I.e. The supplier, customer, carrier, end-customer all get to see what’s happening in the process near to real-time.

Why do we need a mature supply chain? Listed below are a few key factors highlighting the desire to improve the end-to-end supply chain process.

1. Each customer would like to reduce compliance errors from their Vendors

- This specifically applies to the automation of the PTP process

- Compliance issues do lead to inefficient processing of the transaction that could ultimately impact the end customer

2. In general there is a desire to achieve the perfect order. A perfect order has the

following 4 characteristics:

3. There is a need to eliminate supply chain gaps through the automation of

effective and efficient processes

- Utilization of B2B, EDI or SOA techniques

4. The people, process, information and system need to be aligned

- The customer process is configured to work efficiently according to a set plan

- When the plan is deviated from, the process becomes inefficient

- These deviations or exceptions need to be mapped out as to how they will be handled but should not be built into the process. i.e. The system process is not designed around a broken process

5. The distributed supply chain demands visibility for all stakeholders

- An efficient, exception free process relies on communication and visibility

- Accurate visibility to product location, quantity, availability, time to deliver and other product measurements. E.g. temperature and weight

- Visibility needs to be provided to the supply chain role players in an effective user friendly manner. E.g. Mobile analytics, mobile event capturing, web reporting

- Time To Insight “Give me time to recognize an issue”

The End Goal

WHAT VALUE DOES SUPPLY CHAIN MATURITY BRING?

SUPPLY CHAIN MATURITY

Reduce the Cost of the Supply Chain

whilst

Maintaining or Increasing Service Levels

Complete On Time Free from damage

Accurate documentation

Get Proactive Real-time Alerting Cross Functional Visibility

Relevant Analytics










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Common Issues

Vendor Management Procure to Pay (PTP) Process

WHAT COMPONENTS OF SUPPLY CHAIN MATURITY ARE WE GOING TO COVER IN THIS TECHNICAL WHITEPAPER?

The 2 main areas affecting the maturity of the supply chain are

Vendor Management • Vendor Negotiations • Vendor Contracts • On boarding vendors • Master data management

Vendor master

Material master

Pricing

FOCUS AREAS

Procure to Pay process • Supply and Demand forecasting • Purchase Order management Confirmation or Acknowledgement • Inbound deliveries

Advanced Ship Notice (ASN) Goods Receipt (GR) Drop ships

• Invoice Receipts (IR) and Payments • Returns

Return to Vendor (RTV)

• Limited or inaccurate KPIs (Key Performance Indicators) • Lack of proactive Exception Management • Out dated inaccurate Master Data • Manual Processing – No automation policy • Lack of End-to-End process visibility • Vendor Contracts not aligned with Process needs

KPI

Data Auto-

mate

Ensure your Vendors meet the Demand

and that any exceptions uncovered are proactively managed

Ensure your Vendor Contracts meet your business needs

And that the Vendor adheres to the requirements

P

O

Order Management Order Fulfillment Billing

S

O

VE

ND

OR

C

US

TO

ME

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850

Electronic Data Interchange (EDI) refers to a system providing global standards for the exchange of structured data, electronically between 2 parties. As long as the 2 parties agree on what format the data is to be exchanged, functionality can be implemented to allow automation of the transactions conducted between them.

EDI includes all aspects of the process including the transmission, message format, and the software used to map to and from the EDI standard format.

EDI Standards - Standards were developed to document the needed business transactions, independent of the communication and software layer. 2 dominant standards are used throughout the world today:

• The US standard ANSI X12 – Primarily used in North America

• The UN standard EDIFACT– Primarily used outside of North America

EDI Mapping - The purpose of mapping is to take an input message and transform it in to an output message of different format. Either the input or the output can represent a message conforming to an EDI standard. In turn the other message in the transformation (input or output) will take the format that is understood by the organizations system.

Another major function of EDI is to “Envelope” the message. The envelope of the message contains critical information pertaining to the messages that it is “enveloping”. These include the global identifiers of the sender and receiver of the messages, much like writing the address on an envelope. This information is then used to identify which partner to send the message to. Through partner management in the EDI solution, the technical details of where, when and how to send it are determined. An example outbound PO EDI process would look like this:

Typical advantages of EDI:

1. Reduction in data capture errors

2. Reduction in handling costs for paper documents

3. Faster execution of the process

a)Collapsing the supply Chain – Time between the end of one activity and the start of the next activity is reduced

b)Reduction in Supply Chain Cycle Time

Common hurdles to overcome when implementing EDI

1. Change Management – “We do it this way”

2. Cost – Time and Money to enable the functionality

3. EDI Perception: EDI is technical!!!

Numbers

BEFORE WE START - WHAT IS ELECTRONIC DATA INTERCHANGE?

FOCUSING ON EDI

0%

50%

100%

2008 2013

34%

62%

% EDI Adoption for Purchase Order

$-

$20.00

$40.00

Paper EDI

$37.45 $23.83

Cost of doing a PO via EDI vs. Paper

Source: Wikipedia and Supply Chain Insights

ANSI EDIFACT Description

850 ORDERS Purchase Order

855 ORDRSP PO Acknowledgement

856 DESADV Advance Ship Notice

810 INVOIC Invoice

ERP EDI

System PO Vendor

EDI

Common EDI PTP Transactions:







http://www.ansi.org/about_ansi/overview/overview.aspx?menuid=1

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Procure To Pay (PTP) FROM PURCHASE ORDER -> PO CONFIRMATION -> ASN -> GOODS RECEIPT -> INVOICE RECEIPT

• The Purchase Order (PO) is the document that a customer puts together to communicate an order with a particular supplier. The reason the PO is created is that there is some sort of demand for a particular product that is available from a particular supplier. This is import… A demand is there for the goods and the PO is the document that ensures that our supply meets our demand… – The key pieces of information that are captured in the PO are:

• Vendor – Who is to supply the product

• Product – What product do we need

• Quantity - How much of it do we need

• Price – What price will we pay

• The PO Acknowledgment (POA) or Confirmation is the agreement, by the supplier, to the terms spelled out in the PO. I.e. It is literally the signature of agreement to the PO. Note, that the supplier can make changes to the PO which, in turn, needs to be agreed to by the customer. One point to note here: If the supplier changes product, quantity or delivery date then the customer needs to consider the impact because the supply would not meet the demand as specified in the PO.

• The Advance Ship Notice (ASN) is the document that the supplier sends the customer when they have shipped the goods (hopefully in accordance with what they communicated in the POA). The ASN will typically create an inbound delivery in SAP against which the GR can be performed. – It includes the following crucial details:

• Carrier / Tracking information

• Packing details

• Serial numbers

• The Goods Receipt (GR) is the document that the customer executes when physically receiving the goods at the specified location. The intent is for the GR to match the ASN / Inbound Delivery 100%. I.e. The vendor delivered what they said they would when they said they would.

• The Invoice Receipt (IR) is the bill received from the vendor indicating the amount & terms that is needed for payment by the customer. Hopefully it matches the PO!

DESCRIBING THE PROCURE TO PAY (PTP) PROCESS

Purchase Order (PO):

• Vendor, Price, Quantity, Material • Requested Delivery Date

PO Acknowledgment (Confirmation) • “Signature” of confirmation of the order.

I.e. The binding agreement to delivery the correct materials, at the right quantity, at the agreed price on the required date

Advanced Ship Notice (ASN) • Document that the vendor sends the

customer telling them what material and quantity are being shipped

• Carrier / Tracking information are also sent so that in-transit status can be obtained

• Packing and Serial numbers • Becomes an Inbound Delivery in SAP

Goods Receipt (GR) • Receive goods in to the warehouse against

the inbound delivery (the vendor ASN)

Invoice Receipt (IR) • Receive the invoice from the vendor to pay

based on what was agreed on in the PO Acknowledgment

Consider Drop Ship Scenario

where no GR occurs

• Delivery Date – When is it to be delivered • Terms – When should we pay for the product • Ship To / Bill To Location – Where should the

product and bill be sent

• Ship To Location • Delivery Date • Material and Quantity

We will use SAP as our ERP solution managing the PTP process described in this paper










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The EDI Process

AUTOMATING THE PURCHASE ORDER AND THE PURCHASE ORDER CONFIRMATION OR ACKNOWLEDGMENT

1. Create the PO in SAP and through Message Control (message type NEU) generate the outbound ORDERS IDoc.

2. The ORDERS IDoc should have the Vendor number as the receiving partner and your Middleware server (E.g. SAP NW PI) as the destination port.

3. Use your EDI translation software (E.g. Mercator or Gentran) to map the ORDERS IDoc in to the corresponding EDI message (850 or ORDERS)

a) For each step in the Translation process generate a status update for SAP – This allows SAP to have visibility in to the success / failure of your EDI process.

b) A STATUS IDoc is generate by your EDI subsystem and sent to SAP ECC.

c) SAP ECC processes the STATUS IDoc against the original outbound IDoc changing its status to one of success or failure. For a failure, this should trigger standard workflow error handling to have the PO details reviewed and resent.

4. The vendor receives the EDI 850 message and creates a sales order for it

a) The vendor acknowledges technical receipt and compliance to EDI standards of the EDI message using an ANSI X12 997 or EDIFACT CONTRL message. Note: This is most certainly not a confirmation that the vendor accepts the PO and it’s terms.

b) The 997 is consumed by the customer’s EDI subsystem and converted to a new STATUS IDoc to be sent to SAP ECC.

c) SAP ECC processes the STATUS IDoc against the original outbound IDoc changing its status to one of success or failure. For a failure, this should trigger standard workflow error handling to have the PO details reviewed and resent. Note: In this instance a failure indicates that our translation and communication process worked but the vendor rejected the EDI message because of EDI standards compliance issues. The result is the same: The vendor does not have the PO in their system – The customer needs to correct the PO and resend an EDI compliant message.

5. Once the PO is received from the customer and the corresponding Sales Order is created in the vendor’s system the vendor needs to review the conditions, make the applicable changes that are needed and communicate acceptance, rejection or changes back to the customer.

6. The vendor produces an ANSI X12 855 / EDIFACT ORDRSP message and sends it to the customer – This EDI message reflect the conditions under which the vendor can accept the corresponding PO. The customer receives the PO confirmation in the EDI subsystem and translates it to an SAP ORDRSP IDoc.

7. The ORDRSP IDoc, containing the PO confirmation data is sent to SAP ECC.

8. The PO Confirmation is posted against the confirmations tab of the PO at an Item level. If it does not meet the criteria for posting a standard workflow should be generated to the buyer to address the discrepancy.

Purchase Order – ANSI X12 (850) – EDIFACT (ORDERS) Purchase Order Acknowledgment – ANSI X12 (855) – EDIFACT (ORDRSP)

PTP - ORDER MANAGEMENT

Note: The Customer typically creates the EDI standard

specifications for all EDI messaging with their vendors

PO and Confirmation Process










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IDoc Status Flow Diagram ADVANTAGES OF AUTOMATING THE PURCHASE ORDER AND THE PURCHASE ORDER CONFIRMATION OR ACKNOWLEDGMENT

Purchase Order – ANSI X12 (850) – EDIFACT (ORDERS)

• Collapse the time between the creation of a PO and the knowledge that an exception condition was discovered implying that PO was not delivered to the Vendor

• Pro-active management of these exceptions - A workflow sent to the responsible buyer allows for the fastest resolution of the issue.

• With an EDI subsystem in place that has full SAP integration capabilities the customer gains visibility in to all stages of the outbound EDI process

• The customer can leverage standard SAP to monitor the outbound IDoc to ensure that all outbound IDocs actually get to their intended recipient – No more second guessing – No more asking the EDI team – It’s available, on demand, and by exception straight from within your standard SAP system

Purchase Order Acknowledgment – ANSI X12 (855) – EDIFACT (ORDRSP)

• The POA allows a vendor to cancel, change the material, quantity, date and price as specified on the PO. By automatically posting this document in to SAP we gain immediate visibility in to whether the vendor has met our demand or not. If not a standard workflow can be triggered to address the situation – Supply ≠ Demand

• Standard SAP functionality exists to allow for tolerance levels for price – This allows for the creation of rules to allow minor discrepancies in without having to manually review each one – Note: If you allow the discrepancy then your pricing procedure should adopt the EDI price to ensure the PO and Invoice are in synch.

• Any pricing changes are communicated through this document – If your AP folks have to chase down EDI order pricing discrepancies then look at your POA!

• If the PO is a drop ship to a customer and there are any date changes sent from the Vendor then these changes are immediately reflected on the Customer’s Sales Order schedule line, thus allowing full visibility to the status of the order

• The dates communicated in the POA are used for determining Inbound Delivery & GR dates – Allows for shift scheduling way in advance of the scheduled shipment date


If your outbound SAP IDocs don’t have this flow

then you are missing key visibility elements

IDoc EDI

Get to know your SAP IDoc!










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PO PROCESS: WHAT IS GOING WRONG AND HOW CAN WE FIX IT?

Typical errors that are experienced during this process include:

• Purchase order contain the wrong details – Dates, Product, Quantities, Terms

• Incorrect information / data is received from the Vendor – Acknowledgements don’t reflect what the Vendor agrees to – Customer misinterprets the Vendor’s response

• Purchase Order Change issues – Manual PO changes lead to the possibility of entry errors – Untimely purchase order changes are made

• PO changes are made when the product has already been shipped • PO changes are made and assumed to have been accepted by the Vendor

when in fact they have not been and are still executing against the old PO

• Communication – Purchase Orders are not received by the Vendor – Timely communication does not occur

The following areas lead to some of the issues mentioned in the above section:

• Master Data Management – Key master data is not managed efficiently or effectively leading to purchase

orders not accurately reflecting the supply plan to the customer

• Incorrectly entered PO data leads to incorrect shipments which leads to incorrect invoice receipt information – Accounts payable is left with the task of trying to correct the upstream issues

• PO changes are made outside a valid window where change is allowed

• Vendor PO Acknowledgements are not used by the customer

• Communication is not handled automatically – Manual touches lead to more potential for errors in the process – PO acknowledgements are not transmitted and processed automatically

Suggestions for a mature Purchase Order process:

• Configure and utilize the Order Acknowledgement process in your system

• Establish an audit function to ensure the process is adhered to

• Master Data Management - Ensure master data is maintained in the ERP application – Ensure that the people who “own” the master data elements are the

ones responsible for owning the updating of those elements. E.g. Lead times

– Establish and adhere to a Master Data governance Policy

• Understand the financial impact of inaccurate or frequently changed POs that follow an exception process – Quantify disruptions to the process, customer impact

• Procurement process - Keep PO changes to a minimum – Strive towards more accurate demand and forecast management – Ensuring a tight, informed supply chain keeps the data in the ERP

application current and will lead to fewer adjustments to existing POs due to erratic supply and demand documents

• Buyers need to focus on exception management – Ensure discrepancies in Vendor PO Acknowledgements are handled by

the correct people in as close to real time as possible • Buyer should be responsible for addressing errors in posting PO

acknowledgements • Workflow enable this error handling process

• Automate the entire process through EDI as described earlier – Additional to what was described : Include Order Change and Order

Change Response (at least as a phase 2 of an automation effort – Plan for it…)











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The EDI Process

AUTOMATING THE ADVANCE SHIP NOTICE (ASN) , APPLICATION ADVICE AND LEVERAGING WITH GOODS RECEIPT (GR)

1. When the vendor ships the product according to what was promised in the POA, they send an ASN to the customer using an ANSI X12 856 or EDIFACT DESADV message.

2. The EDI message is received by the EDI subsystem and mapped in to a DESADV IDoc. The EDI system sends the corresponding ANSI X12 997 or EDIFACT CONTRL message back to the vendor informing them of the acceptance or rejection of the ASN. Acceptance or rejection is based purely on compliance of the message to the EDI standard specification as laid out by the customer for the vendor to conform to

3. The DESADV IDoc is sent to the SAP ECC system where standard processing is used to process the IDoc further.

4. The DESADV IDoc generates an inbound delivery against the respective PO. The Inbound delivery appears under the PO Confirmations tab at the item level of the PO. Note: Several PO’s could be on the same ASN so the Inbound Delivery could occur on multiple Pos.

a) If the Inbound Delivery fails to post because of some missing or incorrect data then user exit code needs to be invoked to generate a messaage back to the supplier telling them what the error is and allowing them to correct and resend the ASN. An example of an error would be Missing or Invalid PO number, Duplicate ASN number received

b)The user exit code would generate a ZAPPADV (Application Advice) IDoc that closely resembles an ANSI X12 824 or EDIFACT APERAK format. The ZAPPADV IDoc partner profile would use the inbound vendor number as the outbound RCVPRN (Receiving Partner) and the port would once again be the EDI subsystem RFC .

c) The EDI subsystem would translate the IDoc in to an ANSI X12 824 or EDIFACT APERAK message and send it to the vendor

d)The Vendor would receive the message and forward it on to the applicable shipping point or sales person to resolve

5. The goods are physically shipped to the customer.

6. When the product arrives at the receiving point the goods receipt in to SAP ECC occurs and should be done against the corresponding inbound delivery. The following are key points to note at this time as they relate to the perfect order:

– Was the product delivered on the date that the ASN said?

– Was the full quantity received as per the ASN message?

– Is the product damage free? Is the labelling clear and damage free?

– Is the documentation accompanying the delivery complete and accurate?

If all of the above points are true then the Vendor has performed according to the terms of the PO and a “Perfect Order” is in play and Supply = Demand.

If not then the Vendor has not performed as promised and could imply Supply ≠ Demand.

ASN 856 (X12), DESADV (EDIFACT) & Application Advice 824 (X12), APERAK (EDIFACT)

Goods Receipt (GR)

PTP: FULFILLMENT

ASN, GR and Error Notifications










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Typical ASN Errors

ADVANTAGES OF AUTOMATING THE ADVANCE SHIP NOTICE (ASN) AND APPLICATION ADVICE

The purpose of the ASN is to give visibility to the customer for a shipment in advance of its arrival at its destination. Customers use the ASN to prepare for the pending shipment’s arrival.

A vendor’s ASN compliance can be described in the following way. The shipment:

• Has all the key information documented that is readable, usable and accurate. (i.e. The packing information reflects the actual packing details, the product serial numbers on the shipment are the actual ones)

• Has information received within the agreed timeframe

It allows the customer to receive goods against the ASN as apposed to individually. Improved warehouse receiving process (Can reduce costs by up to 40%)

• Facilities savings – Require less stock on hand to meet demand

• Differences between the PO and shipment are uncovered prior to its arrival

– Allows for planning, order and rescheduling to occur

– Increases product availability

– ± 3% of all units shipped are shipped in error and ±87% of shipments have an accurate ASN (ASN Exposed - Auburn University, Compliance Networks, VCF, 2010)

• Fewer discrepancies in downstream processes:

– Billing, Accounts Payable queries

– Customer Service interventions

• Drop shipped product allows the buyer to send the shipping detail to the customer

– The end customer can receive their own 856 ASN

– Customer satisfaction (Receipt of ASN information detail)

When the automation of the communication of discrepancies between the ASN and the agreed PO is achieved the process is much more fluid

• Less time is taken between recognizing the error and letting the vendor know

• Faster turnaround time to resolve discrepancies

• Reduced cost for exception management

All errors that are communicated electronically, via EDI, are agreed to and specified in the Vendor EDI Specifications put out by the customer

• Faster resolution of errors - Vendor can automatically route errors to the responsible team for resolution

• Information is available to feed in to vendor scorecard evaluation

ASN 856 (X12), DESADV (EDIFACT)

Application Advice 824 (X12), APERAK (EDIFACT)

PTP: FULFILLMENT

─ Planning / Forecasting imbalances ─ Inventory discrepancies

ASN inaccuracy greatly reduces the chance of realizing the advantages described. Errors in ASN information can be caused by many issues in the supply chain process but here are a couple of the more common ones:

1-2% error rate is deemed unacceptable

• Picking discrepancies • UPC, label, tagging discrepancies • Illegible documentation or messages • Purchase order errors: Incorrect or missing data, product detail, quantities

entered • Purchase order changes: Incorrect changes made, changes made but not

communicated in time to the Vendor • Shipment received does not match the ASN sent by the Vendor










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ASN PROCESS: WHAT IS GOING WRONG AND HOW CAN WE FIX IT?

What are the areas that are causing ASN errors?

Vendor processes not aligned with customer requirements • Vendors have little understanding of the customer’s requirements or processes • The criticality of key attributes to the customer is not fully understood by the

Vendor and thus they devote little time to ensure the quality of these attributes • Ensure that minimum order quantities are adhered to by the Vendor • Vendors do not use systems to control their shipping process. Manually issued

ASNs may be unreadable • Miss picks, Incorrect labeling, Pre-pack errors. If the content of the box does not

match the requirement then it’s usually due to: – Buyers changing the PO and not reflecting these changes in the system. – UPC data errors

Ineffective customer Purchase Order process • Purchase Orders are entered in to the system incorrectly • Acknowledgements not received or not received in a timely fashion • Customer’s master data not aligned with the Vendor. E.g. Lead time

Purchase order changes • Poor planning or information around demand and supply leads to PO changes • Customers need to understand the implications of PO changes to the process. • Some PO changes are only affected in the system after the change has been

agreed on verbally or in writing. Some changes are not affected in the system at all and the fallout comes when the ASN does not match the PO as well as the invoice not matching the PO

Systems • Best of breed solutions without tight integration to the back-end ERP application • Ineffective usage of electronic messaging standards (e.g. EDI) Customers should be

sending PO change notifications automatically to the Vendor using an 860 (X12) or ORDCHG (EDIFACT) message and the Vendor should acknowledge the PO change using an 865 (X12) message

Suggestions for a mature ASN process

Master Data Management - Ensure master data is maintained in the system • Ensure that the people who “own” the master data elements are the ones

responsible for owning the updating of those elements. E.g. Lead times, Price • Adhere to Master Data governance policy

Accurately document what you refer to as an ASN error • Has all the key information documented • The information is readable • The information is in a usable format (e.g. EDI X12 856 standard) • The information is accurate (i.e. The packing information reflects the actual

packing details, the product serial numbers on the shipment are the actual ones)

• The information is received within the agreed timeframe

Understand the financial impact of inaccurate ASNs • Quantify disruptions to the process, customer impact

– Inventory – Customer service

• After quantifying the financial impact the costs need to be recovered from the Vendors using chargeback’s – Vendors will quickly react to this practice of charging for erroneous ASNs

Procurement process - Keep PO changes to a minimum • Strive towards more accurate demand and forecast management • Ensuring a tight, informed supply chain keeps the data in the ERP application

current and will lead to fewer adjustments to existing POs due to erratic supply and demand documents

• Either send a PO change automatically or cancel and reissue the PO (also automatically)

PTP: FULFILLMENT










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ASN PROCESS: CONTINUING TO UNDERSTAND HOW TO FIX IT?

Suggestions for a mature ASN process (continued)

• Supply chain players need to focus on exception management • Automate the entire process

Using EDI we should enable the following messages with the Vendors: – 856 (Advanced Ship Notification)

• Full details are to be sent by the Vendor. GTIN must match with ASN • The customer loads the ASN from the Vendor as a potential inbound

delivery against which they will be receiving at the warehouse • Receiving should ideally be done using RFID or Barcode scanning • Labels should be validated prior to being put in to production

– 997 (Functional Acknowledgement) • Reject an ASN if the structure is incorrect or has missing elements. E.g.

Missing carton level or pallet level information – 824 (Application Advice)

• Communicate a functional rejection of an 856 E.g. Unknown PO#

Using EDI we should enable the following messages with the carriers: – 214 (Carrier Parcel Status) – Consume tracking status messages in to the

customers ERP application. E.g. Proof Of Delivery (POD)

• Enact standard EDI error and issue handling – For all outbound messages the EDI sub-system must send a status message

back to the sending system with status of the message. E.g. Passed syntax check, Checked Compliance with standards, Sent to Vendor

These status messages ensure that the Vendor has in fact actually received and technically verified the Purchase Order or Purchase Order change. Statuses can be monitored for outbound messages to ensure that no errors are received. • Address errors with a workflow routed to the applicable person • If a message stays in an intermediate step too long then an exception is

raised and the appropriate exception workflow is triggered

• Customers need to initiate a formal ASN audit process to measure “ASN against shipment” compliance – Around 93% of retailers audit shipments against the corresponding ASN – This audit should take place at the receiving DC – Check every shipment vs. Sampling strategy? – Put together an audit practice together with policies and procedures to

support the audit process -> “Live it” – Make Vendors aware of the audit process and share the results with them

• Close the loop with the Vendor – Use RFID / Barcoding (where cost justified) to affect the audit

• This in turn requires the Vendor to provide compliant labeling – Focus on new Vendors or problematic or key products – Use audit results for the following:

• Assess the ASN error cost. i.e. Cost to our business due to ASN error • Assess charge backs / deductions to the Vendor • Collaborate with Vendor to stimulate improvement in ASN

performance

• Vendor Collaboration – Work with the Vendors to eliminate problematic areas in the process

• Enforce stricter auditing procedures prior to shipment leaving • Increase the frequency of the ASN submission • Validate tickets (UPCs) and shipment manifests • RF enable picking

– Perform SKU audit with Vendor – Automate PO change notices – Ensure that products that are included in a shipment that are not on the

PO are shipped in a separate labeled carton. E.g. No charge: Samples, promotions

PTP: FULFILLMENT










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What is Vendor Compliance? VENDOR SCORECARD – PERFECT ORDER

Vendor Management

Common issues found during our Root-Cause Analysis included:

• Few KPIs were in place and those that were had inaccurate data feeding them

• Could not entertain Vendor Chargebacks due to lack of confidence in the analytics provided

• No exposure to Vendor lead time accuracy

• Limited ability to measure Vendor compliance to contract

• Vendor Contracts don’t meet the end to end process needs

Root causes found for the above issues:

• A culture of automation had not been adopted across the various business functions

• The ERP system had not been fully adopted to work the process

– Work the master data and rules in to the ERP system and let the system do the heavy lifting

• Vendor contracts were set up with a one track mind – To get the best deal from a procurement perspective

– Little consideration was given to the Warehouse receiving impact

• Inconsistently entered master data – No single source of truth

• Vendor process were not aligned with the customer requirements

– Vendor contracts were not structured to enforce automation compliance

VENDOR COMPLIANCE

Shipments are: • Accurate according to the customer order

• On time

• Correct quantity

• Complete

• Communicated to customer

• Timely communication

• Electronically (EDI)

• To customer specification

• Communication matches actual shipment detail

• Packaged correctly

• Labeled correctly

• Legible

• In support of our process

Products are: • Good quality

• Damage Free

• Correctly labeled

Comply with Regulations: • Comply with safety regulations

• Comply with social and environmental

regulations

• Comply with legal terms and conditions

1

2

3

Components to a “Perfect Order”

Ensuring Vendor Compliance is both beneficial to the customer and the vendor










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Path to Vendor Compliance

SUGGESTIONS FOR A MATURE VENDOR MANAGEMENT PROCESS – COLLABORATION IS KEY

• Get an understanding of the costs of doing business with a Vendor in a fully automated way vs. a manual way. The emphasis should be on working with Vendors with an EDI capability

• Rather than potentially chasing a “best of breed” solution look towards a “best of breed” integration – Working with systems that don’t talk to each other is

generally very expensive and ineffective

• Follow the Data Governance policies to ensure a single source of truth is available in the system

• Understand what is needed for effective analytical reporting – KPI reporting – Internal – Vendor scorecard reporting – Knowing how the Vendor is

performing will lead to more meaningful discussions with them on how to further improve on the process

– Ensure that the data in the underlying systems supports accurate processing and analytics. Analytics must pull from the same set of data that is used for processing and auditing

• Ensure that all the relevant Vendor documentation is available and up to date on the Vendor portal – EDI standards and changes are communicated via the portal

(See section on Path to Vendor Compliance)

• Ensure that a vendor’s packing process supports the customer’s process – Packing slip change supports our receipt against inbound

delivery. Labeling on cartons supports our receiving process

• Collaborate with the suppliers. It’s a win-win when the supplier reduces compliance errors

VENDOR COMPLIANCE

Normalize System and Process

• Standardize SAP EDI interface / IDocs

• Develop mapping templates for IDocs <-> EDI

• Update vendor EDI specifications

• Implement workflow error handling

Normalized process

Realization

• Publish specifications to Supplier portal

• Enable PTP process through EDI and IDocs via PI

• Enable KPI reporting

• Update on-boarding procedure

Support process

• Ensure efficient use of workflow and IDoc technology

• Manage relationship with EDI service partner

• Execute on-boarding procedure

Compliance Support

• Ensure status management is performed at EDI service partner

• Ensure information is consumed in vendor performance KPI

Develop Guidelines

• Goes in SBA

• Clear and unambiguous

• EDI automation requirements

• Performance SLA

• Chargeback agreement

• Clear expectations

• Determine non-compliance cost

Communicate Guidelines

• Own the Supplier Portal

• Accessible through Supplier portal

• FAQs available on Supplier portal

• Begin enforcement “culture”

• Communicate cost of non-compliance

Monitor, Measure & Publish

• Measure compliance against the target

• Communicate compliance values against target to supplier

• Stakeholder visibility

• Allow, but track exceptions

Enforce Compliance

• Violation management - Chargebacks

• Performance trending

• KPI visibility

• Vendor coaching opportunity

• Revise guideline for supplier as required

• Audits – Warehouse and system

IT and Business Collaboration

IT Effort

Business Effort










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Procure To Pay Process

• Gaining visibility in to the status of your PTP process is of paramount importance

– Real time status management

– Real-time exception management – Actionable work effort

– Analytic reporting

– Vendor Scorecard

– Measure Perfect Order compliance

• Automation of the process by utilizing EDI is key:

– Collapses the cycle time

– Reduces errors introduced in the process by manual entry

– Provides tight integration with SAP giving complete visibility in to the end-to-end PTP process from within SAP

– Successful EDI implementations include change management where the culture of “EDI automation” lives and breathes in the organization

– Standardize on the SAP IDoc interface

– Utilize standard SAP error handling processes using SAP Business Workflow

– Ensure a smooth EDI Vendor on-boarding procedure is in place

– Create Vendor EDI Portal where you can publish are the needed EDI documentation for vendors to consume

– Understand the cost of automation vs. manual entry

Vendor Management

• The customer and the vendor need to work together to ensure that the vendors execution of the process is aligned with what’s expected by the customer

• Publish EDI Vendor Specifications that encompass the customers’ requirements from a business process perspective

• Ensure that the Supplier Business Agreement (SBA) enforces EDI compliance

– Define the meaning of a compliance error

– Define charge-backs based on cost of non-compliance

– Vendor mentorship opportunity if non-compliant

• Ensure Vendor makes use of the supplier portal:

– Ensure publication of supplier specifications

– FAQs

– Label specifications

– TPAs

– Warehouse locations

– Sample documents

SUMMARY

Customer in harmony with Vendor

Demand in synch with Supply

Customer Satisfaction

Lower Costs

Improved Efficiency

Prompt payments

Better planning

More business…







Detailed Whitepaper: Moving toward the perfect order by automating your procure to pay process

Business

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