Supply chain management is all about continuous improvement. Since the industrial revolution, managers have been trying to figure out ways to increase efficiency and effectiveness in the process of producing goods for customers. The underlying goal is some combination of increasing quality, increasing speed of production, or saving money. We commonly apply this principle in operations by moving workstations, improving processes, and enforcing quality standards. However, this principle is equally critical in the world of supply chain management, where the chief concern is continuously improving goods and materials before they come into the business with one goal in mind: reduce production cost while increasing production quality.
The reality is that what happens in the supply chain very much affects your business. If you want to impact your business positively, then it’s vital to manage your supply chain well. To manage your supply chain well, you must communicate with your suppliers.
Supplier communication is where management meets technology. You must send and receive information to manage your supply chain effectively. The more effective your supply chain communication is, the more effective your management of those suppliers will be. For example, if you send a purchase order to a supplier for a mission-critical component, you expect the correct amount of those materials to arrive on time and undamaged. If that doesn’t happen, it could jeopardize the timely completion of your build process, and then you would have your own unhappy customers to deal with.
At this point, you have a few options. You could just call a supplier and tell them you want to make an order and manage the entire transaction without writing anything down. This might be the most convenient way to express that you would like to purchase goods and materials. However, that approach is likely to yield all sorts of errors. You need to write things down to ensure the accurate fulfillment of your order and send that information to your supplier as quickly as possible.
Traditionally, that means you need an EDI connection to communicate effectively with your supplier.
EDI has been around since the early 1970s. Can we take a moment to appreciate the fact that this a piece of computing technology that is approximately fifty years old at the time that I am writing this article? That’s impressive.
Originally, it was technology inspired by developments in military logistics. They required a system that could quickly send and receive important logistical information. Thus, electronic data interchange was born and quickly adapted for a variety of uses.
To break it down to the most rudimentary level possible, EDI is basically an electronic connection between two entities that allows them to send and receive data from inside or outside their organization. Though there have been some updates in the technology involved, EDI has for the most part remained the same at its core for decades.
In the United States of America, X12 is the predominant standards organization for manufacturing and logistics EDI. However, there are different organizations all over the world in different industries that also set standards. Most notably is the UN-recommended EDIFACT. In healthcare, there are HL7 and HIPAA standards, and the list goes on.
To be a little more specific, EDI is an electronic connection between two entities, and that connection consists of different parts. Consider the analogy of writing a letter. If you want to send information to someone this way, you need a document, a sending mailbox, a carrier, and a receiving mailbox. EDI functions the same basic way. To send data and information via EDI, you need an EDI document that meets the standards put forth by one of the organizations above. You also need a connection to the receiving entity by configuring a direct connection or using a Value-Added Network (VAN for short).
What is a VAN? Good question. A VAN is a privately hosted network which allows entities to communicate with each other securely. The main advantage of using a VAN is that it allows for fewer connections. At a high level, all you have to do is connect to the VAN of your choice, and then you can send and receive data from other VAN members.
That’s not all. You also need a translation and mapping tool unless you want to type out an EDI document in your notepad application. I don’t recommend that. A translation and mapping tool works by allowing you to take data captured in your back-office system and translate it into a compliant EDI document. Of course, if you’re on the receiving end of an EDI document, you need to translate that data into a readable format.
All these pieces together make up an electronic data interchange, or EDI system.
EDI technology is a big deal for enterprise business. It allows two businesses to communicate with each other in real time, securely, and traceably. However, it has a few drawbacks that are worth considering.
EDI, though a wonderful tool, is insanely complex. There is a reason why there are people whose entire job is to configure and manage EDI for trading partners, and whole companies exist built on EDI and B2B integration. EDI is difficult, and therefore it requires specialization to make it work well.
Cost is directly related to complexity. This means that for most of your suppliers, being connected in a secure, convenient, and traceable way is simply off the table. Even if you’re able to establish an EDI relationship with the top third of your supply chain, which is historically the best-case scenario, that still leaves around 70% of your supply chain that must send business documents via email by attaching PDFs.
Why is that a big deal? That’s 70% of your supply chain that cannot receive actionable business documents in real time. 70% of your supply chain is sending proprietary business information in unsecured email. 70% of your supply chain can hide behind the lack of transparency and traceability to increase their bargaining power. Practically speaking, this makes maintaining a lean inventory fueled by just-in-time deliveries nearly impossible. What’s more, without electronic integration, you have no automated mechanism to gather supplier metrics for producing scorecards and improving your own quality standards.
To be clear, there is a cornucopia of document types. Even so, EDI just hasn’t quite kept up with modern business operations, and consequently some critical B2B conversations can’t be managed with EDI alone. Even if a document type exists for a B2B activity, there are many cases where it just isn’t optimum for your situation, so the conversation goes offline. Consequently, you now must manage it with phone calls and emails rather than process oriented B2B data.
If you’re talking about a corrective action like a Reject Notice and Return Materials Authorization, then your lack of process and technology to support the process might cause your issue resolution to slip through the cracks. That’s when your supplier conveniently starts missing your emails and phone calls. The result is a growing inventory of expensive parts that you can’t use because they’re out of spec, and you don’t have a way to make your supplier own the mistake.
Don’t misunderstand me; EDI is vital to the global supply chain and is not going away any time soon. Yet, we can’t start to search for an answer to the problems it creates until we admit the problems exist.
So, what do we do about these issues? We do B2B collaboration.
What is B2B collaboration? B2B collaboration is a general term that describes securely working with business partners outside your network inside the confines of a defined business process. EDI certainly falls under this category in and of itself, but it’s only one part of the B2B collaboration genre.
We have to understand that B2B data is not the same thing that it was, even ten years ago. As enterprise business grows more complex, there is a much stronger need for process driven B2B communications. B2B e-Commerce is no longer just about purchase orders, invoices, and ASNs. It’s also about planning schedules, track and trace data, and astronomically complex trading relationship structures.
There are also growing concerns about security. People are asking questions like, “how tightly can we integrate such and such supplier before it poses a security risk?” If you integrate with a supplier so tightly that they can log into the system and browse proprietary information about competitors or trade secrets they aren’t supposed to have access to, then they’re too close. On the other hand, more complex B2B transaction documents might require updates and fluidity that email and other forms of non-integrated communication can’t support. There is even a case where you might need to resolve quality problems in the suppliers of your suppliers. Even with traditional EDI, that’s a hard nut to crack.
The reality is that we live in a world where the evolution of technology allows for new frontiers of improvement, but also raises more issues that we simply can’t anticipate. What does that mean practically? It means that EDI alone is not sufficient for effective supply chain management anymore. To maintain their competitive advantage, enterprise companies need more than just EDI for B2B communications and integration.
We believe it’s ChainLink SRM. I will be the first one to tell you that’s a biased statement but hang with me for a second.
We designed ChainLink SRM with all these things in mind. It’s unique in that we designed it not only to extend the benefits of traditional EDI to that portion of your supply chain that is stuck in manual processing land, but also to overcome the shortcomings of traditional EDI for B2B collaboration in the 21st century.
How does it work? I’m glad you asked.
ChainLink SRM is a B2B collaboration tool that we designed to help you harvest maximum value from your existing EDI and ERP systems. Your suppliers receive a web portal account they can log into, and you receive an integration to your back-office system. Then you can send standard or non-standard business data formats back and forth according to your business needs.
Configure a community within ChainLink SRM with your document types and forms that your suppliers are already familiar with, and then have your suppliers create an account which will be connected to that community. With our back-office integration, all those suppliers that never had a chance to invest in EDI will now be treated as fully compliant electronic trading partners. From your perspective, it’s as if you had EDI connections with 100% of your supply chain.
Say it with me. “No more processing business documents manually.”
Not only will you integrate those suppliers tightly while keeping them outside your network and away from sensitive information, but they will be B2B collaboration partners with a relationship built on technology from the 21st century and designed to support business activities that EDI just doesn’t handle that well.
Consider, for example, you send a purchase order to a supplier that you don’t buy from regularly. When the parts arrive, you find that they are out of specification, so you issue a reject notice. So far, traditional EDI does the trick. Let’s say the last few times you’ve received a shipment from this supplier they’ve had this same quality problem, so you decide to dig a little deeper.
At this point, you must begin the RMA discussion with your supplier so that they will accept responsibility for the bad batch of parts. This is where traditional EDI provides no help for advancing the conversation, nor does it provide any structure to enforce a consistent RMA process. Already, we see an opportunity where ChainLink SRM can augment your EDI system by maintaining the electronic trading relationship and enforcing the business process for the return material authorization.
Let’s keep going. As a result of your root cause and corrective action analysis, you find that the quality issue stems from the supplier of the supplier that you ordered parts from, and consequently, you need to return the material to them. You must send this company an ASN. There’s just one problem. They’re not an EDI enabled electronic trading partner, and there is a minimal chance of them ever becoming an EDI enabled electronic trading partner, connecting to your EDI system.
This is where ChainLink SRM shines because it supports multi-tiered trading relationships. Simply put, we designed it so that you can manage the suppliers of your suppliers. Obviously, there are all sorts of different use cases we could examine, but here is the point. If you connect with these suppliers using ChainLink SRM, you could manage these activities with no issue as a business process with a tight B2B integration, yet loose coupling to ensure efficiency and security as you work towards the final resolution where the purchase order is fulfilled, the correct parts are in your inventory, and the invoice is paid.
ChainLink SRM is a B2B collaboration tool that is designed to connect your business to anything.
Send traditional EDI documents but add process. With sub-accounts and document forwarding, you can make sure that specific business documents go to specific people in the receiving company’s account and give them specified actions to take on the documents to remove not only bottlenecks in the process, but also opportunities for error.
Not only can you send B2B data to the suppliers of your suppliers, but also you can send and receive those documents with full transparency and traceability to see when they were opened, by whom (if sub-accounts are turned on), and what action they took.
Want to see the trail of documents? No problem, just navigate to the current activities view, where the hierarchical sorting of documents shows which documents are related to each purchase order in a linear progression from the origination of the purchase order to its termination when the invoice is paid.
Don’t like building maps? Traditional EDI requires building maps for each document type and supplier. Using ChainLink SRM, you only have to build one map per document type, shrinking your overall map maintenance from hundreds to only a few.
There is one other thing that is worth mentioning. The average overhead cost of processing a business document manually is over $100 per document when you consider time and resources involved. How many business documents do you process manually each month? Each year? How many thousands of dollars can you put back into your business’s bottom line just by ramping your manual suppliers on ChainLink SRM?
Want to learn more? Click here to chat with us about how you can use ChainLink SRM to take B2B collaboration into the 21st century and do information at the speed of business.
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