How Managed EDI Tools Offset Supply Chain Risk And Complexity

A white paper from DiCentral

Recent economic conditions have dramatically changedthe global retail supplier landscape. Meanwhile, a demand-ing and price-conscious consumer base is growing accus-tomed to leveraging multiple mediumsfor shopping, and they’re expectinginstant gratification for their efforts.Driven by economic trends and fulfill-ment demand, supply chain complexi-ty has increased by orders of magni-tude, creating a growing sense ofurgency on the part of retail buyersand merchandisers to standardizeand simplify their supplier interactions.This urgency is fueled by the promiseof profit-saving efficiency and supplychain visibility gains that can resultwhen retailers and their suppliersbegin speaking the same language.

The lack of integration between chan-nel-specific inventory and order man-agement systems also continues toconfound retailers and exacerbate thecomplexities of their supply chains. In fact, the recent RSR(Retail Systems Research) report Omni-ChannelFulfillment and the Future of Retail Supply Chain foundthat half of all retailers consider this lack of cross-channelintegration an organizational inhibitor to overcoming theirsupply chain complexity challenges (see chart on thispage). That said, advances in the technologies that enableEDI (electronic data interchange) have breathed new life inretailers’ interest in applying it as a platform for both con-sistent and collaborative supplier interaction and seamlessintegration of back end systems. This paper will discussthose advances, and explore how EDI can reduce therisks and the complexities associated with the modernretail supply chain.

What Does Modern EDI Look Like?EDI can generally be defined as the transfer of structureddata, by common messaging standards, from one comput-er system to another without manual intervention. The con-cept of EDI as a collaborative tool for the exchange of databetween retailers and suppliers came on the scene in theearly 1990s. The idea was, and still is, to standardize andautomate the exchange of common retail trade documen-tation (invoices, advanced ship notices, product attributes

and information, etc.) between retailers and their suppliers.Until recently, the execution of EDI in any form was mosthampered by the technology infrastructure that facilitates it– computers and networks weren’t fast enough, storagewas too expensive, and software platforms were too pro-prietary.

Today, fast processors, seemingly unlimited bandwidth,and inexpensive storage make the concept of quickly mov-ing large amounts of data infinitely more practical. Evenmore specifically, advances in the ability to interrogate thedata that’s contained in electronic communications hasresulted in the acceptance and accommodation of moreforms of documents. This increased flexibility enables new-found access to and sharing of information throughout thesupply chain.

Supply Chain Execution In A Multichannel WorldPerhaps no other development in retail history has beenso precursory of the need for supply chain collaborationthan multichannel retailing. The major retailers have set aprecedent for cross-channel inventory alignment that effi-ciently fulfills consumer demand. As such, consumerexpectations have matured to the point that their interac-tion with multichannel retailers of any size and in any seg-ment must result in complete satisfaction. Once upon atime, an out of stock or a lag in delivery resulted only infrustration and perhaps a lost sale. Today, failure to have aproduct ready for fulfillment when and where the customerwants it results in the loss of not only the sale, but the cus-tomer as well. But many retailers remain challenged with

“If your supplier interaction is standardized andcollaborative, you can expect a greater ROI onyour supply chain investments...”

the implementation of technology that can facilitateconsumers’ fulfillment expectations. For those retail-ers:

� Saving a sale at the store by ensuring merchandisecan be drop-shipped to the customer’s home is amanual exercise, and one that might work or mightnot, depending on the associate’s visibility into enter-prise wide inventory and the supply chain.

� Attempts to maintain accurate and up-to-date infor-mation on the Web site, including real-time inventoryand product information, is an ongoing and labor-intensive process.

� Program disparity makes cross-channel inventoryvisibility consistently inaccurate. Disparate inventoryrepositories logged on disparate spreadsheets feedingdisparate channel operating units ensure insecuredecision making, and set retailers up to disappointcustomers.

Multichannel retailers know that they must displacemanual supply chain processes, not only to achieveefficiency but to improve data accuracy. Modern EDIplatforms can help retailers offset those manualprocesses at the supplier level. Collaborating withyour suppliers on a common product informationtoolset ensures accurate product information from thesource, and allows multichannel retailers to populatetheir sales mediums with that information in a formatthat’s efficiently uploaded and easily consumed.Outsourcing EDI to an experienced managed servicesprovider is a proven path to the immediate achieve-ment of EDI benefits.

A significant advantage of using EDI to enable inven-tory visibility and agility is the nature of the data itself.Source data – a single version of the truth shared ona common platform between retailers and their suppli-ers – eliminates the need for many point solutions.For example, is implementation of a proprietary drop-ship solution to accommodate the aforementionedtrend in consumer fulfillment necessary? Some retail-ers simply enable this through EDI, eliminating sys-tems redundancy, avoiding placing another burden ontheir suppliers, and executing functions such as thisthrough integration with their fulfillment systems forpennies per transaction.

The Benefits Of Standards-Based CommunicationKey to achieving the benefits of EDI is the establish-ment of a standard means of communication amongas many of your supplier partners as possible. Manyretailers struggle with the inefficient maintenance ofdifferent communication standards, such as AS2 orFTP, from one supplier to the next. It will benefit retail-ers to work earnestly toward a single standard amongtheir suppliers, and ana-lyzing your peer andcompetitor communitiesis a good place to start.

This is also a good timeto start standardizingyour supplier interaction. Recent economic conditionshave resulted in a shrinking supplier base, whichmeans more retailers are sharing fewer suppliers. Ifretailers impose disparate communication platformson those suppliers, the suppliers and the retail com-munity alike are burdened with diversity. Disparatehard-coded communications among different supplierseffectively force both parties to create something new– where a standard, network-based protocol alreadyexists. While proprietary protocols might be a practicalway to handle EDI with a handful of top suppliers,managing thousands of communications across multi-ple suppliers is cumbersome and inefficient.

Digitization of supplier communications alone createssignificant savings. The exchange of digital docu-ments reduces the cost of each interaction to pennies,compared to the industry standard ten- to twenty-dol-lar-per-document cost of handling paper. The cost ofhandling 100,000 purchase orders per year adds upquickly, and it multiplies exponentially with the creationof POS reports, ship notices, and so on. However, thereturn on electronic communication scales throughoutthe enterprise; when accounting, for instance, canexamine POS reports and ship notices efficiently andby exception in a standardized digital environment,the cost of doing business is reduced significantly.

For its part, DiCentral subscribes to the standards andbenchmarks developed by VICS (the VoluntaryInterindustry Commerce Solutions Association).Applying these standards in a Web-based EDI plat-form enables retailers to standardize communicationscompliance with suppliers.

“Source data – a single version of the truth sharedbetween retailers and their suppliers on a

common, managed services platform – eliminates the need for many point solutions.”

Achieving Supplier Community ComplianceFor merchants, the far-and-away most effective approachto onboarding suppliers to a standards-based EDI platformis education. For some large retailers, a heavy-handedapproach to “force” suppliers to collaborate was once aneffective option. But the aforementioned “rationalization” ofthe supplier base – that recent reduction in the volume ofsuppliers to retail and the number of suppliers retailers are

choosing to do business with – has changed thegame. Maintaining negotiations, compliance, andsupply chains with a large supplier base is expen-sive, and the economic turn in 2008 caused manyretailers to pull back on inventory and minimizetheir trading partners, resulting in the downsizing ordemise of many overseas manufacturers and sup-pliers. This phenomenon fueled collaborationstrategies, which are easier to execute with fewersuppliers.

Management of a leaner supplier base, coupled witha reduction in the leverage that large retailers had to“force” proprietary processes on their suppliers, has creat-ed opportunities for small-to-midsize retailers in particular.Consider a sporting goods manufacturer, for instance, whois significantly challenged if its five major retailers requirefive different hanger configurations. These multiple andvaried configurations add cost and complexity to the sup-plier’s operations, which impacts the cost of merchandise.But for many suppliers, proprietary configurations are con-sidered a cost of doing business – a cost that’s ultimatelypassed on to retailers and consumers. Of course, whenthere was more competition in the market, suppliers whobalked at proprietary process demands were easilydropped by large retailers, who could simply choose to buyfrom another source. But as supplier options becamefewer, the balance of power shifted to those manufacturersthat remained, accelerating the adoption of common stan-dards by retailers.

As those retailers standardized their configuration require-ments, the aforementioned burden on suppliers waseased. Thus, smaller retailers are wise to piggyback on thecollaborative standards being developed and deployedamong their larger counterparts and the supplier communi-ty. Recognizing the trend, retailer/supplier education hasbecome a central tenet of organizations like the VCF(Vendor Compliance Federation). VCF and VICS stan-dards help retailers of all stripes and sizes scale their sup-ply chain practices by aggregating a community of thou-sands of standards-based suppliers. The EDI solution ven-

dor community, led by companies like DiCentral, is posi-tioned well to hasten that education and bring standards-based communication platforms to both sides of the supplychain. With a standardized trading platform in place, it’sbecome significantly easier and less expensive for retailersand suppliers to exchange information.

ConclusionTo achieve the benefits of EDI, retailers must get their sup-pliers involved in the process, and the benefits increasewith economies of scale; the more of your supplier interac-tion that’s standardized and collaborative, the greater theROI on your supply chain investments. Retailers that han-dle a large volume of sales for specific suppliers have suc-cessfully leveraged that volume as a means of onboardingthose suppliers. But even retailers with smaller sales vol-umes have influenced suppliers to engage in collaborativetrading processes by effectively communicating the supply-side benefits of the efficiency and scalability gained withEDI. Regardless of the size or scope of their businesses,retailers that engage a managed services provider for EDIboth eliminate complexity from the process and get criticalhelp bridging the retailer/supplier gap. There are a numberof resources available at www.dicentral.com that illustratethe EDI business case for suppliers. You can also consultwith a DiCentral representative to discuss your next stepstoward reduced supplier risk and supply chain simplicity.

For more information, visit www.dicentral.com or call 1 877 TRUE EDI.

© 2011 DiCentral

About DiCentralWith collaborative supplier/merchant solutions fromDiCentral, EDI goes far beyond compliance.DiCentral pioneered multi-tenant SaaS (Software-as-a-Service) as the preferred EDI platform for buy-ers, suppliers, and logistics partners to seamlesslyexchange data without costly investments in soft-ware or hardware. Personalized support ensuresthat first-time users achieve EDI compliance quicklyand economically; enterprise clients enjoy the bene-fit of expert consultation regarding integration ofSaaS EDI solutions with their ERP or accountingsystems.

Visit www.dicentral.com for more information.