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Background
The cost
of processing manual orders continues to grow. With labor, health care, and general
overhead costs rising, it is becoming increasingly difficult to run a
manufacturing business while continuing to process paper orders.
The
concept of supply chain management has received a great deal of
emphasis. Large manufacturing
companies embraced this concept many years ago. Now, even smaller manufacturers are being
forced to consider automation.
Tiers are
often used to describe the typical supply chain. Here are some brief definitions:
Tier 1 –
Typically the manufacturer or OEM
Tier 2 –
Those who receive materials, parts and produce assemblies
Tier 3 –
Those who supply materials or parts
Tier 4 – A
distributor
Tier 5 – A
wholesaler
Tier 6 – A
retailer
The logistics of tiers 1, 2
and 3 began from established manufacturing practices. What might have been acceptable in the 20th
century in terms of overhead can no longer be tolerated in the 21st
century. Today’s
world of just in time, flow manufacturing, agile
manufacturing, and Internet-based communication is continuing to drive the
need for this type of organization.
Tiers 4, 5
and 6 are typically generating purchase orders for the manufacturer. If the manufacturer has an in house sales
force or utilizes manufacturer’s representatives,
the volume of purchase orders can be significant.
Analysis
What does
this mean to the small to medium-sized manufacturer?
Whether
you use an internal sales force or manufacturer’s
representatives, there are considerable costs involved in the sales
process. If you are a distributor or a
wholesaler, the sales process can typically account for 80 percent of the
costs associated with processing inbound invoices. Relying solely on manufacturer’s representatives can reduce this number but
your sales results may vary. By
enabling your suppliers for e-business, you can stop key-entering invoices, reduce
processing errors, and position your business to take advantage of discount
terms. Other gains come from lower procurement costs overall, faster order
cycles and improved inventory management.
- Lower Procurement Costs – Consider these figures. Analysts estimate that
approximately 33 percent of all corporate spending is directed towards
operating resources. The average manual order costs a company $79 to
process – with half of that related
to internal processing. On the other
hand, companies that have successfully replaced paper-intensive
processes with automated procurement systems integrated with financial
and accounting systems have been able to cut purchase order processing
costs by as much as 75 percent.
- Faster Order Cycles – A second benefit of automating
purchase orders results from reduced order cycles. In cases where
purchase orders are able to flow directly from the buyer's procurement
system to the supplier's order processing system, without manual
intervention, companies have been able to reduce request to fulfillment
cycles by two to five days. This, in turn, leads to lower inventory
carrying costs, more accurate order processing and a reduction of
expensive exception handling processes.
- Improved Inventory Management – Limited visibility into supply and demand wreaks
havoc on inventory management for buyers and suppliers alike. Automation
gives buyers a powerful lens with which to view the extended supply
chain and move closer to their goals of just-in-time production and
delivery.
How To Improve
The fastest way of
achieving lower operating resources and faster order cycles is to implement
electronic order processing. If you
have an in-house sales force, they need to be able to generate purchase
orders that can be electronically submitted to your manufacturing
system.
The order writing
systems for sales representatives have been widely available for many
years. The “best
of breed” allow the
file format of the electronic purchase order to be adapted to the
requirements of the manufacturing system.
If your company works
with manufacturer’s
representatives, they will not be eager to cooperate unless your proposed solution allows
them to interface to all of their lines – not just yours.
The last thing they want is another proprietary system.
The key to success is
to create a system that is open. It
should be able to interface to your manufacturing system while allowing the
capability of interfacing to disparate systems. This all has to be done while meeting your
needs.
If you create your
system with your existing IT staff, you can clear these hurdles easily. Alternatively, if you are looking for
ready-made solutions, be certain that the vendor is open. The vendors should have considerable
experience in dealing with a wide-variety of manufacturers. They should be able to send the electronic
order file to you either as an email attachment or directly to your website
(FTP). They also should be able to
accept your electronic invoices so that your sales force recognizes shipped
sales.
Depending on the
effectiveness of your existing manufacturing system, you have problems with
duplicated stock numbers and/or UPC data.
This may not have a serious impact to your business but it can wreak
havoc for the sales force. Duplicated
stock numbers can result in higher than average returns. Duplicated UPC numbers can only exacerbate
the problem with scanners. In a
typical showroom with scanners, hundreds or thousands of orders can have
incorrect data. The top-rated systems
firms have the capability of detecting duplicate stock numbers and UPC data
before they are distributed to your sales force.
Another aspect of
electronic order processing that is frequently overlooked is the distribution
of your product information to your sales force. A good system will have a reliable method
of distributing your product data to your sales team. This is an essential aspect of any system.
The manufacturing
process is complex enough without losing operational dollars to
non-electronic processes. If your IT
development staff can implement your solution, set your goals
accordingly. Alternatively, if you need
to find a technology partner, make certain that they have open
standards. Be certain that the key
features needed to operate your business are a standard feature.
Don’t get locked into a relationship
where you are paying a systems vendor a fee for every purchase order. Agree to pay software rental and/or
maintenance agreements in lieu of invoice or purchase order fees.
If you are using manufacturer’s
representatives, ensure that the systems vendor can accommodate their other lines. It will encourage cooperation and help to
cement your long-term relationship for effective sales. Your manufacturer’s
representatives will benefit from your technology solution.
They will be more productive.
If you are using a scanning solution, your average
order size will likely increase.
A few of better-known
external solutions for automating your sales force are listed below. The key is to move forward with someone
soon. The more you delay, the more you
are costing your operation.
References
Commissioner
Software, Ltd.
5545 Aryshire
Drive
Dublin OH 43017
Phone 614-764-0467
Fax 614-764-2125
Email: areaves@columbus.rr.com
Web: http://www.commissionersoftware.com/
WOW
Software
1330 Beachcomber Blvd.
Waconia, MN
55387
Phone 952 960-0072
Fax 952 960-0072
Email: wow@wow-software.com
Web: http://www.wow-software.com/
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