Large companies in the aerospace, automotive, high tech and industrial manufacturing sector purchase trillions of dollars of goods every year. Most of the purchases consist of raw materials, component parts or finished goods which they take into their manufacturing plants to create products. It would not be uncommon for a $5 billion manufacturing company to issue several hundred thousand purchase orders during a single calendar year.
There is a tremendous amount of overhead associated with managing each of these orders throughout its lifecycle as they are acknowledged, changed, acknowledged again, received, invoiced and paid For example, purchasing managers often lack visibility into whether an order has been acknowledged by a supplier. As a result, buyers have to phone the supplier to assess whether or not they can ship the quantity of goods requested to the specified location on the desired date.
Other challenges are created when purchase orders are faxed, emailed or phoned to suppliers. The sales team at the supplier often must take liberties with interpreting illegible data, filling in missing fields or substituting line items that are out of stock. These “value added” activities during the order entry process contribute to lower fulfillment quality.
With B2B integration technologies such as EDI or XML, many of these administrative challenges go away. The electronic PO is sent electronically into the supplier’s fulfillment applications for immediate processing. An electronic PO acknowledgement can be returned to the buyer indicating the supplier’s ability to fulfill the order in part or in whole according to the specified terms.
Most of the products you buy in a grocery store, department store or home improvement center are ordered and paid for using B2B integration technologies. But before an order can be placed, merchandising personnel must decide on the assortment of goods to be offered in different stores. To make these decisions the buyers must know what products are available from their suppliers.
The mix of products offered by merchandise suppliers can change frequently during the course of a year. If a buyer at a department store does not have an up-to-date view of an apparel supplier’s catalog they might request a color, style or size that was discontinued last season. By the time the error is discovered it may be too late to prevent a revenue-impacting out-of-stock for a key product line. Furthermore, the supplier may send a “substitute” item as an alternative, which may or may not meet the retailer’s needs and therefore may be returned.
Other challenges can arise if the merchandising department at a grocery store does not have an accurate understanding of the pricing and packaging configuration for each SKU. For example, a buyer may order 100 pallets of a soup at a price of $1 per can. However, the supplier may have changed its pricing to be $1.25 per can as its raw materials costs have increased. And the supplier may have changed its packaging configuration to ship 500 cans per pallet rather than the 450 that previously shipped. Not only did the retailer receive more product than it was expecting, it is paying more per item. In such scenarios, a time-consuming process between the retailer and supplier will follow to assess what funds are actually owed to the supplier.
B2B integration enables suppliers send an electronic catalog listing their various product offerings directly into the merchandising systems of their retail customers. The technical term for this electronic catalog exchange is “data synchronization.” Electronic catalog exchange reduces the probability that a discontinued product will be ordered or that pricing and packaging inconsistencies exist. Based upon an up-to-date catalog the buyer in the merchandising department can then initiate an electronic purchase order with its supplier.
As inventory travels through the supply chain it is frequently staged at one or many warehouses along the way. Retailers operate distribution centers that take in shipments from suppliers then forward them onto individual stores. Manufacturers operate warehouses that take in finished goods from their factories then forward them onto their customers.
It is not uncommon for a large retailer or manufacturer to process tens of thousands of shipments per day across their various warehouses. As a result, it is critical that the administrative overhead associated with tracking inbound deliveries and outbound shipments from a warehouse be minimized to reduce costs. Additionally, it is important that each shipment is moved in and out of a warehouse as quickly as possible.
Each item in a warehouse represents inventory that ties up working capital on the owner’s balance sheet. Receiving personnel often struggle to optimize the efficiency of their warehouse operations because they lack do not know what shipments are arriving and when. How can you determine how many people you need to unload the trucks next Thursday unless you have an idea of what shipments will be arriving? If you do not know what shipments are arriving and when, it is difficult to plan what manufacturing line to run or to determine which products to promote in your stores.
Significant costs may be incurred if workers show up to your plant, but the raw materials are not there to run the line. And you may damage loyalty with your customers if you run an advertisement for a product that is out of stock in your stores. To reduce these risks of a worst case scenario, many companies store buffer inventories in their supply chains (and their balance sheets).
Other companies find themselves having to pay premium freight charges to expedite shipments at the last minute to avoid an out-of-stock scenario. With B2B integration technologies such as EDI, many of these visibility challenges could be eliminated. Suppliers could send advanced shipment notices from their warehouse systems directly into their customer’s warehouse applications. As a result the customer would have visibility to which shipments were arriving on what dates, via which carriers, containing which contents. This enabled the receiving team to better plan its labor schedule, plan manufacturing operations and lower buffer inventories.
Multi-national corporations receive millions of invoices per year from their suppliers. Invoices may be for “direct materials” purchases such as raw materials, component parts or finished goods they acquire. Alternatively, the invoices may be for “indirect materials” such as professional and contractor services; computer and office supplies; as well as maintenance, repair and operations expenses.
Invoice processing has historically been an area of inefficiency amongst large corporations due the overwhelming amounts of paperwork. But in recent years, several countries have introduced regulations that allow for invoices to be processed electronically, which creates a significant opportunity for cost savings.
Historically, invoices have been received via postal mail or email. In these scenarios, the invoice will need to be printed and then rekeyed into an accounts payable system. If certain critical fields such as the “remit to address” or the “general ledger code” for the purchase were omitted then the accounting clerk will need to phone the supplier to obtain the additional information. Once all the invoice details have been captured it must then be validated before a payment can be approved.
Typically, the invoice will need to be compared against the original purchase order and the warehouse receiving records. Accounting clerks must confirm that what was invoiced is actually what was ordered and received. If a discrepancy exists then the buyer must work with the supplier to determine what amounts should be paid.
B2B integration technologies can enable electronic invoicing, which can reduce administrative processing costs considerably. Invoices can be sent electronically and directly into the buyer’s accounts payable system. The invoices are automatically validated and matched against the corresponding receiving records and purchase order to identify discrepancies. The invoice then flows through an approval process before being released for payment.
Because the process happens so quickly there is an opportunity to pay the invoice faster. Usually a buyer will demand a discount against the invoice in exchange for an earlier payment to reflect their working capital costs.
Corporations, both large and small, have a need to make regular payments. Some payments are to suppliers for goods and services rendered. Other payments are to employees for biweekly payroll cycles. Today most companies prefer to make payments using electronic funds transfers rather than paper checks. And companies also prefer to use electronic instructions to notify their banks of who needs to be paid, on what date and in what amount.
B2B integration technologies such as EDI, XML and SWIFT enable companies to send electronic payment instructions directly to banks. Using B2B technologies such as EDI, XML or SWIFT messages to provide banks with payment instructions reduces the administrative costs and lowers the opportunity for fraud. A company can upload a daily file to its bank with a list of all the payables it wishes to make on a given day. The bank will then route funds electronically using various different payment channels. Urgent, high value payments will be issued using a wire transfer. Less urgent, lower value payments are typically processed using an Automated Clearing House (ACH) system.
Corporations also have the need to collect payments from their customers, who might include consumers or other businesses. Most of these payments made electronically to corporate bank accounts via online bill pay sites, credit cards or wire transfers. Corporations are naturally eager to learn about what funds they have received so an important part of the process is for the bank to send reports to their customer’s accounts receivable group about collections processed each day.
A variety of B2B integration technologies can be used for this bank reporting process. Standards such as EDI, XML, SWIFT and BAI can be utilized to reduce the administrative costs associated with processing receivables. Rather than having an accounting clerk key each payment received into a general ledger, a single file can be downloaded electronically from a bank then directly uploaded into the company’s accounts receivable system.
Large multinational companies typically maintain thousands of bank accounts in over 100 different countries around the world. The local accounts are used to make payments to suppliers, employees, investors, retirees or government agencies in each local country. The local bank accounts are also used to collect receivables from government, business and retail customers.
On some days a company may take more money in via collections than they disburse in payments. As a result, the company has an end-of-day cash surplus, which the treasury organization will put to optimal use. In most cases, the surplus cash will be invested in an overnight interest-bearing account.
Ideally, a corporation would put all available funds to use and a zero balance would exist in each account at the end of each operating day. On other days a company may disburse more in payments than they collect in receivables. As a result, the company has an end-of-day cash deficit, which the treasury organization must fund. The company may draw upon a bank line of credit or go to the capital markets to raise funds. The sooner a treasurer can identify a potential cash deficit the more time they have to arrange for funding–usually at a lower borrowing cost. Being able to identify cash surpluses or deficits requires the ability to obtain accurate account balance data from each of their bank accounts.
Historically, treasurers have used the web, phone, fax and email to gather the data from individual banks. However, the manual data collection process is time-consuming and may slow down the collection of information needed to make investment and borrowing decisions. B2B integration technologies enable corporate treasury departments to obtain a feed of account balance information from each of their banks. The account balance information can be fed directly and electronically into a Treasury Workstation application, which automatically forecasts cash positions. Both intra-day and end-of-day balance information can be obtained using integration standards such as XML and SWIFT.