So the University of Tennessee’s Global Supply Chain Institute, in collaboration with DiCentral Corp., recently issued a research report that explores the importance of “electronic integration” in the supply chain world.
Based in part on a survey of 200 different types of shippers – makers of consumer products, retailers, manufacturers, etc. – this new report found that while 96% say they are now linked electronically in some way with at least one of their trading partners, on the average their organizations spends only a little over 5% of their respective information technology [IT] budgets on maintaining, improving, and expanding those electronic connections.
Regardless of that dearth of investment, though, the shippers polled in this survey only expect electronic connections to increase down the road: by more than 20% over the next three years, with 69% of those polled intending to increase the number of customers they trade with electronically.
“Successfully collaborating with your business partners requires many things,” said Paul Dittmann, executive director of the Global Supply Chain Institute, in a statement. “But as we show [in this report] technology plays a major role; a role that will only grow larger in the future.”
He noted that the rise of cloud-based computing, use of “ubiquitous” mobile devices (such as smart phones and tablet computers), and third-party outsourcing for key services have cut costs, increased business flow efficiency, and helped to make the “global” become “local” within the supply chains on many different businesses.
“Collaboration consists of a supplier and a customer working together to achieve mutual improvement,” Dittman (seen below at right) added. “That’s easy to say, but very difficult to do. [But we believe] advances in technology can enable breakthrough improvements.”
He pointed out that there are three “stages” such evolving “collaborative relationships” typically go through:
- Stage One: This stage starts with recognition by both parties of the potential power of collaboration, which requires some supply chain sophistication on both sides. Senior executive support and encouragement also is a common factor in early collaborative relationships. And finally, success in getting started depends on the acknowledgement by both parties that it will involve a lot of time and effort.
- Stage Two: The companies in this stage now have a supply chain strategy with collaboration being one of the core elements of that strategy. The partners have worked together enough to develop the trust to share data and strategies openly with their partner. They have invested in technology to facilitate the process. And they have a mutual plan to sustain the effort as people inevitably change jobs over time.
- Stage Three: In this stage, the parties mutually develop key performance indicators, and jointly measure success as a common group. They are now connected with technology. In the final level of maturity, they agree to share the savings equitably from their joint improvement efforts. In our experience, companies that reach stage three drive better fill rates, lower inventories, and lower cost, higher economic profit, and increased shareholder value.
Now, where does trucking fit into all of this? For starters, electronic connections offer the opportunity to speed up order flow and by extension cash flow – and cash is certainly something motor carriers like to receive sooner than later.
Here are a few tidbits along that line of thought from this survey:
- Cash flow: Suppliers get paid faster with electronic invoices and electronic funds transfer (EFT). Tools are available that provide visibility as to when the invoice is expected to be paid, and when it is actually paid. “Cash is king,” noted Dittman, thus cash flow is critical for all companies within the supply chain. “But it’s a matter of survival for smaller companies,” he stressed. The survey found that invoices sent electronically speed up cash flow by nearly 4.5 days.
- Speedier Delivery: In addition to visibility of invoice payment dates, receiving electronic orders faster allows them to be processed and shipped product faster; therefore allowing suppliers to get paid faster. “Improved delivery times might give the supplier an argument for better payment terms with its customer [as] with faster delivery, the customer can lower its inventory and more than offset the cash flow impact resulting from faster payment.
- Efficiency and accuracy: Electronic connections help shippers avoid outbound phone calls to check on the status of an invoice, while suppliers can avoid inbound phone calls to check on the status of an order. Electronic transmission also means less human error in order processing and fulfillment. “It is very expensive to process paper documents,” Dittman said, noting that the cost of processing an order electronically is nearly 25% less expensive than receiving the order via email, fax, or over the phone.
- DC efficiency: Organizations can create a standardized process for receiving product into their distribution centers (DCs). They don’t have to deal with a different process for each supplier. Managing exceptions can be overwhelming, labor intensive, and error prone, Dittman said. Thus organizations fully utilizing the features of the warehouse management system (WMS) using advance ship notice (ASN) information to receive and put away product faster with more accuracy; something that can also facilitate cross-docking, he said.
- Product availability: Electronic connections help organizations “see” and react to backorders faster, resulting in better availability. One retailer that managed its own inbound freight told the university’s researchers that one of their loads sat a supplier’s dock for two weeks because of lack of electronic visibility.
All in all, this study offers some interesting food for trucking thought – especially for those motor carriers still reluctant to forge electronic links with shippers and receivers.