Manufacturers and distributors are in a promising yet very challenging period in their relationships. As trading partners recognize the importance of collaboration to improve operational efficiency and service levels and as competition becomes more intense and margins shrink, the way business information is managed and shared is a critical business issue that needs the undivided attention of the senior executives in the channel. Too often the banner of data synchronization has been raised and promises of making it a top company priority have fallen by the wayside or not even gotten out of the starting blocks.
Traditionally, manufacturers and distributors have exchanged product and price information using manual or paper based processes. Overtime the information exchange has switched to CD and email processes. Today, even though data content services like IDEA and Trade Service exist, CD and email remain the primary methods for exchanging information. In fact, 90% of the suppliers in the channel send data/pricing CDs or emails to their distributor trading partners and many of the manufacturers that provide data to IDEA and Trade Service also send CDs.
Until IDEA’s Industry Data Warehouse (IDW) became operational, product and pricing information updates were typically provided once a week at best. Considering the volatility of the market with ever increasing costs of raw materials and fuel, manufacturer product and price changes occur daily. As a result, unless you have access to manufacturer information on a 24×7 basis, the business information becomes outdated or out of SYNC. Thus when ordering or invoicing using electronic data interchange (EDI) companies experience inaccuracies as they conduct transactions based on out-of-date product and price information leading to inefficiencies, order errors and duplicative labor efforts between trading partners.
During a recent visit with a top electrical distributor, IDEA had the opportunity to meet with the company’s comptroller where we were shown the metrics that they collect on order and invoice errors. In nearly every case where reconciliation action was required, out of date/incorrect pricing information was the # 1 culprit that triggered action. In the case of this distributor, the purchase order, shipping notice and invoice had to match within certain parameters or it required manual intervention to get the discrepancy rectified. It was also brought to our attention that the trends over time with many of their manufacturer trading partners don’t necessarily improve but vary month to month indicating that the manufacturer’s data quality processes are not very effective. In fact, our collective inability to synchronize business information, even though the industry standards and systems (IDW) are in place, cost this channel as much as $1- $6B annually in operating inefficiency and lost revenue potential. The electrical industry, unlike some others in the MRO channel, recognizes the role data synchronization plays in increasing sales and lowering supply chain costs. However, it takes more than recognition to reap the benefits. It takes hard work and dedication by the manufacturers and distributors to drive Data Sync and make it a top priority.
IDW, the industry standards based data synchronization model, is the answer to facilitating a seamless, highly responsive supply chain that improves business operations between trading partners. The benefits of IDW increase as companies scale their synchronization efforts to all their trading partners. Therefore, companies/manufacturers should pursue a flexible approach to enterprise data management and IDW that allows them to adapt quickly to industry requirements as well as specific trading partner needs. Such an approach will enable manufacturers to not only successfully share standards based data with multiple trading partners, but also develop the infrastructure and processes necessary to engage in far reaching collaborative activities, offering even greater benefits.
The payback comes from optimization of internal process and external relationships enabled by a foundation of industry standards and the IDW. Realistically, trading partners cannot effectively cultivate more complex relationships without engaging in enterprise data management and electronically synchronizing product and price information.
The adoption of industry data standards and the use of IDW helps ensure the alignment of crucial business data cross internal systems and greatly improves the quality of data shared between partners resulting in:
- Error Free Order Management
- Precise Order Delivery
- Improved Customer Satisfaction
- Increased Sales
- Lower Operating Costs
Some how this value equation does not resonate with many industry executives; maybe the companies have other issues that are considered a higher priority, they don’t have the resources, their processes are too entrenched to change, or data errors are considered the normal cost of doing business. Whatever the excuse, the problems caused by data errors will continue to cost the channel and individual companies dollars that could be added to your bottom line unless senior leadership takes the lead to understand and drive change within the company and the channel.
IDEA’s recommendations for achieving effective data management involve nine key steps:
- Appoint an executive to lead and manage an enterprise data management program
- Understand and adopt industry data standards
- Define a data management strategy that includes enterprise data management objectives, priorities and owners.
- Assess the state of your data and related business processes within the enterprise
- Build an internal/enterprise data management infrastructure using a product information management solution.
- Participate in the industry solution (IDW) for exchanging data on a 24×7 basis
- Conduct data matching with you’re your key trading partners and eliminate discrepancies
- Collect metrics on orders, ship notices and invoice matches and measure results and benefits and share same with your trading partners
- Assess how the source of synchronized information can be used to enable additional internal and cross trading partner value creating collaborative initiatives
By: Mike Rioux, President, IDEA